James Murdoch could lose his job as News Corp’s deputy COO or BSkyB’s chairman as soon as this fall. That’s the informed prediction of The Guardian’s Nick Davies in an exclusive interview with me. The journalism muckraker says there’s “every chance” that the Parliamentary committee investigating the News of the World phone-hacking and police-bribery scandal will conclude that James misled them about a key question in the case: Did James pay $1.4M in hush money in 2008 to a hacking victim who could have disclosed that NOTW‘s violations were more extensive than the company publicly admitted? James says he didn’t. But three former News International executives dispute his testimony. If Parliament decides James is wrong, then “that’s a severe development,” says Davies. His predictions matter. Because Davies is the reporter who broke open the Murdoch scandal and has led the coverage at every turn. He’s also writing a book about the case, due in late 2012, called Hack Attack: How the Truth Caught up with the World’s Most Powerful Man. On a visit to the U.S. this week looking for new dimensions to the story, he spoke to me about where things stand — and where the tale could lead.

DEADLINE: How high do you think the scandal will go?
DAVIES: In terms of criminal charges at the moment there’s no reason to think it will go higher. You’ve got to the level of Rebekah Brooks, the former chief executive of News International — and it’s in relation to her function as an editor [of News Of The World]. You’ve got Andy Coulson, a former (NOTW) editor and Prime Ministerial right-hand man. So at the moment that’s as high as the criminal stuff goes. Ethical questions go higher. Clearly James Murdoch is in a tight corner because there’s every chance that the select committee is going to produce a report during September or October which will say that he has misled them. First of all, in reputational terms, that’s a severe development if the committee says you’ve misled Parliament. That matters in British politics. The second thing is in the detail: What they would be saying is that back in May 2008 he was shown evidence of criminal activity by reporters at News Of The World and he didn’t do anything about it. Investors have lost a small fortune as the shares have died. I think those shareholders may react to that committee report and say, ‘Well, you’ve got to go’.

DEADLINE: Do we basically know the contours of the story? Is it just a matter now of filling in the blanks — or could this grow much bigger?
DAVIES: In theory the story could break out in lots of different directions. There are other private investigators, we could find out about them. There are other newspapers in Britain that are hiring private investigators to do the same illegal things. We could bring in the other papers. There are other illegal techniques: It’s mostly focused on hacking voicemail and getting access to confidential databases. But there has been a lot of e-mail hacking, getting inside of computers, and there has been some burglary. There has also, to a smaller extent, been live tapping of phone calls. Then you might overflow into other countries. It is interesting to ask whether anything similar has been happening in the United States or Australia. At the moment I wouldn’t claim to know the answer to those questions. That’s what I’m looking for.

DEADLINE: Have you heard anything to suggest that any of Rupert Murdoch’s U.S.-based news organizations – the New York Post or Fox News – might be pulled into the story?
DAVIES: The short answer is no. I hear a lot of bickering. I talk to people who really hate some of Murdochs’ news organizations here – people who are prepared to believe a lot of bad things. But so far not one of them has come up with a single concrete example of illegal activity by a private investigator acting on their behalf. Although you certainly have private investigators in this country who do illegal things – very similar to the British set up – the nature of your news organizations is different. You don’t have a national newspaper market where a dozen or more national newspapers are fighting each other over 60 million readers. You have city-based newspapers competing with one or two competitors. You don’t have the same level of ruthlessness. So I wouldn’t claim to know the whole truth about this. But at the moment, at this rather early stage, I’m tempted to conclude that the U.S.-based news organizations are not using the private investigators in the promiscuous way that their British counterparts have been. But that’s a temporary conclusion until I can dig deeper.

DEADLINE: Have you been able to develop sources inside News Corp?
DAVIES: There’s always been a very important network of journalists who used to work there, who know exactly where the bodies are buried. They’ve been extremely helpful in guiding me through the stories. But almost all of them have stayed off the record because they still work in the industry and don’t want to make it impossible for themselves to earn a living. Separately there’s always been one or two people currently within News International who’ve been helpful. You get good people working in bad organizations.

DEADLINE: Have you had any response to your stories from the Murdochs?
DAVIES: No, I’ve had no direct contact with them at all. I sat in [Parliament's Culture, Media and Sport] select committee room eight feet away while they were giving their evidence [on July 19]. That was the best theater in London. It was absolutely riveting particularly for me because I know the whole story. So when they’re giving their answers I know all of the things they’re not saying. So I found it completely fascinating watching them.

DEADLINE: Does Rupert Murdoch still have the power to help his friends and hurt his enemies?
DAVIES: It’s a good question because there’s a school of thought that says he’s damaged forever and will no longer ever have the kind of access that he used to have. Personally, I don’t think that’s right. As long as he continues to own mass media organizations politicians will always want to compromise with him for fear of what those news organizations could do. Even though temporarily he is not being invited to all the best parties and people don’t want to be seen as his allies, I suspect things will move on. It’s always possible that in the background the Murdochs’ role as a family within the news organizations may change. But the power of news organizations to put pressure on politicians to compromise with them, I would think that that remains a part of the landscape.

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