Netflix, the Company the Pros Love to Hate

NEW YORK (TheStreet) -- If you want to start a fight among traders just say one word: Netflix (NFLX).

This is still true one year after Netflix CEO Reed Hasting's huge mistake, the attempt to raise prices by splitting its DVD service off from its streaming offering, as Business Week reported. Hastings knew streaming was the future, and it still is.

At the heart of the dispute over Netflix is a fundamental question: Can a company that resells others' content survive?

I don't know. Can TV networks survive? Satellite networks? Cable? All these companies are in the business of reselling studio content, and despite their occasional spats with suppliers, like the one now playing out between DIRECTV (DTV) and Viacom (VIA.B) (discussed in this MarketWatch blog), most do quite well.

This is thanks to a 100-year old truth of the movie business. The money's in the theaters. True, the nature of the theater changes, but the place to look for profits from movies has always been in their exhibition, not their production.

Netflix proved this by delivering 1 billion hours of streaming in June, according to Bloomberg. That's business the studios can't turn down.

Netflix has spent the last year trying to build the kind of sales infrastructure in streaming it had in DVDs. It's backing a plan called OpenConnect, explained at the Netflix blog, that lets it cache content closer to customers, cutting out the long-distance charges.

In business terms, it's a cloud, an effort to match the infrastructure that Amazon.com (AMZN) and Google's (GOOG) YouTube have.

But it also has a political component. When cable operators like Comcast (CMCSA) call Netflix a "free rider" and try to charge consumers for bringing its product to them (in competition with their own offerings) the company can claim, quite rightly, that the costs are equivalent.

Still, the naysayers say nay. They claim that Amazon is going to kill Netflix. (No, Amazon streams products one at a time, and its Prime service members get very little for free.)

They say Apple (AAPL) is going to kill Netflix. (Same thing, and iTunes doesn't have Netflix's caching.)

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