Netflix Still Needs a Fix

Steve Swasey, a spokesman for Netflix, acknowledged that the 1,000 titles offered initially on the service is a relatively small offering, but he pointed out that when the company started in the late 1990's, its DVD catalogue had a similarly small selection. Now, the company's flagship service boasts an industry-leading 70,000 titles.

"Whether it's Netflix, Apple (AAPL Quote), Amazon (AMZN Quote) or anyone else who is doing Internet distribution for movies, we all face the same obstacles, which is the content availability from the studios," says Swasey. "They have a tremendous revenue stream from licensing content to broadcast and cable, and that's an impediment to everyone else in the entire industry."

But Goodman says Netflix will face more restrictions than distributors that sell downloads, like Apple, because the long-term agreements differentiate between those and subscription-based services.

He points to Vongo, a fledgling subscription service launched by Starz, as a competitor that could represent a long-term threat to Netflix. As a subscription cable channel, Starz already has access to a large number of blockbuster movies.

While Netflix has gained considerable popularity with its rental service that pioneered DVD delivery by mail, investors have been wary of the company's uncertain future as movie downloads gain prevalence. The company's new plan will allow users to bypass the download process, which is cumbersome, and save money by continuing to pay a relatively small, monthly subscription fee.