The red carpet at last night's Academy Awards presentation didn't consist of red Netflix (NASDAQ:NFLX) mailers, but it might as well have. The DVD rental specialist announced that it shipped out its billionth flick over the weekend. Yes, that's a whole lot of movies going out.

The actual milestone winner was a copy of Babel. The lucky Texan recipient is receiving a lifetime subscription of the service. A cynic would argue that, given the boom of broadband-delivered celluloid, a better rental choice would have been eventual Oscar-winner The Departed. That same cynic would argue that a "lifetime subscription" isn't worth all that much with a model that may go the way of the buggy whip in a few years.

From Babel to babble
In reality, new technologies aren't the real near-term threats to the Netflix model. It's actually some old school gimmickry, in the form of Blockbuster's (NYSE:BBI) Total Access program, that is giving Netflix some market share nibbling fits at the moment.

The ability to return DVDs at local Blockbuster stores for free rentals has been resonating with film buffs. Blockbuster is expecting to close out the year with 1.8 million more subscribers than the 2.2 million that it started out the year with. Netflix has 6.3 million members, yet it only expects to tack on another 1.7 million to 2.1 million new accounts in 2007. That is sweet growth, but it's hard to be the undisputed market leader if you are running neck-and-neck with your competitor over the next few quarters.

This won't stop the milestones from coming. Netflix should still ship out its two billionth flick at some point next year. It took Netflix nearly eight years to send out a billion DVDs, but now it has the wide user base and the proven distribution network to keep the discs going at a freakish pace.

Churn is clocking in at a record low, a reasonable indicator of high customer satisfaction. Margins are coming in wider than expected, a reasonable indicator of high investor satisfaction. However, investors are concerned to see Netflix battling Blockbuster today and are starting to fear what may lie ahead in the more competitive digitally delivered future. The stock has fallen by more than 40% since peaking three years ago.

The last king of mail order
Blockbuster is only a near-term threat. It will be difficult for the bricks-and-mortar giant to turn a profit with Total Access if subscribers don't open up their pocketbooks inside the stores.

Winning over hyperactive renters may deplete stores of available titles for conventional renters, escalate revenue sharing overhead, and force its creditors to tighten up the faucet. But even if Blockbuster overcomes the operational hurdles, both Netflix and Blockbuster will one day bump up against the future of celluloid consumption.

You are already seeing rumblings of what it will look like. Microsoft (NASDAQ:MSFT) will deliver films into Xbox 360 consoles. Apple (NASDAQ:AAPL) will make video playback portable with its iTV. (NASDAQ:AMZN) is already working with TiVo (NASDAQ:TIVO) to deliver digital rentals and purchases directly into TiVo boxes.

Netflix and Blockbuster aren't dismissing the future. Netflix is now letting subscribers stream a tenth of its titles online. Blockbuster has discussed a set-top box solution. They do have the advantages of established film-centric brands and millions of active movie lovers. They know the films that you and I like. Will that be enough to stand out?

It may not be. The future may be more about piecemeal rentals -- like the old days -- than the smorgasbords of today. You may very well find yourself going from watching a rental through your satellite television provider's digital video recorder one night to catching a new release through your video game console the next.

There may be no single runaway winner here. It won't be like Apple in digital music or Netflix in mail-delivered feature films. This may even become a fragmented market in terms of selection, if rival services wind up brokering deals for short-term exclusivity on certain titles. The past was lined in red mailers, but the future will be paved with multicolored stones.

Little miss, sun shines
The birth of the video rental chain was based on economical sense. Why buy a movie that you may only watch once when you can rent it? The birth of video delivery by mail was based on convenience. Why leave your home when the DVD can come to you?

We are now heading into an era in which instant gratification will rule the day but it won't be a model based on simplicity. Different carriers will have different flicks at different price points. With loyalty hanging on the thinnest of threads, the ultimate winner may be the third party source that builds the stickiest of price comparison sites for digital downloads.

This doesn't mean that I will throw in the towel on Netflix. Its world isn't going to crumble in 2007. It will have the eyes and ears of eight million well-heeled subscribers by the end of the year. That is a valuable database as we head into tomorrow. Let's just hope that Netflix doesn't oversleep.

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Netflix, TiVo, and Amazon have been recommended to Motley Fool Stock Advisor newsletter subscribers. Microsoft is an Inside Value stock pick.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.