Posted by: hdemott | March 29, 2010

The Death Of Research – Again!

In a previous life, I used to be a research analyst at First Boston (now Credit Suisse) covering the broadcasting business.

This job was a lot of fun – and I worked with some great people – but at the end of the last century, when firms officially severed the ties between research and banking and the SEC enacted REG FD and the companies you used to talk to all the time could no longer legally call you back with anything other than a “no-comment” the job became less and less exciting.

And thus ended research for the most part.

People who had years of experience in an industry decided to put that knowledge to work at hedge funds and other investment houses – and over the next few years – most of the equity research corp on Wall Street turned over.

Flash forward to today.

There has been a pretty good raging debate between former Wall Street Analyst Henry Blodget and Felix Solomon of Reuters on what the business of blogging should be – and it comes down to quantity versus quality.

Blodget argues to some degree that the business is writing stuff that people want to read – and putting a lot of it out there – driving CPM advertising. Solomon argues the opposite – drive longer form detailed research in blogs and generate engagement which will drive higher CPM advertising on a lower number of viewers.

Both of these guys are making good points – but they are missing the point.

Unless your stuff is high quality – people are going to snack on it – dislike the taste and never return. And even if your stuff is high quality – unless you can generate enough high quality stuff (or aggregate a site with enough on it) you won’t have the eyeballs to sell to advertisers – and you will be writing for yourself – because you like to write for whatever strange reason – or certainl[y not making a living at it.

Journalists are experts at howling at the public for abandoning their high art of long form journalism, and they seem to have become bloggers – who now howl at the public for not being willing to pay for their content. There’s probably a reason for that – and it’s not one that most writers want to face: the fact is that for whatever reason, most writers fail to generate a sufficient audience to make blogging a paying job (could be the quality of the work, could be an esoteric subject, could be that there are acceptable free substitutes out there, could just be a lack of marketing) and the natural reaction is not to question any of these factors – but to write more salacious headlines, shorter articles, and try and drive CPM’s because that is the easiest and most certian way to get paid today.

To get back to the equity research model – consider what happened when the research departments decoupled form the banking departments. All of a sudden – most of the revenue attributed was gone – and you were left with trading volume. Trading is a commodity business in which all participants are racing to zero – zero execution cost – zero time delay – zero profits (unless one wants to trade proprietorially which is a completely other business). So what is the natural reaction of a research analyst – more opinion changes – more inflammatory research – more large price targets relative to current prices – in all – they behave like bloggers looking for attention.

Equity research already died once, and in the world of blogging – it is dying again.

Interestingly, I find Blodget and his team to be well thought out. Yes there are probably way to many “10 top VC’s in NYC” sideshows – there’s a t least one top 10 list per day there, but when Henry gets back to his roots as a research analyst – without the shackles of the big banks legal departments – he manages to get to the root of the issue without all the superfluous stuff that most people produce.

Here’s hoping that we get the best of all worlds sooner or later: real high quality research – and plenty of it – that’s worth paying for.

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