NEW YORK (Reuters) - News Corp's senior management is starting to think about what the company might do if James Murdoch stepped aside, sources inside and close to the global media empire said.
With Rupert Murdoch's younger son under increasing pressure from the phone-hacking scandal enveloping the company, News Corp executives want to be prepared if he wants to "take a breather," one News Corp source said.
"The company is still trying to operate as if James isn't going anywhere," said another high-ranking insider. "But everyone is thinking about what will happen if he has to step aside."
Through a representative, Rupert Murdoch and News Corp senior management said it was "absolutely not true" the company was thinking about the possibility that James may step aside.
James is known for "doing his own thing", one News Corp executive noted. A tattooed, ear-pierced record label owner before becoming the last of Rupert's children to join the company, he now presents the image of a nattily dressed, conservative corporate executive.
"I'm waiting for the moment when he says, 'What the hell am I doing here, I need a breather,'" the source said. "And I wouldn't be surprised if the people who are speaking to him and watching him aren't wondering if the time has come for him to drop the (corporate) act."
A third source close to the Murdoch family added, "There needs to be some kind of separation for James from this issue before he can run the company more broadly."
James Murdoch is News Corp's deputy chief operating officer and chief executive of News International, which oversees the company's European and Asian businesses.
Last week, during a conference call to discuss News Corp's earnings, Rupert Murdoch said in response to a question about any near-term succession that Chief Operating Officer Chase Carey "is my partner, and if anything happened to me I'm sure he'll get it immediately, if I went under a bus." He added: "But Chase and I have full confidence in James."
Three sources pointed to that comment as evidence that News Corp was at least considering life without James.
The sources asked not be identified because of the sensitive nature of the matter.
News Corp remains insistent that James Murdoch will retain his current position and is the front runner to succeed his father in the long term.
Plans are still in place for James to relocate to New York early next year.
But the first News Corp insider characterized the move to New York as an attempt by the company to remove him from the line of fire in the UK, not as a logical step in his ascension.
The hacking scandal, which led to the closure of News Corp's News of the World newspaper, was thrust back into headlines on Monday after UK authorities publicized a letter by fired News of the World reporter Clive Goodman accusing senior executives of knowing about phone hacking by the paper.
The letter was written four years ago by Goodman as an appeal to News Corp's then head of human resources, Daniel Cloke, against his dismissal from the tabloid. Goodman had been fired after being accused of phone hacking.
Goodman, a former royal reporter at News of the World, said in the letter that the practice of hacking had been openly discussed until then-editor Andy Coulson banned any reference to it.
Until earlier this year, News of the World's parent company News International, a unit of News Corp, had maintained that Goodman was a "rogue reporter" acting on his own. Goodman spent four months in jail in 2007 for hacking.
James Murdoch, who took charge of News International shortly after Goodman and private detective Glenn Mulcaire went to jail, has repeatedly claimed that he only learned recently that phone hacking by the newspaper had gone beyond those two individuals.
On Thursday, however, James Desborough, a former Hollywood reporter for News of the World, was arrested on suspicion of phone-hacking, the 13th arrest made as part of the investigation in the scandal.
The Parliamentary committee overseeing the phone hacking investigation has said it plans to question additional News Corp executives next month, and there is speculation that James Murdoch will be called back to give additional testimony.
"Legally, it's clear this stuff has got to get sorted with him," said a third source involved with the company.
"His position does appear to be getting weaker," one investor in BSkyB, where James is chairman, told Reuters, though he added that he was not aware of any institutional pressure for action to remove Murdoch from his role.
Even if James was pressured into leaving News Corp, two of the sources said the departure would not likely be permanent.
"Even if he did step out of the spotlight for a while, that wouldn't necessarily mean he wouldn't come back when things are quieter," said another source who asked not to be named because of a relationship with the family.
Murdoch's children have moved in and out of the company at various times. Elisabeth Murdoch, Rupert's daughter, recently re-emerged when News Corp bought her company, Shine Group, and her father has expressed his desire to bring eldest son Lachlan back into the company's fold. Lachlan, who once held the deputy COO position now held by James, left News Corp in 2005.
Two of the sources said that when Lachlan was in London a few weeks ago helping his father and brother prepare for their appearance in Parliament, Rupert again asked him if he would accept a position in the company.
Lachlan declined, the sources said.
"He's happy where he is," one of the sources said. Lachlan Murdoch owns an Australian investment firm called Illyria. He is also interim chief executive of Australian television company Ten Network Holdings.
One of the sources even thought the scandal could end up helping James in the long run. This source said that James was a forward-thinking executive with a lot of credibility in the business world, and that the strong performance of News Corp's Indian and German assets, along with BSkyB, Sky Italia and the Times newspaper's digital strategy, is owed to him.
"When he gets through this he will be a better executive and a better candidate for CEO. He will have been battle-tested like his father," the source said.
Ultimately, James' fate rests in the hands of his father.
"There's only one decision maker, of course, and he is often willing to hold his course against public opinion," said one of the sources close to the family, referring to Murdoch senior.
Though the Murdoch patriarch is loath to bow to public opinion, he has already been forced to sacrifice two of his closest executives, Les Hinton and Rebekah Brooks, as a result of the phone hacking scandal.
Additional reporting by Yinka Adegoke and Jennifer Saba in New York, and Sinead Cruise in London; Editing by Toni Reinhold and Ted Kerr