Good news and bad news for the Murdochs today.

The good news is that Britain’s powerful TV regulator Ofcom says BSkyB can keep its valuable pay-TV licence, which brings in a profit for News Corp (which owns 40% of the company) of about £500 million a year. The bad news is the watchdog has given Rupert’s youngest son, James, a mauling for his failure to act on the News of the World phone-hacking scandal.

In its report published yesterday, Ofcom finds James’ conduct to be “both difficult to comprehend and ill-judged … on a number of occasions”. The regulator also questions his competence and says that his behaviour “repeatedly fell short of the exercise of responsibility to be expected of him as CEO and chairman”.

But it could easily have been worse. Faced with the choice of branding James a fool or a liar, the regulator concludes: “The evidence available to date does not provide a reasonable basis to conclude that James Murdoch deliberately engaged in any wrongdoing.”

No one has ever accused the young scion of hacking Milly Dowler’s voicemail or orchestrating the original crimes. But there is still a huge question mark over his complicity in the cover-up that everyone (including Rupert Murdoch) agrees took place. And Ofcom is kinder than the House of Commons Culture Media and Sports committee, which reported in May.

“there is still a huge question mark over his complicity in the cover-up”

That report, you may remember, accused James, Rupert and News of “wilful blindness” and concluded controversially that Rupert was “not a fit and proper person” to run a major international company.

The Murdochs will be delighted that Ofcom hasn’t reached the same conclusion. Others may not.

Either way, what makes Ofcom’s report worth reading is its recital of all the times when James could have discovered the truth about what was going on at the News of the World while he was in charge: like, failing to investigate phone hacking, lying to Parliament, misleading the public, ordering dirt files and surveillance on MPs and lawyers, and destroying evidence that might have aided legal actions against the company.

Ofcom repeatedly gives James the benefit of the doubt over all of this, in that it accepts his assurances he knew nothing about it. But it still manages to condemn him roundly.

For example, Ofcom’s report says it does not have enough evidence to accept Tom Crone’s and Colin Myler’s crucial claim that James was told in May 2008 about the extent of phone hacking at the NotW when he signed off on a huge £700,000 payment to keep Gordon Taylor from going to court. Ofcom also accepts James didn’t read the famous “For Neville” email or the devastating legal opinion from Michael Silverleaf QC that he had asked for.

Ofcom also takes James’ word for it over News International’s response to The Guardian article in July 2009, which exposed the extraordinary Taylor payout and claimed the Metropolitan Police had uncovered thousands of potential hacking victims. The newspaper group, of which James was still CEO, responded within two days to say it had investigated the allegations and found them to be false. It also attacked The Guardian for misleading the public — a nice little touch.

James’ excuse for this to Ofcom was that he left it all in the hands of Rebekah Brooks. Ofcom’s response, which seems mild in the circumstances, is that:

“There is no evidence that James Murdoch took the necessary steps to apprise himself of the information he needed (some of which he knew existed) to carry out his duties responsibly following publication in a national newspaper of such nature and detail about the settlement he had personally authorised the previous year. We consider that James Murdoch’s failure to apprise himself of this information, given the information which he accepts he knew, fell short of the exercise of responsibility to be expected of the chief executive officer and the chairman.”

James’ third major warning came in February 2010, when News Group Newspapers paid about £1 million to settle a hacking claim from celebrity agent Max Clifford. This was just after the High Court had ordered Glenn Mulcaire, the NotW’s master hacker, to reveal who had given him his orders. James says he never had anything to do with the settlement and knew nothing about it. It was good old Brooks again.

That same month, the House of Commons Culture committee published a damning report, which accused News International executives of “collective amnesia” and said it was “inconceivable” that the NotW’s royal correspondent Clive Goodman was the only one involved in hacking. The same report complained that News had not conducted a thorough investigation and had done little or nothing to help the committee.

James’ reaction — or at least News International’s — was to claim that the MPs were pursuing “a party political agenda” and that certain of the committee’s members had “repeatedly violated the public trust”. Another nice little touch, given how trustworthy News turned out to be. According to Ofcom:

“By his own account, James Murdoch read the CMSC report, but did not regard the response to the Select Committee as his direct responsibility, and therefore relied on what he was told about it. We consider this lack of action by the chairman of News International in response to a widely publicised highly critical Select Committee report to be both difficult to comprehend and ill-judged.”

But there’s far more than this on Ofcom’s charge sheet. The regulator lays out a series of other events in 2010 that could and should have put James on notice of the extent of the problem, as more hacking victims lined up to take court action against the NotW and more evidence leaked into the public domain, to be published by The New York Times and The Guardian. One of these lawsuits, brought by actress Sienna Miller, led someone inside News International (three days later) to order the systematic destruction of emails that could have been used in damages actions against the company.

*Read the full story at The Power Index