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 (NASDAQ: NFLX) will now be offering about 2,500 movies from the Starz movie channel as streaming video from its website. As Netflix continues to dabble heavily into internet-delivered content to complement its DVD rental business, the company really has taken the lead on ensuring it builds its brand to deliver content through whatever means. Once the DVD becomes obsolete (and it will), Netflix's positioning will put it in front once again to give its customer base content through whatever means.

Netflix's "Watch Now" selection of immediate content has grown in recent months, but regular customer complaints about lack of selection have streamed in at the same time. This partnership with Starz should change that a bit. Right off the bat, Starz's "Starz Play" lineup will contain hits like No Country for Old Men, Superbad and other recent hits. Can Netflix convince studios to release movies at the start of or during theatrical release? That would be a major coup -- but that's quite a paradigm shift for the movie studio industry as well.

All the new Starz content will be available at no cost to current Netflix subscribers as well -- which is a major selling point if I've ever seen one. The more partnerships Netflix can forge with device manufacturers, gaming console leaders and content providers, the better. And, it may just keep giving Blockbuster executives fits as well, while Netflix CEO Reed Hastings sighs in relief.