BSkyB shares fell sharply in London trading Thursday after the news channel portion of the cable broadcaster admitted to hacking into the email accounts of two private citizens.
The revelation will put further pressure on the company, whose shares have lost more than a fifth of their value in the past six months, as the fallout from the phone and email hacking scandal deepens. James Murdoch, the 39-year-old son of billionaire media owner Rupert, was forced to step down as BSkyB chairman last week in an effort to isolate Europe's biggest pay-TV group from the growing scandal.
Sky News admitted hacking into the email accounts of John Darwin, known as "the Canoe Man", who was accused of faking his own death in 2002, when his wife was on trial for fraud in connection with the event in 2008. The hacking was authorised by the managing editor of Sky News, Simon Cole.
"Sky News is committed to the highest editorial standards. Like other news organisations, we are acutely aware of the tensions that can arise between the law and responsible investigative journalism," said John Ryley, the head of Sky News. "We stand by these actions as editorially justified and in the public interest."
BSkyB shares were trading in positive territory during the morning session in London, before falling more than 4 percent immediately to 631p per share following the admission.
The revelations mays also complicate the longer-term ambitions of Rupert Murdoch's News Corporation to acquire the remaining 61 percent stake in BSKYB that it doesn't already own.
Murdoch's News International subsidiary, the newspaper arm of his media empire, still owns The Sun, Britain's most-read paper, as well as the Times and the Sunday Times. A new Sunday paper, the Sunday Sun, was launched last month.
Four journalists, including the former managing editor of The Sun newspaper, were arrested in January over charges of corrupt payments to police officers. Last month, former News of the World editor Rebekah Brooks was questioned by British police for a second time in connection with the hacking and bribery scandal.
Until today, however, the allegations of journalistic impropriety had been isolated the News International division and had not reached the lucrative television business.
Media reports suggest the UK government may be preparing to release a far-reaching report into the depth of the hacking scandal which forced Murdoch to close the venerable weekly "News of the World" newspaper last summer and drop his £7.8bn bid to take outright control of BSkyB.
If the Parliamentary report finds the actions at NI - which have included accusations of hacking into the phone messages of murdered schoolgirl Milly Dowler by a private investigator paid by the group - it may decide to revoke the broadcasting rights granted to BSkyB under what's known as a "fit and proper" test.
If Ofcom, the British regulatory panel which makes the decision, does not feel News Corp passes this test, it could demand the company also sell its entire 39 percent stake.
BSkyB has been one of the major contributors to News Corp.'s earnings, adding 18 percent, or $498m, to the company's $2.7bn bottom line in the last financial year.