April 5, 2006
Imitation may be the highest form of flattery, but that kind of flattery will get you nowhere with Netflix (Nasdaq: NFLX ) . The company is currently suing Blockbuster (NYSE: BBI ) for patent infringement related to its online rental business.
Netflix pioneered the practice of renting DVDs by mail using an online queue. Competitors like Blockbuster and Wal-Mart (NYSE: WMT ) eventually mimicked many of the Netflix offerings -- such as virtual queues and 5-star member-rating grids.
Does Netflix have enough patent-protected ammo to bring Blockbuster to its knees? I certainly don't have any legal insight there. After Research In Motion (Nasdaq: RIMM ) was almost forced to shut down its BlackBerry network due to a patent dispute, I know better than to dismiss any lawsuit.
What I do know is that there are significant ramifications here. If Blockbuster is forced to suspend its online operations -- or significantly alter the way it does business online -- it may force the company back to a solely bricks-and-mortar business, an unattractive model that hasn't done Blockbuster or Movie Gallery (Nasdaq: MOVI ) any favors lately.
It would also probably limit the way Amazon.com (Nasdaq: AMZN ) approaches the stateside market, having already rolled out a similar service in the United Kingdom.
Even if Netflix emerges victorious, it doesn't mean that the company is assured of eternal success. Every year brings us closer to the reality of films delivered to the mainstream via digital media, and Netflix will need a winning strategy to stay competitive.
Still, it's interesting to see Netflix go after Blockbuster now, since the Blockbuster online threat seems to have subsided since the price war of 2004. Is Netflix really looking to plunge the dagger deeper into Blockbuster? Something tells me that Netflix is aiming for another heart. Could it be creating a wider moat in order to give Amazon another reason to buy it out before the video-on-demand threat looms closer? Stay tuned.
Netflix and Amazon have both been recommended toMotley Fool Stock Advisornewsletter subscribers.
Longtime Fool contributor Rick Munarriz is a Netflix shareholder and plans to stay that way. He has been a subscriber and investor since 2002. The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.