Number of newspaper analysts dwindles

By Robert MacMillan

NEW YORK (Reuters) - Want to buy newspaper stocks? You should see an analyst. Trouble is there aren't many around anymore.

As the valuations of U.S. newspaper publishers plunge and investor interest wanes, the ranks of stock analysts who rate their performance are thinning.

In some ways, there is less need for them as the trend is clear: the U.S. newspaper business is in bad shape and getting worse as readers and advertising dollars flee to the Internet and other new forms of media.

But the void in smart thinking on the publishing sector could exacerbate an already bleak view of the business.

"The fewer analysts you have ... the less information that's distributed, the less appearance there is in the minds of institutional investors," said longtime newspaper analyst John Morton, who runs his own research firm. "And so it diminishes the industry as a whole."

Two years ago, investors could get research from more than a dozen analysts. Now, they are lucky to find half that number. Prudential cut all its sell-side analysts as it exited the research business and other firms have pruned, including Citigroup, Morgan Stanley and UBS.

Much of that stemmed from slowing revenue in slumping financial markets as well as regulatory changes that make big research departments less affordable for investment banks.

Failure to replenish these ranks could wipe out decades of intelligence, and critical thinking about the business of newspapers could well disappear over time.

"You lose a real sense of institutional history when you lose somebody who's been through one or two cycles," said Lauren Rich Fine, a respected, 19-year analyst at Merrill Lynch who retired in 2007.

"It's so unclear what's going to happen... but if I were running research, I don't think I'd need a newspaper analyst today," Fine said.

BEATING DEAD HORSES

The logic behind assigning analysts is simple: their research and recommendations on company stocks encourage brokers and investors to route trades through the analyst's bank and can help form closer investment banking ties. But when trading volume drops, banks make less money and the analyst's value to the firm slips.

Shares of McClatchy Co, publisher of the Miami Herald, are down 77 percent this year; Lee Enterprises Inc, which owns the St. Louis Post-Dispatch, is down 84 percent. The largest of them all, USA Today publisher Gannett Co, is trading at a nearly 17-year low.

Analysts help investors go beyond the general perception and provide deeper reports on factors affecting individual companies.

Deutsche Bank analyst Paul Ginocchio, for example, predicted that a high-profile consortium between newspaper publishers and Yahoo Inc could help the papers turn around their revenue declines by 2009. Yahoo and the publishers, by contrast, have provided no such assurances.

In the absence of critical analysis from Wall Street, bloggers and industry executives have grown in importance. Outsell Inc's Ken Doctor and Alan Mutter, a venture capitalist and former newspaper editor who runs the blog Reflections of a Newsosaur, are two well-read commentators.

Fine, formerly of Merrill Lynch, has also found a new audience for her expertise on popular digital media blog paidContent.org.

As for the sell-side, the analysts who remain -- such as Goldman Sachs analyst Peter Appert -- often cover other sectors that command more investor attention.

"If I covered only the newspaper industry, first of all I would have been fired a long time ago; secondly, I would have had to kill myself," Appert said.

(Editing by Leslie Gevirtz)