I find no fault with my Foolish colleague Anders Bylund's history lesson on Netflix (Nasdaq: NFLX ) . It is, however, a history lesson. As such, it runs the risk of claiming victory based on the most recent decisive battle with Blockbuster (NYSE: BBI ) and Movie Gallery (Nasdaq: MOVI ) , rather than the still uncertain campaign just ahead.
For a company to survive and thrive into the future, it must focus on the next generation of threats. I pointed out last November that even with traditional movie-rental stores in decline, Netflix is still stuck between a rock and a hard place. On one side, video-on-demand services from the likes of Time Warner (NYSE: TWX ) and Comcast (NYSE: CMCSA ) threaten its rental model. Time Warner is an especially worrisome threat, since it owns a studio that produces a decent share of sought-after content. On the other side, Wal-Mart (NYSE: WMT ) has placed continual downward pressure on the price of buying a video. That now means that nearly any movie you want to see, you can own for about the cost of one month of Netflix's most popular plan.
As fiber-optic Internet connections get added to people's homes, video download services and instant-rental business will likely add yet another level of competitive threat. Netflix has a great past, but its future is on shakier ground. As we teach at Motley Fool Inside Value, companies are valued based on their potential future earnings prospects. The past establishes a track record, but it says nothing about what will happen tomorrow. For Netflix to be worth what the market values it at today, it needs to have both a solid strategy and the technology in place to fight the next war, not the last one. Until I see definitive plans in that direction, my money is staying away.
At the time of publication, Fool contributor andInside Valueteam member Chuck Saletta had no ownership stake in any of the companies mentioned in this article. The Motley Fool has a disclosure policy.