Future Winners and Losers: What to Look For

As a follow-up to "Future Financial Winners and Losers" and "Retailers and Restaurants: Future Winners and Losers," let's take a step back and look at some of the characteristics of companies that might survive the current financial crisis and those that might wither away in the future.

I will use the media and entertainment sector as the backdrop for my analysis.

So, what are a few big forces that help determine future winners and losers? Here are three.

1. Societal Changes

Guns replaced swords; cars replaced the horse and carriage; The Fedora gave way to the baseball cap. Sometimes tastes changes and sometime new technology triumphs. Right now in media, print is dying and cable television and Internet news is growing. Witness the bankruptcy of the Tribune, the Philadelphia Newspapers group and Journal Register. Now The New York Times (NYT Quote) and Gannett (GCI Quote) are under pressure from dwindling readership, lost advertising and heavy debt loads.

It appears that the strongest company in this particular industry is The Washington Post Co.(WPO Quote). The Washington Post is still generating healthy profits and has virtually zero net debt, after subtracting out the company's cash on hand. How? The Washington Post has a more diverse business model than the other companies mentioned, -- including Newsweek, educational services (Kaplan), and stakes in television broadcasting.

(Don't miss "Newspaper Winners and Losers: McClatchy" and "Dividend.com: Gannett Grounded")

2. Upgrade Cycles

Upgrade cycles occur when existing products or technologies are replaced with new or more advanced products. In the music industry, about 20 years ago, we had an upgrade cycle from the vinyl record to the compact disk (CD). Now we are in the midst of an upgrade from CDs to digital music (downloadable file formats like MP3). Similarly, in world of watching movies at home, the video cassette recorder (VCR) was upgraded to the digital video disc (DVD) about 10 years ago. Now we are seeing an upgrade from DVDs to Blue Ray (high definition) DVDs. Every few years we have video game console upgrades and so on.