* James Murdoch resignation unlikely to stop scandal spreading
* Rupert Murdoch to appear at judge-led inquiry this month
* U.S. reaction will be crucial
By Georgina Prodhan and Kate Holton
April 4 (Reuters) - James Murdoch's exit from the chairmanship of BSkyB moves his father Rupert into the firing line in Britain, just as an inquiry into a phone-hacking scandal turns its focus on his peculiar influence in the country.
Rupert Murdoch, News Corp's chief executive, is due to appear this month before a judge-led inquiry into ethics and standards in the British press, which will be turning its attention to newspaper proprietors and politicians.
So far, James has taken most of the heat for a scandal over phone hacking at the Murdochs' best-selling Sunday tabloid, the News of the World. Rupert's youngest son ran the family's UK newspaper publisher News International when the scandal erupted last year, and has faced hard questions about how much he knew about illegal activity.
But media experts say the inquiry, which has a broad brief to examine the British press, is now turning to the fundamental problem of the sway media barons hold over UK politicians.
"If we are talking about influencing politicians from Margaret Thatcher onwards, then it is Rupert, not James, who was, is and will be 'in the frame'," says Ivor Gaber, political journalism professor at London's City University.
Chris Bryant, an opposition member of parliament who has received compensation from News Corp after his phone was hacked, says Murdoch's extensive media ownership in Britain may be to blame for the liberties the News of the World felt able to take.
The Murdoch newspapers in Britain - the Times, the Sunday Times, the Sun and the new Sunday Sun which replaced the shuttered News of the World - make up around 40 percent of the national newspaper market. News Corp also owns 39 percent of BSkyB, the country's dominant pay-TV broadcaster.
"It was the News of the World behaving egregiously compared with all the other newspapers that started this," Bryant says.
Since the phone-hacking scandal blew up last July, Prime Minister David Cameron, linked to Murdoch's newspaper executives both socially and through his ex-spokesman, former News of the World editor Andy Coulson, has taken steps to distance himself.
Cameron bowed to public outrage - and limited the political damage - by setting up judge Brian Leveson's inquiry into the press and urging Murdoch to call off News Corp's intended $15 billion takeover of the rest of BSkyB.
The Murdoch press, under fire, became less aggressive for a while, but in recent weeks has gone on the offensive against Cameron.
"There's a widespread view that it is revenge, pure and simple, that Murdoch thinks the British establishment, led by David Cameron, is out to destroy him, so he is out to destroy Cameron," says publisher and broadcaster Andrew Neil, a former editor of the Sunday Times.
When James and Rupert Murdoch appeared in a double bill before a parliamentary committee last year, audiences were gripped. Rupert's demeanour was strange from the outset, blurting out an introductory statement that it was the humblest day of his life. His wife Wendi made headlines around the world by launching herself at an activist who threw a foam pie at him.
Rupert's appearance at the Leveson inquiry could match that spectacle, even if this time no pies or punches are thrown.
"It will be another one of those amazing moments, when you get a glimpse of the real Rupert. He won't be able to slam the table and have his wife Wendi sitting behind him," says Roy Greenslade, media commentator and former Murdoch editor.
"On the other hand, he may not get a pie in the face."
His performance will be watched closely, not just in Britain but in the United States, where News Corp shareholders concerned about corporate governance are becoming more vocal. Christian Brothers Investment Services are the latest to call for an independent board chairman to replace Murdoch.
Having already endured a lengthy grilling from politicians last year, the elder Murdoch, 81, will face harder examination from the formidable Leveson and his team of expert lawyers.
While the parliamentary committee that questioned the two Murdochs last July was then just getting into its stride, and perhaps put off by the elder Murdoch's uncharacteristically subdued manner, the Leveson Inquiry is a far tougher arena. And this time, Murdoch will be under oath.
The inquiry has succeeded in generating gripping headlines for months on end. Already, Leveson's lawyers have torn apart arguments of hard-bitten figures - from Daily Mirror editor turned U.S. chat show host Piers Morgan to Express Newspapers owner Richard Desmond - with systematic, forensic questioning.
The timing of the court hearing means that yet again, News Corp may also fail in its attempt to prevent the phone-hacking fallout from spreading, the motive for James Murdoch's resignation from BSkyB on Tuesday.
Even without James in the chairmanship, BSkyB must prove to Britain's TV regulator Ofcom that it is fit to hold a broadcast licence. News Corp's corporate culture under the elder Murdoch is ripe for scrutiny.
"One resignation doesn't stem the poison of media moguls. We need regulation," says Emma Ruby-Sachs, campaign manager for global activist organisation Avaaz, which has gathered hundreds of thousands of signatures for a petition to stop Murdoch from expanding his media ownership in Britain.
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