{"id":17907,"date":"2023-02-23T23:56:00","date_gmt":"2023-02-23T15:56:00","guid":{"rendered":"https:\/\/www.granitefirm.com\/blog\/us\/?p=17907"},"modified":"2025-11-23T10:47:47","modified_gmt":"2025-11-23T02:47:47","slug":"industries-with-moat","status":"publish","type":"post","link":"https:\/\/www.granitefirm.com\/blog\/us\/2023\/02\/23\/industries-with-moat\/","title":{"rendered":"Industries with moat and going downhill"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/02\/23\/industries-with-moat\/#An_example_of_an_industry_going_downhill\" >An example of an industry going downhill<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/02\/23\/industries-with-moat\/#The_characteristics_of_an_industry_with_moat\" >The characteristics of an industry with moat<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/02\/23\/industries-with-moat\/#Ways_for_companies_to_get_high_returns\" >Ways for companies to get high returns<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/02\/23\/industries-with-moat\/#Internet_media_began_to_threat_old_media\" >Internet media began to threat old media<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/02\/23\/industries-with-moat\/#Related_content_in_my_book\" >Related content in my book<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/02\/23\/industries-with-moat\/#There_is_no_permanent_moat\" >There is no permanent moat<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/02\/23\/industries-with-moat\/#Related_articles\" >Related articles<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"An_example_of_an_industry_going_downhill\"><\/span>An example of an industry going downhill<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In <a href=\"https:\/\/berkshirehathaway.com\/letters\/1991.html\" target=\"_blank\" rel=\"noreferrer noopener\">Berkshire\u2019s shareholder letter in 1991<\/a>, Buffett wrote that the media industry is going downhill and its moat (aka economic competitiveness) is not as good as before:<\/p>\n\n\n\n<p><em>In last year&#8217;s report, I stated my opinion that the decline in the profitability of media companies reflected secular as well as cyclical factors. The events of 1991 have fortified that case: The economic strength of once-mighty media enterprises continues to erode as retailing patterns change and advertising and entertainment choices proliferate. In the business world, unfortunately, the rear-view mirror is always clearer than the windshield: A few years back no one linked to the media business &#8211; neither lenders, owners nor financial analysts &#8211; saw the economic deterioration that was in store for the industry. (But give me a few years and I&#8217;ll probably convince myself that I did.)<\/em><\/p>\n\n\n\n<p><em>The fact is that newspaper, television, and magazine properties have begun to resemble businesses more than franchises in their economic behavior. Let&#8217;s take a quick look at the characteristics separating these two classes of enterprise, keeping in mind, however, that many operations fall in some middle ground and can best be described as weak franchises or strong businesses.<\/em><\/p>\n\n\n\n<p>Note 1: Please note; Buffett is using the term &#8220;<em>franchise<\/em>&#8221; to refer to competitive businesses. The word &#8220;moat&#8221; had to wait two years before it first appeared in<a href=\"https:\/\/berkshirehathaway.com\/letters\/1993.html\" target=\"_blank\" rel=\"noreferrer noopener\"> Berkshire&#8217;s shareholder letter in 1993<\/a>.<\/p>\n\n\n\n<p>Note 2: The internet is now recognized as being invented in 1983, so in 1991, Buffett felt that the media industry was going downhill, and the competitiveness was not as good as before. But Buffett did not point to the apparent decline of the media industry as a result of the Internet at this time.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_characteristics_of_an_industry_with_moat\"><\/span>The characteristics of an industry with moat<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>An economic franchise arises from a product or service that:<\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>(1) is needed or desired; <\/em><\/li>\n\n\n\n<li><em>(2) is thought by its customers to have no close substitute and; <\/em><\/li>\n\n\n\n<li><em>(3) is not subject to price regulation. <\/em><\/li>\n<\/ul>\n\n\n\n<p><em>The existence of all three conditions will be demonstrated by a company&#8217;s ability to regularly price its product or service aggressively and thereby to earn high rates of return on capital. Moreover, franchises can tolerate mis-management. Inept managers may diminish a franchise&#8217;s profitability, but they cannot inflict mortal damage.<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Ways_for_companies_to_get_high_returns\"><\/span>Ways for companies to get high returns<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In contrast, &#8220;a business&#8221; earns exceptional profits only if it is the low-cost operator or if supply of its product or service is tight. Tightness in supply usually does not last long. With superior management, a company may maintain its status as a low-cost operator for a much longer time, but even then unceasingly faces the possibility of competitive attack. And a business, unlike a franchise, can be killed by poor management.<\/p>\n\n\n\n<p>Note: All oil and energy companies in the world set record high profits in 2022. The main reason is the imbalance between energy supply and demand.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Internet_media_began_to_threat_old_media\"><\/span>Internet media began to threat old media<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Until recently, media properties possessed the three characteristics of a franchise and consequently could both price aggressively and be managed loosely. Now, however, consumers looking for information and entertainment (their primary interest being the latter) enjoy greatly broadened choices as to where to find them. Unfortunately, demand can&#8217;t expand in response to this new supply: 500 million American eyeballs and a 24-hour day are all that&#8217;s available. The result is that competition has intensified, markets have fragmented, and the media industry has lost some &#8211; though far from all &#8211; of its franchise strength.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Related_content_in_my_book\"><\/span>Related content in my book<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In my book &#8220;<a href=\"https:\/\/www.books.com.tw\/products\/0010889106?sloc=main\" target=\"_blank\" rel=\"noreferrer noopener\">The Rules of Super Growth Stocks Investing<\/a>&#8220;:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>In subsection 2-2, pages 84-93: Take Microsoft (Uticker: MSFT) and Apple (ticker: AAPL) to illustrate what kind of companies are the franchise businesses in Buffett&#8217;s eyes.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"There_is_no_permanent_moat\"><\/span>There is no permanent moat<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As Buffett emphasized at the 2021 Berkshire shareholder meeting: &#8220;<a href=\"https:\/\/www.rev.com\/blog\/transcripts\/warren-buffett-berkshire-hathaway-annual-meeting-transcript-2021\" target=\"_blank\" rel=\"noreferrer noopener\">None of the top 20 stocks in the world 32 years ago are still on the list.<\/a>&#8220;<\/p>\n\n\n\n<p>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/09\/13\/there-are-indeed-monopoly\/\">There are indeed monopoly in this world<\/a>&#8220;, because there cannot be a permanent moat in this world. For the reason, please refer to my previous blog article &#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/08\/monopolies-or-oligopolies\/\">How do monopolies or oligopolies work in the real world?<\/a>&#8220;<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"230\" height=\"132\" src=\"https:\/\/www.granitefirm.com\/blog\/us\/wp-content\/uploads\/sites\/2\/2023\/02\/moat-1600x1200-1.jpg\" alt=\"moat\" class=\"wp-image-17908\"\/><figcaption class=\"wp-element-caption\">credit: sketchfab.com<\/figcaption><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"block-9d402b81-75c9-41fa-9a2d-6be1252e074e\"><span class=\"ez-toc-section\" id=\"Related_articles\"><\/span>Related articles<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/09\/09\/choose-media-wisely\/\">Investors should choose Media Wisely<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/05\/23\/social-network\/\">Will the social network and fintech change stock investment?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2025\/11\/22\/bet-on-dominant-player\/\">Bet on dominant player, don&#8217;t predict<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2025\/05\/15\/oligopoly-enterprise\/\">The world&#8217;s most well-known oligopoly companies<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/09\/13\/there-are-indeed-monopoly\/\" target=\"_blank\" rel=\"noreferrer noopener\">There are indeed monopoly in this world<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/08\/monopolies-or-oligopolies\/\">How do monopolies or oligopolies work in the real world?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/02\/23\/industries-with-moat\/\">Industries with moat and going downhill<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/06\/08\/tech-antitrust-governance\/\" target=\"_blank\" rel=\"noreferrer noopener\">Antitrust and governance faced by Chinese and American technology giants<\/a>\uff02<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/05\/21\/how-should-investors-view-companies-being-included-in-the-antitrust-investigation-list\/\" target=\"_blank\" rel=\"noreferrer noopener\">Investors should not afraid of antitrust investigation on your holdings<\/a>&#8220;<\/li>\n<\/ul>\n\n\n\n<p><em><strong>Disclaimer<\/strong><\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>The content of this site is the author\u2019s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.<\/em><\/li>\n\n\n\n<li><em>I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers&#8217; direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.<\/em><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>In Buffett&#8217;s eyes, industries with moat characteristics and examples of industries going downhill<\/p>\n","protected":false},"author":1,"featured_media":17908,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[204,199,491,118,207,201,483,11],"tags":[2,3],"class_list":["post-17907","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-moats-and-competitive-advantages","category-advertisement","category-charter-and-license","category-internet","category-main-business","category-media","category-price-power","category-buffett","tag-aapl","tag-msft"],"_links":{"self":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/17907","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/comments?post=17907"}],"version-history":[{"count":20,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/17907\/revisions"}],"predecessor-version":[{"id":40150,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/17907\/revisions\/40150"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media\/17908"}],"wp:attachment":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media?parent=17907"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/categories?post=17907"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/tags?post=17907"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}