In Bloomberg Uproar, Ethics Flags for New Media

Bloomberg headquarters, NYC
Keyur Khamar | Bloomberg | Getty Images

Launching his namesake company's news division in the 1990s, Michael Bloomberg largely rejected long-held rules of the journalism trade that insist on keeping thick firewalls between reporters and the profit-making workings of their companies.

Now, a byproduct of Bloomberg's widely admired and novel business model has ensnared his company in a problem of its own making. But the uproar—revolving around specialized computer terminals unknown to most news consumers, and the reporters who tapped into data showing how high-powered Wall Street customers were using them—is potentially about much more than Bloomberg.

Instead, experts say, it highlights the uncertain and rapidly changing ethical landscape facing companies that, like Bloomberg, are reinventing the news business. And it raises key questions for people who watch the media, most notably this one: As the news business gets reconfigured around advances in technology, what does that mean for the old rules and the people who follow them?

(Read More: JPMorgan Demands Bloomberg Staff Logs)

Such tensions are evident in the way Michael Bloomberg himself laid out his company's ethos. "Most news organizations never connect reporters and commerce. At Bloomberg, they're as close to seamless as it can get," the billionaire entrepreneur and New York City mayor wrote in his 1997 autobiography, penned with the "invaluable help" of the news division's founding editor-in-chief.

That meant, Bloomberg wrote, that a key part of his reporters' jobs was to keep tabs on what customers wanted and needed in order to provide it.

In practice, it has become clear, that meant giving Bloomberg journalists access to data about individual customers' terminal usage, a practice that progressed from mere service-mindedness to keeping tabs on clients' habits for reporting purposes.

Bloomberg LP, which started as a provider of sophisticated financial data to bond traders and only later expanded to include a journalistic enterprise, has few direct parallels in media. But it echoes many new ventures in its determination to bypass old journalistic models that depended on well-defined—some would say outdated—relationships with readers and advertisers, to forge new kinds of ties with new types of audiences.

(Read More: Can Wall Street Live Without Bloomberg?)

"Many more journalism companies will face the type of competing values that the journalists at Bloomberg faced because, as the economic model for journalism changes, more companies, if they're successful, are going to look like Bloomberg," said Kelly McBride, who teaches journalism ethics at The Poynter Institute.

Today's technology gives many types of news organizations access to information about consumers' preferences for certain types of content, without clearly settled understandings of how that information should be used. Technology also has made it easier for reporters, and everybody else, to snoop.

"In a digital world in which everything online at some level, if you have the expertise, is probably available, this is simply reality," said Alex S. Jones, director of the Shorenstein Center on the Press, Politics and Public Policy at Harvard University.

At the same time, new types of journalism ventures are relying on different constituencies, often without clear rules for engagement, McBride said. Non-profit news organizations rely on donors, rather than advertisers. Others rely on advertisers who pay to sponsor content.

All together, the uncertainties of those new relationships will force media organizations to grapple with tough questions, McBride says.

"These types of breaches are about your loyalty to an individual or organization that you've created a relationship with over something other than journalism," she says.

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In an open letter published Monday on Bloomberg's web site, Matthew Winkler, who was the founding editor-in-chief of the company's news division and remains at its helm, alluded to those allegiances to explain the lapses.

"Why did reporters have access to this (customer data) in the first place? The recent complaints go to practices that are almost as old as Bloomberg News," Winkler wrote. "Understanding how our clients used the terminal was more important then."

But Winkler said the practice was clearly a mistake.

"Our client is right. Our reporters should not have access to any data considered proprietary. I am sorry they did. The error is inexcusable," he wrote.

Thus far, the Bloomberg eruption has been defined by the arcane: reporters punching keys to track the minutiae of customer behavior that may have been newsworthy, but appears to have been anything but scandalous.

In his letter, Winkler said that Bloomberg journalists had been able to see individual clients' terminal log-in histories and categories of functions those customers used. Until last month, when the company said it restricted reporters' access to the information, they could see individual users' most frequently used commands over the past week, as well as details of customer inquiries to the company help desk.

The practice became an issue when a Bloomberg reporter told Goldman Sachs managers she had used log-in data to investigate whether a Goldman employee had departed. Goldman Sachs complained, and now the Federal Reserve is examining whether Bloomberg journalists tracked terminal usage by top Fed officials.

It's hard to overstate the role that the pricey Bloomberg terminals have come to occupy at Wall Street firms, where they are prized as windows to information that can help brokers keep or lose fortunes, while communicating via instant-messaging and executing trades. More than 315,000 clients pay roughly $20,000 a year each for their use.

Last year, the terminal business provided about 85 percent of the company's $7.9 billion in revenue, giving it claim to about a 30 percent share of the $25.5 billion market for financial data and investment services, roughly the same as rival Thomson Reuters. Analysts who follow the industry have said they expect little fallout for Bloomberg because clients consider its services vital and are locked into long-term contracts.

But its missteps nevertheless revive questions about the methods reporters use to get at hidden secrets about powerful interests, said Peter Hart, a media analyst with the watchdog group Fairness & Accuracy in Reporting.

While the nature of the lapses are unique, Hart said they remind him of the 1988 scandal at The Cincinnati Enquirer, which was forced to retract an 18-page exposé of Chiquita International's business practices when it became clear a reporter had hacked into the banana giant's phone system to obtain information.

Breaking into another company's technical infrastructure was clearly an ethical and legal violation. But, Hart asks, how much more acceptable is it for reporters to use their parent company's own technology to gather information on the sly?

Ben Smith, editor-in-chief of BuzzFeed, a rapidly growing news site that uses technological feedback to tailor content, called the Bloomberg lapses unique. But he said they show how technology allows journalists from new and old media to venture into places that previously would have been outside ethical bounds.

"Everybody knows the rules," Smith said, "but a lot of the lines are a lot easier to cross than they used to be, when you used to have to walk through somebody's locked doors and pick up a piece of paper from their desk."

Hart expects most of the company's well-heeled customers to decide that it is better to handle their displeasure with the company privately rather than in public.

"But in the world of journalistic ethics, I think a story like this is going to raise some pretty profound and potentially disturbing questions about journalists snooping on their sources," he said. "Some battles are waged in private, and I think this is probably going to be one of them."

Jones, the media expert at Harvard, said he was willing to accept the company's assertion that the snooping was a mistake. But he called it indicative of a culture where privacy is disrespected, and not just at Bloomberg.

"I think if I were one of Bloomberg's terminal customers I would be reassured, to a point, by their telling me that this is a mistake and it wouldn't happen again," he said. "But I think you'd have to be very naive to think it couldn't happen again ... anywhere."