UPDATE 2-BSkyB Chairman James Murdoch to quit-Sky

Tue Apr 3, 2012 9:09am EDT

By Kate Holton and Georgina Prodhan

LONDON, April 3 (Reuters) - James Murdoch, under fire over his handling of a phone hacking scandal that has convulsed his father Rupert's media empire, is to step down as chairman of pay-TV group BSkyB, its news channel reported on Tuesday.

The report said Murdoch would quit after a board meeting later in the day. Neither BSkyB nor News Corp, where Murdoch is deputy chief operating officer, would comment.

Murdoch has been heavily criticised for his handling of the scandal, which rocked the British press, politicians and police last year, and he had faced repeated calls to step down from his role at Britain's dominant pay-TV group.

The 39-year-old son of Rupert Murdoch, once seen as heir to his father's company, has continued to plead his innocence ahead of a parliamentary report investigating the phone hacking scandal, which is expected to be heavily critical of him.

The chairman of the committee, John Whittingdale, told Reuters James had not seen the report.

"We have not given wind to anybody of what might be in the report," he said, adding that the removal of Murdoch as chairman of BSkyB would allow the successful pay-TV group to distance itself from the wider problems at News Corp, its 39-percent owner.

Murdoch, who was previously chief executive of BSkyB, was dealt a heavy blow in November when more than 40 percent of the company's independent shareholders failed to back his re-election as chairman.

Since then he has stood down from his board positions at News Corp's British newspaper arm, and moved to the United States to take up his new role running international pay-TV.

"It was inevitable," media commentator Roy Greenslade, who has previously worked for Rupert Murdoch, told Reuters. "His position was increasingly untenable."

A major shareholder said: "I have no particular axe to grind about James Murdoch, but if this rumour is correct then at least it would remove some uncertainty from the stock. Investors could get back to focusing on the company's business rather than its corporate governance issues," the UK-based investor said.

News Corp's British newspaper arm, News International, has admitted its News of the World tabloid hacked into the phones of crime victims, war dead and celebrities to generate stories.

It has since shut the 168-year-old paper, apologised and settled numerous court cases. However in recent weeks it had faced new allegations about hacking at its pay-TV operations, which it has strenuously denied.

At the height of the scandal last summer, Prime Minister David Cameron ordered a judicial inquiry into the standards of Britain's media, while the media regulator is examining whether Murdoch and News Corp were "fit and proper" owners of BSkyB's broadcast licence.

"I do think the Leveson inquiry, Commons Select Committee report and the Ofcom "fit and proper" test are a triple whammy. He really must have known it was better to go sooner rather than later," Greenslade said.

Sky News said Murdoch would remain a non-executive director of BSkyB and his place would be taken by Nicholas Ferguson, the senior independent director on the board. News Corp was "fully committed" to James, a source familiar with the situation said.