NEW YORK (TheStreet) -- Warren Buffett once said, "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow but, rather, determining the competitive advantage of any given company and how long it can maintain that advantage.In other words, Buffett believes in investing in monopolies. While these are hard to come by, there are some companies, such as Sirius XM ( XM), the only satellite radio company in the U.S., that come pretty darn close. However, in situations where there are no monopolies to be found, investors can always rely on some key ingredients of a successful company. Not necessarily in this order, these components include innovation, strategic marketing, staying ahead of the competition and managing costs. Oh, and there's the most important factor of all -- getting as much money as you possibly can out of the customers you have. There are some companies that do some of these well and there are others such as Apple ( AAPL) that excel. However, what do you do when you come to a point and realize that a company in which you have invested has ceased to excel at any of these five components, maybe not entirely but enough that it has become noticeable?
The Effective DeliveryThis is where streaming media giant Netflix ( NFLX) finds itself. In an odd sort of way, the company is both a titan and an underdog at the same time, which makes it a challenge in determining how to root for it. Netflix reminds me a lot of Research in Motion ( RIMM), except with better management.
While RIM essentially took Palm by the hand and escorted it out of business. Netflix took a more distant approach and wiped out Blockbuster with a postage stamp and its red envelopes. The company pioneered an industry that is now changing. Netflix was able to impose its will and capture the imagination of movie lovers everywhere to the point where it became an embarrassment to be seen Friday nights at your local Blockbuster or Movie Gallery. It was successful in changing the game by creating a "room service industry" for movies.
The Empires Strike BackHowever, with such exceptional growth, comes a lot of attention. Netflix started to get a lot of it not only from Amazon ( AMZN), which recently launched a competing service called Prime. Also, members of the cable industry started to wonder about their own futures -- namely Time Warner ( TWX) and Comcast ( CMCSA). The first evidence of this concern came when Time Warner's HBO unveiled its now-widely popular HBOGo Internet streaming service. Subscribers of HBO are now able to access all of its on-demand content online, free of charge. Though HBO says it has not plans of making this service available to non-subscribers, its ease of use as well as interface is arguably equal to or better than Netflix's. Also showing some concern was Comcast. In February, the cable giant announced its plans to go toe-to-toe with Netflix with its own Internet movie streaming service called Xfinity Streampix, one that will offer a library of TV shows and movies. As with HBO, the service will be made available only to its current subscribers. However, the difference is that unlike HBO, under programming agreements, Streampix can also operate as a standalone service outside of the cable subscription package.
As with RIM, Netflix is started to feel the pressure that comes with being a market leader.