Merrill Lynch Attempts to Limit Access to Its Research

Today, Merrill Lynch announced that it was "taking aggressive steps to curb distribution of its research, including restricting and delaying media access and establishing licensing agreements." For more complete coverage, here is a link to a version of the news from Reuters. The company said that its research was being "napsterized."

I am interested to see how successful Merrill will be in this endeavor. This sounds to me like a desperate measure to restore profit from research, which has been eroded badly after the dot com bust. A while ago, Steve Jobs said that in music DRM hasn't really worked and probably will never work. I doubt that Merrill will be able to curb distribution of its research, unless it manages to lock its clients in a room without access to the outside world, telephone and internet. It is 1000 times easier to share information contained in a Merrill report (opinions, upgrade/downgrade, target price) than breaking DRM and making bootleg copies of MP3's.

I mentioned a while ago in this blog, investment research was in the process of getting commoditized anyway, partly as result of new regulations like regulation FD that came after the scandals involving many star analyst during last dot com boom and bust. Sell side analysts are currently barred from having privileged access to executives and information. So there is no information that is available to Merrill analysts that is not available to other analysts and the general public. So the only "value added" part of a Merrill report is pretty much the analysts' opinion and interpretation of data. Well, I concede that sell side analysts tend to be smarter and have deeper industry insight and experience than the average Joe. Apparently analysts' opinions still carry some weight, evidenced by how their rating upgrades/downgrades can still influence stock price movements. But I wonder how much the market values sell side researchers after all the scandals few years ago. And Merrill is not the only research house around. It will be interesting if other research houses will follow Merrill's move. There are a lot of insightful opinions from smart people that are available for free in the internet. For example, you can get Henry Blodget's view on the market for free from his blog. (BTW Blodget was a former Merrill analysts back in the day).

In my opinion it may be more productive for Merrill and other sell-side research houses to figure out new business model for their research rather than trying to fight the inevitable democratization of market information.