Why Hollywood Should Be Afraid of Netflix

Thanks to its digital strategy, Netflix is sitting on top of the world.

Tectonic changes have gripped the video-rental business over the past year, giving Netflix a clear victory over its brick-and-mortar competitors. As Blockbuster and Movie Gallery are waylaid by money problems, Netflix -- by firmly embracing instant streaming -- is charting the industry's future. And by taking its place as a New Media pioneer, it could create headaches for the cable and DVD retail business.

But while tensions with the studios have eased, there are many who believe Hollywood should be worried about the changes that Netflix's business represents. A number of analysts and even industry members believe its streaming business, coupled with the growth of video-on-demand services like Hulu, could represent a shot across the bow of the paid-television industry. "The more consumers find they can get more of the programing they want to watch at a reduced monthly cost, the more consumers are going to disconnect their cable and satellite," one industry executive said. "Why pay $150 if all you watch is ESPN and CNN?"