One thing you can say about Netflix Inc. (NASDAQ: NFLX), the DVD rental pioneer doesn't stand still. It has been innovating for years in bringing video content to consumers over as many mediums as it can. DVDs and Blu-ray discs are still the staple of its business, but Netflix can now be found embedded in newer Blu-ray disc players and even TVs.

No more waiting for discs to show up -- it can stream thousands of movies instantly to that living room flat screen television. So, it stands to reason that a house brand of leading consumer electronics retailer Best Buy Inc. (NYSE: BBY) will now come with Netflix technology built-in.

Normally we think of revolutionary products created by start-ups or entrepreneurial minds just out of college, but the most talked about new projects of 2009 are being produced by some of the best known companies in the world.

Amazon.com Inc. (NASDAQ: AMZN): With its massive online presence and a truly efficient business model, Amazon has become the largest online retailer in the world. It is now taking on a new business, web services, namely cloud computing (learn more HERE), called the Amazon Elastic Compute Cloud (EC2). While hosting this infrastructure and presenting e-commerce with a reasonably affordable alternative with no up-front costs, Amazon has taken an early lead in this space, with some believing its cloud computing business will one day overtake retailing. "Amazon will be like a book store that sells cocaine out the back door. Books will be just a front to sell storage and cloud computing." says Larry Dignan, Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic.

Netflix (NASDAQ: NFLX) CEO Reed Hastings says his biggest competitor isn't the one that his company is most often grouped with. It's not Blockbuster (NYSE: BBI), the largest brick-and-mortar rental chain, and it's not the internet -- where technological gains are making streaming video the wave of the future.

No, according to Mr. Hastings, the biggest competitor is Coinstar (NASDAQ: CSTR), the coin counting business that also happens to own Redbox, the network of 15,400 vending machines that rent movies for $1 per night. Redbox is installing another machine every hour.

Netflix (NASDAQ: NFLX) released its third quarter results yesterday, and things looked pretty good: net income up 30%, revenue up 16%, subscriber-acquisition costs down 15%, and the rate of subscriber cancellations remained flat.

But the company cut its revenue forecast, and net subscriber additions are down 30% so far for October compared to last year. CEO Reed Hasting said (subscription required) that "Since July, conditions have deteriorated markedly. It now appears that there will be continued growth for Netflix, but not as fast as last year." He added that "The state of the economy could explain this modest headwind."

I'm not so sure. Given that watching DVDs at home is a lot less expensive than many other forms of entertainment, it should be somewhat immune to economic woes. In an economy as weak as this one, any struggling company will be quick to blame its woes on the economy. Sometimes that's the case but, often, there are more serious issues that won't be solved by a macroeconomic upturn.

In the long run, it's hard to see what gets investors so excited about Netflix. The growth appears to be slowing, even with a price/earnings ratio of 20 -- which is pretty high in this market.

Netflix (NASDAQ: NFLX) had something of a flashy third quarter. The online DVD-rental company reported the numbers on Monday after the market closed. Revenues did well, rising 16% to $341.3 million. The bottom line, however, was an even better story. Earnings per diluted share on an adjusted basis rose 38% to 36 cents. How does this compare to Wall Street estimates? Beautifully, as analysts were looking for 34 cents per share. So management was able to deliver two extra pennies. It's cool when a company can go beyond the usual beat-by-a-penny routine, isn't it?

I applaud Netflix for its earnings data, but I can't say I'm a huge fan of its current cash-flow performance. Operating cash flow dipped nearly 6% to approximately $73 million. Free cash flow declined almost 28% to about $26 million. Looking at other numbers, I see that gross subscriber additions increased 18% on a year-over-year basis. Gross margin also improved.

Unfortunately, CEO Reed Hastings believes that the recession will negatively affect subscriber growth rates. Of course it will. At this point, every business, and more importantly to investors and traders, every stock is going to feel the wrath of the economy and the market bears. Sure, Netflix made deals with Disney (NYSE: DIS), Starz and Microsoft (NASDAQ: MSFT) that may help the company offset some of the economic realities out there, but I think the bottom line is that you'll have to be careful about buying Netflix at this point in time.

Netflix Inc. (NASDAQ: NFLX) CEO Reed Hastings has a plan to keep the company relevant given that the DVD-by mail business will become obsolete sooner or later as video content delivery via the internet becomes more widespread.

The company is partnering with LG Electronics to develop a set-top box that will allow you to stream movies from the internet straight to your television -- look for it in the second half of this year.

It's an exciting development and strong evidence that Hastings realizes that company's current bread and butter, mailing people movies, isn't the future. But I'm skeptical about whether Netflix shareholders will reap the rewards. The problem is that I can't figure out what Netflix's competitive advantage is in entering a new space. Sure, it can invest in new technology -- but so can everyone else and a lot of other companies are. Just as Blockbuster's (NYSE: BBI) brick-and-mortar presence didn't mean they could make money doing DVDs by mail, I don't think Netflix will be any better positioned than a lot of other well-funded companies looking to be on the cutting edge of the next generation of movie delivery.

True -- the company has a strong library of titles already available for streaming, but other companies willing to spend the money probably will be able to duplicate that.