Netflix will continue to star in online movie rentals, analysts say

Things have been going even better than usual lately for Netflix, the innovator and market leader in online DVD rentals. It received a U.S. patent recently on its innovative process of letting customers receive as many DVDs as they like each month for a flat fee of $19.95, and it noted that its 1-million-plus subscriber base reached 1% of all U.S. households as of June 30. Meanwhile, its major competitors, Wal-Mart Stores Inc.`s Wal-Mart.com and Blockbuster Video, still haven`t shown much traction in the online DVD rental business, analysts say.

"The good thing for Netflix now is that its competition is minimal," says Jim Preissler, an analyst with Majestic Research. "So they can concentrate on service and don`t have to be the lowest price in the market." He adds that leading contenders Wal-Mart and Blockbuster are still experimenting in the DVD rental space, but have not signed up many customers.

And with the patent on its process of renting and distributing DVDs--it lets subscribers keep up to three DVDs at one time and exchange them at no extra costs for an unlimited number per month--Netflix is in a position to build its brand among consumers, Preissler says.

Although it may have to get its patent upheld in court, that would only put it into a stronger growth position, says Safa Rashtchy, an analyst with U.S. Bancorp Piper Jaffray.

"Every patent usually has to be upheld in court," he says. "If the courts uphold it for Netflix, it would be significant." He adds that with its patent upheld in court, Netflix would be in a stronger position to grow not only with online rentals of DVDs but other products as well, such as books or other forms of entertainment products.

For the first quarter ended March 31, Netflix reported revenue of $56 million, 82% more than the year-earlier period.