Has News of the World scandal put cloud over James Murdoch?

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There is a scene in the John Huston classic ‘The Maltese Falcon’ in which Sydney Greenstreet’s character Gutman has to choose between his right-hand man Wilmer or toss him to the cops so he can continue on with his quest for the priceless falcon statute.

Gutman mulls it over for a few seconds and then turns to Wilmer and tells him, ‘I am sorry indeed to lose you and I want you to know that I couldn’t be fonder of you if you were my own son. But, well, by gad, if you lose a son, it’s possible to get another and there’s only one Maltese Falcon.’

There is also only one News Corp., and that climatic scene may be popping into the head of watchers of Rupert Murdoch’s media giant who are wondering what the News of the World phone hacking scandal will mean for the mogul’s son James. The younger Murdoch has been seen as an eventual heir apparent to succeed his father at the top of the media giant, whose holdings include newspapers, the Fox network, the 20th Century Fox movie studio and the Fox News Channel.

Less than six months ago, James Murdoch was flying high. In March he was elevated to the position of deputy chief operating officer, a move interpreted by people inside and outside the company as a sign that he had become the chosen one of Murdoch’s older children.

Now, though, his reputation as a decisive manager on the fast track is taking a beating. How the company responded to revelations that News of the World was routinely hacking into the voicemails of not only celebrities and the royal family but also victims of crime and terrorism and their family members has put News Corp. and the Murdochs in the cross hairs of regulators and lawmakers both in Britain and the United States, where the company is based.

The revelation of the hacking not only has led to the shutdown of News of the World but also derailed News Corp.’s plans to buy powerful British Broadcaster BSkyB outright. Two top executives -- Les Hinton and Rebekah Brooks -- were forced to resign, and the latter was subsequently arrested.

In the U.S., some members of Congress have called for investigations into whether News Corp. has engaged in any illegal activity here. On Friday activist group Citizens for Responsibility and Ethics (CREW) asked for congressional hearings to determine whether News Corp. has violated the character requirements mandated by the Federal Communications Commission to operate television stations. News Corp. owns 27 television stations in the U.S. A News Corp. spokeswoman declined to comment on CREW’s statement

Both Murdochs appeared before the British Parliament this week and tried to convince lawmakers that they were unaware of the extent of hacking going on at News of the World, while at the same time saying they were best prepared to clean up the mess. Rupert Murdoch had another mess to clean up, though, as his suit jacket got covered in foam when a spectator tried to throw a pie on him. Quick responses to the attacker by News Corp. Deputy General Counsel Janet Nova and Murdoch’s wife Wendi prevented a bigger disaster.

Since the Tuesday Parliament meeting, a former News of the World executive and a former executive at the paper’s parent News International said James Murdoch had been informed in 2008 of just how prevalent hacking was. On Thursday, a statement from James Murdoch was issued saying he stood by what he told Parliament.

John Whittingdale, head of the parliamentary committee that questioned the Murdochs, has said James Murdoch has been asked to clarify his comments. That sentiment was also echoed by British Prime Minister David Cameron.

With the imbroglio showing no signs of slowing down and likely to spread to the U.S., where much of News Corp.’s operation is based, James Murdoch may be tarnished somewhat, especially if he is found to have been not totally upfront with Parliament.

The three adult children from Rupert Murdoch’s second marriage -- Elisabeth, Lachlan and James -- have all been viewed as contenders to succeed their father at one time or another. Indeed, Lachlan once held the same title that James currently holds until he left News Corp. in 2005 after bumping up against then Chief Operating Officer Peter Chernin and Fox News chief Roger Ailes. Liz Murdoch, who for years ran her own production company, recently sold the company to News Corp. and is expected to join the company’s board of directors this fall.

While Lachlan Murdoch remains on the board, he lives in Australia, where he is now interim chief executive of the Ten Network, one of Australia’s largest television companies.

Elisabeth Murdoch is often viewed as the most savvy of Rupert Murdoch’s older offspring. It was she who persuaded the mogul to bring the show ‘Pop Idol’ from Britain to Fox, where it became ‘American Idol’ and the biggest show on television.

But News Corp.’s deal to buy Liz Murdoch’s production company Shine for nearly $675 million is not without controversy. News Corp. shareholder Amalgamated Bank has filed a suit over the sale, claiming that Liz Murdoch got a sweetheart deal that did not get proper scrutiny from the board of directors.

Although speculation that the News of the World debacle has put a big roadblock in James Murdoch’s aspirations, there is a contrary school of thought that his father will be very protective of his youngest son. Earlier this week, News Corp.’s board of directors issued a strong statement of support for present management.

Of course, any move right now that would alter the executive ranks might send the wrong signal to Wall Street and be seen as an admission that the company expects even more damaging revelations to emerge about the hacking scandal in the months ahead.

Even if James Murdoch stays put as deputy chief operating officer, the value of Chase Carey -- News Corp.’s president and deputy chairman -- is on the rise. Carey is held with high regard by Wall Street for his business acumen and is one of the few in the executive ranks to have not been caught up in the News of the World mess.

While Carey is not seen as having Rupert Murdoch’s vision, that vision has not been 20/20 as of late. Neither of the last two big deals News Corp. made -- the purchase of Myspace and the Wall Street Journal -- have turned into Maltese Falcons. Myspace was bought by News Corp. for almost $600 million and sold for $35 million. Wall Street Journal parent Dow Jones was acquired for $5.6 billion and the company later took a write-down of $2.8 billion on the purchase.

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-- Joe Flint

Right: James Murdoch. Credit: Sang Tan / Associated Press: Left: Elisabeth Murdoch. Credit: Tim Matthews / Allstar.