The weather is cold outside and, as it always seems, there is nothing to watch on television.  This is where Netflix (NFLX) steps into the picture. With over 100,000 DVD titles including new releases, classics, and television episodes in its catalog that can be sent right to your mailbox, there may no longer be a need to venture off to the video store for a late night movie run. The company’s original business consisted of various subscriber plans where users could rent up to eight movies at once, with no due dates or late fees. Nationwide centers allow Netflix the ability to get movies into the hands of subscribers within 1-2 business days. The evolution of the company since its inception in 1999, though, is really what has been driving change in the movie rental industry. Streaming movies and shows to home computers and televisions is the newest phase in home viewing. Netflix currently has over 17,000 streaming choices that can be instantly watched online or streamed to a television via a Netflix ready device. These devices include the Roku Digital Video Player, Internet-connected Blu-ray players, Internet-connected HD Televisions, digital video recorders (Tivo), and video game consoles such as Microsoft’s (MSFT) Xbox 360 and Sony’s (SNE) Play Station 3.

The former leader of the movie rental industry, Blockbuster (BBI), has been forced to defend itself against the new kids on the block. Netflix has continued to erode Blockbuster’s market share since jumping onto the scene, and it opened the door for newer players like Coinstar’s (CSTR) Redbox.  RedBox, which allows users to rent movies from over 20,000 kiosks (each machine typically holds 500 titles) for $1 each per night, has joined the fray and is trying to stake its own claim. Blockbuster’s response was the roll out of its own branded DVD rental machines which carry around 950 DVDs and are priced at Redbox’s rate. Blockbuster is also testing the feasibility of downloading movies from its kiosks to SD cards.

That said, some movie studios have not taken to this shift in the movie rental game well, and are trying to deny the kiosk players access to new DVD releases. In the end, the studios may have to take a step back and make concessions, especially with the intensifying competitive landscape.  Indeed, Apple’s (AAPL) iTunes store, and Internet companies like Google’s (GOOG) YouTube and Hulu (a joint venture of General Electric’s (GE) NBC Universal, News Corp’s (NWS) Fox Entertainment Group, and Disney’s (DIS) ABC Inc.) have huge followings and will likely try to tighten their grasp on the Web video arena as time progresses. Meanwhile, cable operator Comcast (CMCSA) recently introduced its own streaming site called Fancast Xfinity TV, and other cable companies, such as Time Warner (TWX) will probably follow suit.

With a growing subscriber base and rising profits, Netflix has solidified its position as a formidable online entertainment provider.  We believe that the company’s catalog will strengthen in the years ahead and its streaming offerings may well encompass all the titles that it carries. The prospect of Netflix entering the video game rental market or streaming movies and television shows to mobile devices is another area that may be pursued.  For the time being, Netflix is more than holding its own and keeping the competition on its toes. In particular, we believe that retail-chain Blockbuster needs to build an online presence and transition its business from the old school in-store rental model to a format where its huge selection of movies can be accessed instantly. The company is already operating in the red, and if it does not embrace the wave of new technologies that are changing the in-home movie viewing experience, it may go the way of the VHS.

When the dust settles, the leaders of the pack will likely be the companies with the broadest range of movie titles in their arsenal and are most successful at getting those to viewers at the touch of a button.  This is a world where instant gratification rules and the ease with which we download a movie or show directly to a device in our home, pick one up while shopping for groceries, or download one to any of the new Internet capable devices available helps fulfill this desire. Streaming videos to anywhere at any time epitomizes the culture created by the technological revolution, and whether it be Netflix, a new Internet startup, or other players in the industry, this medium has reinvented the way we watch our favorite programs and is a reflection of greater things to come.