"Doom Loops" and Legacy Product Declines

It is not always easy to explain why some ideas and terms emerge at specific times in history. But some terms, including the “doom loop,” have emerged before. A doom loop is a self-reinforcing cycle of negative events that can lead to a catastrophic outcome. 

For long-time observers of the cable TV business, perhaps that phrase is current because a major cable operator now believes “the video product is no longer a key driver of financial performance.” 

source: Charter Communications 

That is a profound change for an industry known as “cable TV.” 

The “doom loop” is fundamentally caused by what Charter Communications considers an unsustainable video model.

We are familiar with the notion of the “vicious cycle,”  a situation in which one bad event leads to another bad event, which then leads to even more bad events. Then there is the phrase “death spiral,” referring to  a situation in which a company or organization is caught in a negative feedback loop, itself another phrase expressing a similar idea. 

In the environmental area, the 18th century Malthusian trap argued that population growth will eventually outstrip the carrying capacity of the environment, leading to widespread poverty and starvation. 

In recent decades we have heard about “the tragedy of the commons,” where individuals acting in their own self-interest deplete a shared resource. 

These days, we are apt to hear the term applied to the declining linear video subscription business. But we also have seen similar ideas expressed form time to time about specific companies in the telecom or connectivity business. 

source: NextTV, MoffatNathanson

One example of a doom loop is the Greek debt crisis. In 2010, Greece's government debt was too high and the country was unable to pay its debts. This led to a loss of confidence in the Greek economy, which caused the value of the Greek currency to plummet. This, in turn, made it even more difficult for Greece to pay its debts, and the cycle continued.

Another example of a doom loop is the 2008 financial crisis. The crisis began when the housing market in the United States collapsed. This led to a loss of confidence in the financial system, which caused banks to become more cautious about lending money. This, in turn, made it more difficult for businesses to get loans, which led to a decline in economic activity.

In the telecom industry, a doom loop can occur when a company's financial problems lead to service cuts, which in turn lead to customer losses, which further worsen the company's financial problems. This can create a vicious cycle that is difficult to break.

One example of a doom loop in the telecom industry is the case of Sprint. In the early 2000s, Sprint was one of the leading wireless carriers in the United States. However, the company began to struggle financially. 

In an attempt to save money, Sprint began to cut back on its network investment and service offerings. This led to customer losses, which further worsened the company's financial problems. Sprint eventually filed for bankruptcy in 2012.

Other leading firms also have experienced doom loops. MCI once was a leading provider of long distance services in the U.S. market, second only to AT&T. But MCI began to suffer as its shrinking long distance business was not offset by growth in local access services. MCI eventually was absorbed by Worldcom, which itself collapsed. 

AT&T faced the same problem, more than once. Its declining long distance business could not be countered by new revenues in local services. Eventually, after spinning off mobile, equipment manufacturing and Bell Labs assets, AT&T was acquired by SBC, which then rebranded itself as AT&T. 

Of course, a doom loop is not necessarily fatal for the company or industry in the loop. 

AT&T has a history of getting caught in doom loops. In the early 2000s, for example, the company acquired several large cable companies in an attempt to become a one-stop shop for telecommunications services and solving its local access business problem. 

However, the acquisitions were expensive and led to a significant increase in AT&T's debt. As a result, the company was forced to cut costs and lay off employees, which further damaged its reputation. In 2005, AT&T spun off its cable business.

Then AT&T decided to reimagine itself along the lines of Comcast, and acquired DirecTV and Time Warner assets. That required taking on so much debt that eventually AT&T had to sell off those assets to pay down debt. 

It perhaps goes without saying that such terms as “doom loop” only arise in connection with legacy businesses that are declining. 

By definition, growing businesses are in positive feedback loops; virtuous cycles or experiencing scale or network benefits. So you will not hear anyone applying such terms as “doom loops” to artificial intelligence.