Former Sun editor Rebekah Brooks authorised a £4,000 payment for picture of Prince William in a bikini at a James Bond themed party, but didn't use it, a court has heard.
Prosecutor Andrew Edis QC told jurors at the Old Bailey that a military source was paid in cash by the Sun as "special measure", through travel agents Thomas Cook. The source's wife then picked up the cash in Slough.
Edis said an email from the journalist was forwarded to Brooks, which said: "My best contact at Sandhurst who has provided some great stuff over a period of months is offering us a picture of William at a James Bond party dressed as a Bond girl.
"He is wearing a bikini and an open Hawaiian shirt."
The court heard that at 4.53pm that day Brooks was asked: "What do you think, boss?"
She took around 10 minutes to reply at 5.04pm that it was OK.
The paper printed the story under the headline "Prince Willy In A Bikini!", with a mock-up image, not the picture allegedly paid for.
The jury was told that phone hacking also uncovered a claim that Prince Harry had broken rules at military training academy Sandhurst by asking an aide for help with an essay.
Edis said the story, published on December 18, 2005, was one of a number of stories cited by royal reporter Clive Goodman as he tried to justify paying Glen Mulcaire a weekly retainer.
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The prosecutor said the story, which ran under the headline "Harry's aide helps out on Sandhurst exams", had "got into the paper and was based entirely on a voicemail."
Edis read a transcript of a voicemail message left by Prince Harry for his private secretary Jamie Lowther-Pinkerton, himself a former member of the armed forces, asking for information to help with an essay.
The court heard that the prince asked his aide if he "had any information at all" about the Iranian embassy siege - the scene of a British special forces operation in 1980 - adding: "Because I need to write an essay quite quickly on that but I need some extra info.
"Please, please email it to me or text me."
Edis said the NotW was interested in the story to show some sort of misconduct.
The court heard there were discussions between Goodman and Coulson about how to run the story, which they knew was "100% fact", without exposing its source.
They decided not to refer to the siege as it would be "too precise to get through unnoticed", the court heard.
Edis said: "It means that if they say that what he was asking about was information about the Iranian Embassy siege, everyone would know that they hacked his voicemail because obviously Harry and Jamie Lowther-Pinkerton both knew that this voicemail was sent and received."
Earlier on Friday, the court heard how Andy Coulson, the ex-News of the World editor who became David Cameron's spin doctor, told a journalist investigating Calum Best to "do his phone".
The instruction was given to the now-defunct tabloid's head of news Ian Edmondson, Prosecutor Andrew Edis QC told the Old Bailey, because they feared that Best, son of footballer George Best, would leak the story himself to a rival.
On Thursday, the court heard extracts from a heartfelt letter sent by Brooks to her then deputy editor Coulson in February 2004, said to have been written after he tried to end their relationship, in which she declared her love for him.
Brooks along with former NotW head of news Ian Edmondson and the tabloid's ex-managing editor Stuart Kuttner all deny conspiring with others to hack phones. Former News International chief executive Brooks is also accused of two counts of conspiring with others to commit misconduct in public office - linked to alleged inappropriate payments to public officials.
Coulson is also facing two allegations that he conspired with Goodman and other unknown people to commit misconduct in public office.
Brooks also faces two allegations of conspiracy to pervert the course of justice - one with her former personal assistant Cheryl Carter; and a second with her husband, Charlie Brooks, and former head of security at News International, Mark Hanna, and others.