The week when Wapping felt the wrath of Rupert

Even at 79, the media mogul has lost none of his fire – as his turbulent few days in London demonstrated. Ian Burrell reports

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Rupert Murdoch was in "very good spirits" on Tuesday evening, observers said, as he attended a West London party in honour of Joel Klein, an old friend and the former chancellor of the New York City public school system.

The world's most powerful media magnate may have been intrigued by Klein's earlier career as a masterful litigant. Only two months from his 80th birthday, Mr Murdoch finds himself in a position where it seems the entire world wants to take his company to court for the alleged hacking of their mobile phones. The queue for legal action, thought to run to more than 30 high-profile individuals and lengthening almost by the day, threatens to besmirch the reputation of the News Corp empire that he has given his life to building up. It also risks derailing one of the most critical deals of his career, the outright purchase of BSkyB.

Yet Rupert Murdoch is approaching the battle ahead with a strange relish. "While this is a tricky position that he finds himself in, there's part of him that's really enjoying it because he's getting his sleeves rolled up and tackling the problem," said one source. He may be lampooned by Private Eye as the Dirty Digger because of his antipodean roots, but Mr Murdoch's record in excavating his way out of a tight spot is second to none. The question is whether he has ever found himself with so little room in which to manoeuvre.

It was in Britain that he established himself as a global media player, buying first the News of the World, then The Sun in 1969 and transforming its fortunes, before demonstrating his instinctive brilliance for political as well as commercial negotiation in his controversial acquisition 12 years later of The Times and The Sunday Times. He has since transformed the viewing habits in millions of living-rooms with his role in developing the satellite broadcaster BSkyB, revolutionising British sport in the process.

But when he flies into London, as he did last Sunday evening, he looks down on a city that he finds increasingly unfamiliar. "This country has lost its humour," he said while attending the editorial conference of The Times on Wednesday, the morning after the party in West London. More importantly, he detects a very different corporate and political landscape to that of 1981 when he persuaded the then trade and industry secretary, ConservativeJohn Biffen, to allow him to buy Times Newspapers without referral to the competition authorities.

"When he comes to London he doesn't feel that the corporate culture is one that he recognises and that's true when he enters the gates at Wapping too," said a source, referring to the less brash, more environmentally friendly atmosphere that James has introduced at News International.

Mr Murdoch's mission, as he seized back the leadership of the London operation this week, was to put back on track the £8bn bid for the 61 per cent of shares in BSkyB that News Corp does not own.

His demeanour at the party was probably buoyed by the news from the Secretary of State for Culture Jeremy Hunt first thing on Tuesday morning that he was giving News Corp extra time to prepare its case before acting on a recommendation from the media regulator Ofcom that the bid, unlike Mr Murdoch's offer for Times Newspapers 30 years before, should be referred to the Competition Commission. Maybe he could cut a deal?

But beneath his optimism, there was a sense of having been let down by his London executives. The Sky bid was unquestionably being undermined by continuing revelations concerning the News of the World, a scandal he had been assured had been dealt with in the aftermath of the jailing in 2007 of the paper's royal editor, Clive Goodman, and the consequent resignation of the editor, Andy Coulson, who denied knowledge of the hacking.

The News International compound at Wapping in East London is where Mr Murdoch fought one of his most decisive battles, defeating the print unions in 1986, and introducing technology that took the British newspaper industry into a new era. But at Wapping this week there was a palpable awareness of the boss's impatience at the failure to act over the Hackgate affair.

On Wednesday, News International demonstrated it was being "pro-active" by sacking Ian Edmondson, who had been suspended before Christmas from his role as assistant editor (news) at the News of the World. New evidence had been passed to the Metropolitan Police, which was re-opening its investigation into the whole matter. But Mr Murdoch was deeply uncomfortable with the ensuing coverage, much of it accompanied by his own image. "He was being personally demonised in the cause of a paper that insiders say he was never particularly passionate about, not like he is about The Sun," said a source.

Now other media groups are being targeted by lawyers over alleged hacking. But this will have brought little succour. "It's not about the phone-tapping, it's about the cover-up," said one observer. "The other media groups didn't stand before a select committee and say it has all been tidied up. The other newspapers haven't had anyone go to prison."

Rupert Murdoch is very well aware of how the phone-tapping scandal has been reignited over the past 18 months. Each day he receives and studies intensely a thorough daily cuttings service that includes all titles making references to News Corp. The Dirty Digger even reads his write-ups in Private Eye. Equally, he will be conscious that at News Corp gatherings around the world, there is a continuing refrain: "What the hell is going on in London?"

Mr Murdoch took a bold step in December 2007 when he moved his son James, who had been enjoying success as chief executive of the cash cow BSkyB, to Wapping as News Corp's head of Europe and Asia and the executive in charge of the company's British newspapers. Some six months later, James – acting on the advice of the News International lawyer Tom Crone – approved the payment of £700,000 to Gordon Taylor, the chief executive of the Professional Footballers Association, one of those named in the Goodman case as a victim of phone hacking.

Then in the summer of 2009, Rupert Murdoch took another chance when he appointed Rebekah Brooks, then only 41 but a former editor of both The Sun and the News of the World, to the position of chief executive of News International. In doing so, he moved his most trusted henchman Les Hinton and placed him in charge of Dow Jones & Company, another business the old campaigner had fought a brilliant strategic battle to win. Dow Jones owned the Wall Street Journal – a prize the mogul had long coveted – and Mr Murdoch wanted Hinton to focus on this treasured new property.

The announcement of Brooks's new role coincided with the bursting back into life of the hacking story. Since she started the job, the phone scandal has been almost ever-present. Early last year, Ms Brooks approved a further payment of £1m to the publicist Max Clifford, whose voicemails were also illegally intercepted.

Ms Brooks may have felt emboldened by being part of a Cotswolds social circle that ranged from David Cameron to the television presenter and News International columnist Jeremy Clarkson. Her influence appeared greater still after May's election, in which her closest friend Andy Coulson, who had been hired by Cameron as his communications chief, entered Downing Street. But in reality, the influence of Wapping is based more on fear than on fondness.

At the time of its worst crisis, News International finds itself desperately short of friends, both in the City and in politics. That situation grew worse two days before Rupert Murdoch's arrival in town with the resignation of Mr Coulson, drawing the heat of the phone-hacking scandal from Mr Cameron but not from News Corp. As the drip of stories has swollen to a brimming torrent, the company has felt unable to speak up for itself. "It's the irony of ironies, it's the greatest media company in the world in some ways and yet they haven't got a narrative to tell," said an insider. "They don't know what to say."

Last month, Clive Milner, another veteran Rupert Murdoch henchman, also said goodbye to Wapping. James Murdoch, supervised by his father this week, battles on alongside Rebekah Brooks. She was at Rupert's side at the party (along with Jeremy Clarkson and fellow television presenter Claudia Winkleman), and again at the conference at The Times, where the boss made his "humour" comment about a bizarre story that has run in parallel to the hacking developments this week.

Sky Sports presenter Andy Gray and his colleague Richard Keys lost their jobs after making sexist comments about a female assistant referee and West Ham United vice-chairman Karren Brady, one of Brooks's close friends and a Sun columnist.

Gray was also suing News International over phone hacking and, before quitting, Keys referred to "dark forces" behind the internal leaking of incriminating off-air clips of the pair.

All now hangs on the Sky purchase, with soaring profits announced on Wednesday further weakening Mr Murdoch's hand.

"At the moment, it falls into the category of PR disaster," said an insider. "But if the Sky bid is referred it's a business disaster in which case the News Corp board will ask questions and Rebekah Brooks will have to go and James Murdoch as well."

Rupert Murdoch may have to roll his sleeves up a further turn.

A scandalous five days

Monday

The Director of Public Prosecutions, Keir Starmer, orders the Crown Prosecution Service to act robustly in examining phone hacking evidence. The scandal extends beyond News International as the Liberal Democrat MP begins legal inquiries to find out if his phone was hacked by the Daily Mirror in 2003.

Tuesday

Alastair Campbell joins the list of celebrities and political figures who fear their phones were hacked. The former defence minister Tom Watson demands an inquiry into Scotland Yard’s handling of the original investigation.

Wednesday

Ian Edmondson, the NOTW’s head of news, is sacked and police reopen the phone-hacking investigation after News International hands over “significant new information” following a trawl through Edmondson’s emails.

Thursday

Legal papers filed by the interior designer Kelly Hoppen allege that the hacking could have been going on as recently as last year. Former culture secretary Tessa Jowell reveals an attempt may have been made to hack her mobile messages last week. Tim Godwin, acting Deputy Commissioner of the Met Police, vows to leave “no stone unturned” in the investigation.

Friday

Nick Brown, the former Labour whip, says he believes his landline may have been bugged and his mobile hacked.