RUPERT Murdoch's gamble on the closure of the News of the World was foundering last night, as advertisers continued to boycott News International newspapers and his bid to take control of BSkyB was thrown into doubt by the broadcasting watchdog.
The fallout from the phone-hacking scandal inflicted more damage on Mr Murdoch's business plans when Ofcom announced it would be contacting police to determine whether the allegations would prevent his company from being a "fit and proper" owner of BSkyB.
Suggestions the deal could fall through led to more than 1 billion being wiped from BSkyB's market value as investors ditched their shares in the broadcaster.
In an address to News International staff, Rebekah Brooks, the beleaguered chief executive, warned there were more revelations to come, indicating the crisis is far from over.
Her comments came as Andy Coulson, a former News of the World editor and Prime Minister David Cameron's director of communications until January, left a London police station after being arrested on allegations of corruption and phone hacking, "There is an awful lot I would like to say, but I can't at this time," he told reporters.
Ofcom's intervention came as the car-maker Renault declared it would become the first brand to extend its advertising boycott from the News of the World to the Sun, the Times and Sunday Times.
Renault, which spent 266,000 advertising in the News of the World from January to May this year, said its ban on Murdoch titles would remain in place "until further notice". Other advertisers have yet to decide on future advertising with the group.
At a hastily convened press conference yesterday, Mr Cameron was forced to defend himself against claims he had lacked judgment in appointing Mr Coulson as his communications director, despite being warned about his alleged illegal activities.
Mr Cameron also announced details of an inquiry into phone hacking at the News of the World, led by a judge, and another into the ethics of the press.
Yesterday's developments confirmed the Murdoch family's attempt to draw a line under the scandal by controversially closing the News of the World had failed to dampen outrage over the tabloid's past behaviour.
The decision to put 200 jobs at risk by closing the 168-year-old paper, while Mrs Brooks, the editor at the time of the hacking allegations, remained in her post caused fury. News International tried to quell some of that anger by saying she would no longer be heading the company's own investigation of the phone-hacking allegations.
The announcement was made by Mrs Brooks herself and Rupert Murdoch's son James in separate addresses to the News of the World newsroom where journalists were preparing the last edition of the tabloid.
Staff said they had signed a contract forbidding them from speaking about the meetings on the editorial floor, but one anonymous person claimed Mrs Brooks had referred to the Sun on Sunday newspaper, which is expected to replace the UK's biggest selling tabloid.
Reports suggested there were angry scenes, with journalists accusing Mrs Brooks of "contaminating" the existing News of the World journalists, most of whom were hired after the hacking is alleged to have taken place.
One employee told her: "Can you see that by your actions yesterday, your calling our newspaper toxic, we have all been contaminated by that toxicity by the way we've been treated.
"But can't you see the bigger picture? You're making the whole of News International toxic, and there's an arrogance there that you think we'd want to work for you again."
Ms Brooks replied that there was "no arrogance coming from this standpoint"
More analysis and opinion on the News of the World scandal:
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• Andrew Whitaker: David Cameron's playing catch-up with public opinion
• Andy Coulson: 'There's a lot I'd like to say, but I can't'
• Leader: Self-regulation of Press guarantees free speech
• Alf Young: Cosy affair allowed media to stray
Pressure mounted on Mrs Brooks when Mr Cameron suggested she should resign from her highly paid post, despite his close friendship with her.
The scandal continued to engulf Mr Cameron, who was accused of an "appalling error of judgment" after his former communications chief was arrested on suspicion of bribing corrupt police officers.
The Prime Minister was forced to defend his decision give Mr Coulson the Downing Street job despite being warned about the controversy surrounding him.
Mr Coulson, 43, and his former royal editor Clive Goodman, 53, were arrested yesterday by detectives investigating alleged phone hacking and illegal payments to police by the Sunday tabloid.
Last night, there was more bad news for News International when the Guardian reported police were investigating evidence that an executive may have deleted millions of e-mails from an internal archive, in an apparent attempt to obstruct Scotland Yard's inquiry into the phone-hacking scandal.
The archive is believed to have reached back to January 2005 revealing daily contact between News of the World editors, reporters and outsiders, including private investigators. The messages are potentially highly valuable both for the police and for the numerous public figures suing News International.
The Guardian said legal sources close to the police inquiry indicated that a senior executive was believed to have deleted "massive quantities" of the archive on two separate occasions, leaving only a small fraction to be disclosed. One of the alleged deletions is said to have been made at the end of January this year, just as Scotland Yard was launching Operation Weeting, its new inquiry into the affair.
The willingness of politicians across the political spectrum to ingratiate themselves with the Murdoch empire has been sharply criticised since the full extent of the scandal began to come to light.
This week, it was alleged that murdered schoolgirl Milly Dowler, relatives of killed servicemen and the families of 7/7 bombing victims were among 4,000 people who had had their mobile phone messages listened in to by News of the World journalists.
Last night, media commentators were questioning whether the Murdoch empire would be able to withstand long-lasting damage if Mrs Brooks remained in her position."Can Rupert Murdoch hold on to Rebekah Brooks?" asked Roy Greenslade, professor of journalism at City University London. "The Prime Minister has announced that he thought she should have gone. Ed Miliband has said so, the chair of the PCC has said so, many commentators have said so and members of her own staff have said so. And yet, stubborn Rupert keeps her in place."
According to Prof Greenslade, News Corp's attempt to take over BSkyB was fundamental to the company recovering. Also key would be the company's plans to replace the News of the World with a Sun on Sunday.
"As always with Murdoch, it is a high-wire act," he said. "Can he pull it off by closing a toxic newspaper. He needs to do two things. He needs to save his BSkyB bid and he needs to establish a new newspaper in its place that can actually find an audience and won't be treated by the public as if it is the News of the World reborn."
But the prospect of the BSkyB deal going ahead was looking less likely last night after Ofcom wrote to John Whittingdale MP, the chairman of the House of Commons' culture, media and sport committee.
The letter said: "In considering whether any licensee remains a fit and proper person to hold a broadcasting licence, Ofcom will consider any relevant conduct of those who manage and control such a licence".
The regulator said it was monitoring the unfolding situation at News International and the News of the World carefully and would be contacting relevant authorities to help it fulfil this duty. Crucially, Ofcom said a licence holder would not necessarily have to be charged with a criminal offence for this issue to be questioned.