Netflix Moves Up in Class

And that's where Apple comes in. In his report, Anmuth said Netflix is likely to see increased competition from Apple and Amazon.com(AMZN Quote), though he warned that consumers may be slow to leave the DVD format.

But Apple has been boldly doing its best to prove Anmuth wrong on that last point. In the same way that Netflix has been turning the video store into a historical relic, Apple is quietly laboring to turn the DVD itself into a thing of the past.

Apple is working on a new generation of iPods that many observers believe will come with enhanced video-playing abilities. Recent news reports have said that when the new iPods are unveiled this fall, the company will also introduce full-length movie features for downloads on the iTunes site for $9.99 each.

According to the trade publication Variety, Steve Jobs has been in intense talks with Hollywood studios, which are apparently freaked out about that three-digit price. But if the reports are true, Jobs is again shrewdly ahead of the game.

New DVDs can already be bought at only a small premium above that level: On Amazon, the best-selling DVD Thursday was Syriana, going for $13.87. The second-best seller was The World's Fastest Indian, selling for $12.87. Subtract out the packaging, marketing and distribution required to sell those DVDs, and $9.99 starts to sound like a reasonable price for a downloaded movie.

No stranger to tipping over apple carts, Jobs is clearly interfering with Netflix's plans to move stealthily and discreetly toward downloaded movies. To date, Netflix has been terribly bashful about when -- and what -- it may do in this new world of movie distribution.

Things took an abrupt lurch forward when Variety reported that Eric Besner, Netflix's vice president of original programming, as saying that the company is planning planning, as early as this year, "to introduce a proprietary set-top box with an Internet connection that can download movies overnight."