LONDON (Reuters) - A lawmaker is to demand that the UK television watchdog probe new hacking claims against News Corp, piling more pressure on BSkyB Chairman James Murdoch, whose fitness to own a broadcast licence is already under scrutiny.
A BBC Panorama documentary broadcast on Monday alleged NDS, a pay-TV smartcard maker recently sold by News Corp for $5 billion (3 billion pounds), hired a consultant to post the encryption codes of ITV Digital, a key rival of the then Sky TV, on his website.
Widespread piracy after the online publication of the codes contributed to the 2002 collapse of ITV Digital, which had been set up by the parties that later formed ITV, Britain's leading free-to-air commercial broadcaster, in 1998.
BSkyB, now Britain's dominant pay-TV broadcaster, is 39 percent owned by News Corp. Murdoch sits on NDS's board.
NDS said in a statement: "It is wrong to claim that NDS has ever been in the possession of any codes for the purpose of promoting hacking or piracy."
News Corp said: "NDS has consistently denied any wrongdoing to Panorama and we fully accept their assurances."
Regulator Ofcom is already investigating both Murdoch and News Corp in the light of new evidence emerging from probes into phone and computer hacking and bribery at the News of the World tabloid, which News Corp shut down last July.
"These allegations, if true, are the most serious yet and I am referring the matter to Ofcom, who have a duty to investigate as part of their fit and proper test," member of parliament Tom Watson said of the claims made in the BBC's Panorama programme.
"If what Panorama says is true, it suggests a global conspiracy to undermine a great British company, ITV Digital," he told Reuters on Tuesday.
An Ofcom spokesman declined to comment on the specific allegations but said the regulator would consider "all relevant evidence" as part of its ongoing duty to be satisfied that the owner of the licence was fit and proper.
Watson is known for his dogged questioning of James Murdoch and his father Rupert for their role in the phone-hacking affair, notoriously comparing James to a Mafia boss when he appeared at a parliamentary hearing investigating the hacking.
The committee has been due since early this year to present a report based on its investigations, which is expected to be critical of James Murdoch and may determine whether he has a future in Britain.
Watson said the report was now unlikely to be published before the Easter holiday on April 8. He said the new revelations were unlikely to affect the committee's work, since they were not part of its remit.
James Murdoch was not involved in News Corp's UK newspaper operations when the phone-hacking took place at the News of the World but is under scrutiny for failing to uncover the scale of the problem when he took charge there shortly afterwards.
Murdoch is now based in New York following his promotion to deputy chief operating officer of News Corp last year, and is focusing on the conglomerate's pay-TV businesses. He severed all ties with the UK newspapers earlier this month.
"There's no suggestion anywhere that Sky or News Corp knew what NDS was doing," broadcaster and media consultant Steve Hewlett told Reuters.
"But if it all turns out to be true, then you have a News Corp company once again behaving in ways that are less than proper," he said.
The Panorama documentary featured an interview with Lee Gibling, the owner of a satellite hacking website, who said NDS funded the expansion of his site and had him distribute ITV Digital's codes.
NDS said it never used or intended to use the site for any illegal purpose, and said it had paid Gibling for his expertise so that information from the site could be used to track and catch hackers and pirates.
NDS also said it was common for companies in the pay-TV industry to discover one another's encryption codes - a view endorsed by Adam Laurie, a security researcher with UK-based Aperture Labs, which specialises in access control.
"It's possible they cracked them themselves in order to test the security of the algorithms," he told Reuters. "To compare yours against others you have to test them and there's a chance you'll succeed."
ITV Digital was beset by issues from the start, including internal competition between its shareholders, a lack of premium content, and a price war with BSkyB, which had been shut out of the venture by the regulator.
"It was a question of who's got the deepest pockets and the biggest appetite for risk, and it wasn't ITV," said Hewlett, who was working for an ITV company at the time.
"It's a complex picture, but to say that ITV Digital failed because of piracy, I think, is not correct."
NDS, whose technology is used by BSkyB and News Corp pay-TV operators including Sky Italia and Sky Deutschland, was sold by News Corp and private equity firm Permira to Cisco this month.
The deal is expected to close in the second half of 2012.
Cisco had no immediate comment on whether the new allegations posed any risk to the deal. NDS said Cisco had been fully briefed on past allegations and court cases.
NDS was sued in a $3 billion lawsuit in 2002 by Canal Plus, which had supplied the scrambling technology for ITV Digital and accused NDS of extracting the code from the cards and leaking it onto the Internet.
Canal Plus dropped the action in 2003 when News Corp bought Italian satellite pay TV company Telepiu from Canal Plus's then debt-stricken owner Vivendi, renaming it Sky Italia.
U.S. satellite TV provider EchoStar, which had tried to join the Canal Plus suit, then sued NDS in 2003 in a similar case. NDS was cleared of the main charges and EchoStar won a tiny fraction of the $2 billion in damages it had sought.
Earlier this month, NDS was awarded $19 million in damages after the U.S. Supreme Court denied a petition by EchoStar and Swiss digital security company Kudelski over their allegations that NDS had abetted piracy in the United States.
In Italy, a long-running pay-TV piracy trial is still ongoing. One of the defendants, Davide Rossi, says he was collecting intelligence on behalf of an NDS security officer.
NDS said on Tuesday: "NDS wholly refutes the allegation that Mr Rossi acted illegally on behalf of NDS. NDS is not a defendant in the trial in Sicily or any other."
Editing by Erica Billingham and David Cowell