So here's the deal. Hollywood studios have been increasing unhappy about the decline in DVD sales. One might paraphrase the Oscar-winning Network and say they are mad as heck, and can't take it anymore. In the first half of 2009, U.S. retail sales of DVDs dropped 13.5%, while DVD rentals rose by 8.3%. People are being non-committal with their televised entertainment, preferring to watch once and ship back rather than purchase for their permanent collection.

The studios' solution? Delay their audience's gratification, making new releases available only for purchase for the first few weeks. People counting on seeing new flicks on Netflix (NFLX) or via Coinstar's (CSTR) Redbox service would just have to wait ... or buy the movie, which is what studios are hoping for.

Netflix (NASDAQ: NFLX) has been a strong performer of late as its affordable home entertainment option proves itself to be recession-resistant.

But I'm still skeptical. As I've written in the past, Netflix's DVDs by mail business will not be viable after technology progresses beyond a certain point. Will they come in three years, five years, or ten years? Who knows, but long term, the company's ability to remain at the forefront of video delivery technology -- and its ability to deliver it at at profit -- is what matters.

The Wall Street Journal's Heard on the Street column (subscription required) raises questions about the viability of Netflix's digital delivery business. Numerous other companies are also racing for market share in the growing category and, according to the Journal, "the sheer cost of acquiring online-viewing content could crush Netflix's profit margins, unless the company sharply raises its subscription price, thereby reducing a key advantage over rivals."

Given that the majority of movie studios make their money on sales of DVDs and television licensing deals, Netflix would likely have to fork over a huge percentage of its revenue if online movies overtake DVD sales.

The stock appears to be pretty expensive for a company with such uncertainty surrounding its future viability.

Hollywood has always loved the DVD. After releasing movies theatrically, the DVD, as a billion-dollar cash generator, has been the film industry's decade-long best friend. That friend may be putting on its coat and about to head for the exit. Global DVD sales are expected to plunge 7.5% in 2008, meaning there is going to be a revenue problem brewing for some of the movie studios that count on DVD sales and resultant profit as part of their business model.

It's true that the DVD format is an aging medium with the newer advent of Blu-ray, HD-quality movies and television shows that stream from the internet to a PC or a "black box" hooked to that flat-screen set and with other forms of entertainment media taking the place of physical media like DVD. Sales of Blu-ray high-definition discs have partially offset the decline in DVD sales, but they are not growing as fast as DVD is declining, thereby causing a conundrum. Many consumers simply don't see the need to "upgrade" to Blu-ray. Standard DVD is good enough for many. To entice more consumers to buy the devices, Blu-ray needs cheap players (sub $199 pricing) and movies that are priced - at a maximum - 20% over standard DVD movies.

It's all about price for the growth of Blu-ray to supplant standard DVD. Product and picture quality has nothing to do with it, unlike what videophiles would have you believe. A bright light here will be Wal-Mart Stores, Inc. (NYSE: WMT)'s introduction of a Blu-ray player for under $130 this Friday. More retailers need to follow suit, though, and slash Blu-ray disc player prices, especially in this economic environment. The also need to add more models for consumers to choose from and only then they will respond and begin switching en masse from regular DVD to Blu-ray.

At least initially, it appears that Microsoft's (NASDAQ: MSFT) deal with Disney (NYSE: DIS) to sell downloads of Disney feature films through Microsoft's Xbox Live does not represent an immediate, substantive threat to dominant DVD outlets, including Blockbuster (NYSE: BBI) and Netflix (NASDAQ: NFLX), but as is the case with most technological volleys in the digital age, more time is needed to see if consumers are willing to make a purchasing shift.

Blockbuster, Netflix, and DVD sellers like Best Buy (NYSE: BBY) can feel confident that their respective market shares will not evaporate overnight, due to their primary advantage: reach. Currently there are about 11.6 million Xbox 360 consoles in use, including 5.6 million in the U.S. In comparison, penetration of DVD players in U.S. households exceeds 50%.