An economic moat has become a popular term to describe a sustainable competitive advantage that a firm possesses and uses to successfully fend off the advances of competitors. It stems from the moat that was used to protect a castle from enemies in medieval times and was popularized by Warren Buffett, who is said to use an image of a castle filled with gold that is sitting atop a mountain to protect its assets.

There are many companies that have a moat protecting their businesses, but most firms have little to no competitive advantages and operate businesses that are easy to copy or can be replaced with competing products or services. The technology space is known for having minimal barriers to entry and the internet has succeeded in disrupting many business models. (To learn more, see Competitive Advantage Counts.)

With that, here is an overview of five product categories that have succumbed to competitive pressures. Also detailed are the companies that have become hot investments and replaced the have-nots, who have either fallen from grace or ceased to exist altogether.

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Radio:

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Firms that controlled the airways used to have a lock on consumers and the advertisers that wanted to reach them. Radio channels on FM airwaves used to have an advantage for catering to local tastes in a particular city or region of the country. A rash of mergers from Clear Channel consolidated the industry and created a national firm that was criticized for taking a one-size-fits-all strategy to programming and advertising. Traditional radio broadcasters including Emmis Communications, Citadel and even Clear Channel, the last of which is struggling under a hefty debt load when it was taken private, are currently struggling for survival. (For related reading, see 6 Jobs Where Your Mouth Makes Money.)

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The advent of satellite radio, which offered programming breadth and culminated in the merger of Sirius and XM Radio into Sirius XM Radio (Nasdaq:SIRI), has proven popular to consumers. Free services such as Pandora, which broadcast over the internet and increasingly on smart phones, are also stealing listeners from traditional radio.

Movies:

Hot
Satellite and Internet providers are also having a profound influence on the movie industry. DIRECTV (Nasdaq:DTV) is focused on stealing television subscribers from the likes of cable but is also after the movie industry by offering pay-per-view movies at the same time they become available on DVD. This has likely had a marginally negative effect on DVDs; the biggest impact has been made by Netflix (Nasdaq:NFLX), which has played a big part in pushing Blockbuster (OCT:BLOAQ) and Movie Gallery, owner of the Hollywood Video chain, into bankruptcy. Coinstar (Nasdaq:CSTR) and other DVD kiosk operators have also helped destroy a model where consumers paid about five bucks to rent a movie. They can now rent one for a buck per night, or pay a monthly subscription to view a movie online or by mail order through Netflix. If that weren't enough, internet viewing is also eliminating the need to purchase a DVD at all.

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Obviously Blockbuster is in rough shape, but all these companies have worked together to reduce the need for people to attend a movie in physical theaters. Lower DVD sales and box office receipts have deeply cut many of the major studios - not strong businesses to begin with.

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Newspapers:


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Once again, the internet is to blame for changing the economics of the newspapers industry. Warren Buffett has mused that the newspaper industry would never have existed had it come after the advent of the internet because it doesn't make sense to spend substantial amounts of money printing yesterday's news. With the internet, information is available immediately and, in many cases, in real-time as news is released via blogs, Twitter and various media outlets.

Online classified ads have also seriously dented a major revenue driver for newspapers. Craigslist is available for free online, while job posting services from Monster Worldwide and CareerBuilder (which is owned by a number of newspaper firms) offer more appealing avenues for job providers and finders. The long-term survival of firms including Gannett (NYSE:GCI) (owner of USA Today and the aforementioned CareerBuilder), the Washington Post (NYSE:WPO) and the New York Times (NYSE:NYT) hinges on their ability to offer profitable services in cyberspace.

Music:

Hot
A sea of change in the music industry occurred when Apple's (Nasdaq:AAPL) created its iTunes service. The sale of compact discs (CDs) was already reeling from online piracy of individual songs, but Apple came along and provided a dependable service that consumers could trust for music quality. It also invented a music player that was more portable and efficient than the CD players offered by companies like Sony (NYSE:SNE).

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Music labels have suffered as a business model. Consumers used to have to pay about $15 for an album, but that has shifted to where the best songs can be bought for one dollar each. EMI Group, Sony Music Entertainment and Universal Music have all suffered. (For more, see Facing The Music: The Recording Industry's Power Struggle.)

Retail:

Hot
Away from cyberspace, new technologies can alter industries in profound ways. Wal-Mart (NYSE:WMT) has used purchasing power and sophisticated inventory systems to put smaller mom-and-pop retailers out of business for decades now. A focus on keeping costs low and passing this on to customers has been a cornerstone of Wal-Mart's approach ever since founder Sam Walton started the chain. Best Buy (NYSE:BBY) has used a similar approach in electronics retailing and put arch rival Circuit City out of business in the process.

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Wal-Mart has succeeded in contributing to the demise of Montgomery Ward, Venture Stores and the struggles of Sears Holdings' (Nasdaq:SHLD) Sears and K-Mart chains. (To learn more, see Analyzing Retail Stocks.)

The Bottom Line
A company can become a hot commodity for investors when it finds a way to change the status quo and disrupt incumbent firms in an industry. But without an economic moat, new leading firms can be replaced just as easily by an upstart competitor. Economist Joseph Schumpeter referred to this continual process as "creative destruction" and explained that it is necessary for pushing economies forward. As such, expect the demise of many market leaders going forward.

For the latest financial news, check out Water Cooler Finance: You're Never Too Old To Work.

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