You got to hand it to Netflix Inc. (NASDAQ: NFLX). At a time when movie rental houses -- chief among them, rival Blockbuster Inc. (NYSE: BBI) -- are struggling to keep their doors open, Netflix is prospering, rolling out new initiatives and finding new ways for video-hungry consumers to watch movies.

On Thursday, co-founder and CEO Reed Hastings told investors on a conference call that the company will soon partner with another consumer-electronics maker to make streaming video available on more devices. That's on top of deals Netflix has already struck with Microsoft Corp. (NASDAQ: MSFT) and its Xbox, which expires next month, and Best Buy Inc. (NYSE: BBY), with its line of Insignia brand Blu-Ray disc players.

This definitely caught me by surprise. Microsoft (NASDAQ: MSFT), up over 6% (as of this writing) on first-quarter results, with huge volume backing the surge. On a Friday. Really?

Believe it, because it's true. Net sales may have declined 14%, and diluted earnings per share, which came in at 40 cents, may have also dipped 17%, but it didn't matter. According to Reuters, the bottom line beat the estimate of 32 cents by a wide margin. Also, it was reported that the top line went beyond the expected number. This was probably even more important than the profit performance. In addition, cash from operations experienced a super boost.

"There are always stocks that can buck the trend and go up when most others are going down; one such issue is Netflix (NASDAQ: NFLX)," says Sean Broderick.

In Money and Markets, he explains, "Netflix has exceptional growth prospects as it ventures into streaming movies and games over the Internet.

"Netflix is doing bang-up business, and if history is any guide, should continue to do so. During the Great Depression, movies were one of the few growth industries, as a weary world turned to escapist entertainment.

"Netflix had an excellent recent quarter. Revenues jumped 19% and earnings rose 58%. EBITA, a widely used measure of a company's efficiency and profitability, hit a six-year high, and was up 18% over the year earlier.

If imitation is the sincerest form of flattery, Microsoft (NASDAQ: MSFT) must love Apple's (NASDAQ: AAPL) chain of retail stores. But, will it help Redmond to have stores of its own?

Setting up a Microsoft store is probably going to be difficult. Apple has a fairly limited number of products. Will Microsoft have its Xbox in the stores? How about its Zune of PCs running the new Windows 7 OS? Will it display business software for servers?

According to Reuters "Microsoft Corp announced plans Thursday to open its own chain of branded stores as it looks to catch up with rival Apple Inc's successful move into retailing."

It is not that long ago that the Sony (NYSE:SNE) PS2 ruled the video game business. Launched in 2000, it had a huge lead over the Microsoft (NYSE:MSFT), which was launched in 2001.

As sales of the PS2 falters, Sony introduced it next-generation platform, the PS3, in the hope of taking its once profitable consumer electronics business from a loss back to an earnings contributor. The plan never panned out.

According to The Wall Street Journal, US sales of the PS3 fell 19% in November. The paper writes "The sales decline is a heavy blow to Sony, which was banking on the video-game division to provide a bright spot as its core electronics business is hit by the global economic downturn.:

The trouble at the Sony game division goes beyond weak sales. In many ways it ends the turnaround efforts of Sony CEO Howard Stringer who got the top job in 2005. He was the first non-Japanese to run the huge company.

The PS3 is a symbol of the downfall of the company that created the Walkman and other leading technology devices. The crown of innovation has been passed to firms like Apple (NASDAQ:AAPL) which can barely keep their products on retail shelves due to their popularity.

The fate of the PS3 may end up looking like the fate of Sony which now has become a permanent second-tier tech company. Its shares trade at $20 down from almost $60 two years ago. The stock will probably never come back.

Douglas A. McIntyre is an editor at 247wallst.com.

There has been a lot of speculation that the recession, which has hit holiday spending, would stop one of the hottest-selling retail items right in its tracks. That would be video games. Numbers from Mastercard (NYSE: MA), which came out earlier this month, showed that spending on consumer electronics was way down. That would support the notion that game consoles where losing some of their mojo.

Not so say research firm NPD and Microsoft (NASDAQ: MSFT), maker of the Xbox. According to the FT, "US industry sales are up 25 per cent so far this year, according to the NPD research firm. Game sales in October rose 35 per cent on 2007's total. The rises are in spite of a strong 2007. " Microsoft said both American and European sales of its device were strong.

So, what's going on? It could be one of two things. The first is that purchases for children and teenagers are not falling as fast as other retail items and parents are hitting stores early before items like the Nintendo Wii run low like they did last year.

Perhaps a more probable theory is that video games and consoles are relatively inexpensive. Some are as cheap as $200. The games that play on them go for $50 or $60.

Of course, December could bring bad news for the Xbox and Wii. The recession is biting harder now than it was two months ago. But, there may still be a couple of bright spots this season. Gaming may be one of them

Douglas A. McIntyre is an editor at 247wallst.com.

If being the first of the new generation video game consoles to break the $200 price point on the way down means you're the loser, the call Microsoft's (NYSE: MSFT) Xbox 360 the loser.

The Wall Street Journal reports (subscription required) that Microsoft is slashing the price on the basic console from $279 to $199, in an effort to boost sales before the all-important holiday season, when so many gamers (and their friends and relatives) will look to buy games. The move puts Microsoft well below Sony's (NYSE: SNE) Playstation 3 and Nintendo's Wii. According to the Journal, "Xbox 360, with a 60-gigabyte hard drive, to $299 from $349, and lowering a high-end model, with a 120-gigabyte hard drive, to $399 from $450. The company had previously offered a 20 gigabyte Xbox 360 for $299 as it sought to sell through remaining inventories of the now-discontinued product."

It's a good idea for Microsoft to make this move now, before its competitors do -- all of the consoles will come down in price relatively soon, and by being the first mover, Xbox will increase its footprint and Microsoft will benefit from increased software sales during the holiday season. In the current macroeconomic environment, price may be more of a factor in determining sales than it has been in recent console cycles.

Slashing a price by almost 30% is never a sign of success, but Microsoft and its shareholders are far better off making the move now than chasing the market down.

Microsoft Corp. (NASDAQ: MSFT) has to deal with improving sales for the Sony (NYSE: SNE) PS3. Sony has been able to get a greater number of attractive games for its console. It has also added better features to play live over the internet with friends connected by broadband.

Now the Xbox 360 will add a feature that Sony cannot match, at least for now.

According to the FT, Microsoft "has struck deals with five horror movie directors for a series of short films in a move aimed at boosting the original entertainment content available on its Xbox console." If the first part of the experiment works, Microsoft will probably go forward with more short content which cannot be seen by owners of rival consoles.

Anyone who did not think a Microsoft (NASDAQ:MSFT) buyout of Yahoo! (NASDAQ:YHOO) has become less likely should have stopped by the All Things Digital conference. According to Reuters, "Yahoo Inc Chief Executive Jerry Yang said on Wednesday a potential deal with Microsoft has tremendous power, but the software giant appears no longer interested in a full merger."

The leaves Yahoo! management, its board, and takeover artist Carl Icahn in a tough spot. Many analysts believe that without a deal, the Yahoo! shares could drop back near $20, where they traded before the offer from Redmond. Yahoo! currently changes hands at $27.

The news is a sign that Microsoft thinks it can do almost anything on its own, including challenging Google (NASDAQ:GOOG) in the search business. Gates, Ballmer & Co. have the money to get the engineering hands on board to push better search tech, but user loyalty to Google may be so great that even a much better product from Microsoft will not break its rival's hold on the market.

Microsoft has had success exceeding the market's expectations before. No one believed that the company's Xbox could challenge the Sony (NYSE:SNE) PlayStation franchise.

But, search engines are not game consoles and the rules in one game do not necessarily apply in another.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and check out other Battle of the Brands posts.

The Nintendo Ltd. (OTC: NTDOY) Wii and Sony Corp. (NYSE: SNE) PlayStation 3 were released within two weeks of each other, in November of 2006, as the latter two of the three "seventh generation" home video-game consoles, with the Microsoft Corp. (NASDAQ: MSFT) Xbox 360, released a year earlier, being the third. Now, a year and a half later, let's review how the two gaming machines stand up to each other.

Out of the gate, the Wii was a hit. It broke sales records, led by its revolutionary controller and Wii Sports, a silly mini-game compilation that came packaged with the console. The focus of the system was more on its unique game play, which Nintendo hoped would draw casual gamers, than its intense graphics abilities. The gamble paid off, as the Wii surpassed the Xbox 360, which was released earlier, as the top-selling console in September 2007.

The PlayStation 3 had no such luck at the start. The console's strategy, like the Xbox 360's, revolved around graphics, which made the system more expensive -- $499 for the basic PS3 at launch was double the Wii's $249 launch price. Sony also decided to intertwine the fate of the console with that of the next generation DVD technology the company backed, the Blu-ray disc. However, the release of the PS3 slightly predated the high-definition craze, and so having a Blu-ray player was not an important enough selling point to help the console at launch. Another issue for the PS3 at launch was the lack of a cornerstone franchise for the system. Xbox had Halo, and Nintendo, with its deep video-game roots, had Zelda, Mario, and Metroid. Without a "must buy" game or franchise, Sony was left out, and its PlayStations stayed on the shelves.

The theory makes sense. As the economy softens, Sony (NYSE: SNE), Microsoft (NASDAQ: MSFT), and Nintendo will cut the prices of their game consoles to keep sales volumes up. The CEO of game publisher Activision (NASDAQ: ATVI) has stated as much.

According to Reuters, "With the rising costs of fuel and food and housing, it is more difficult to go out and buy a $399 console, and I think it's going to put pressure on the console manufacturers to reduce their prices," Bobby Kotick said.

The problem presents a delicate balance for the console makers. Nintendo's stock has soared because of the popularity of the Wii. Microsoft just began to make money in its device division in the first quarter of the year. After a number of quarters of losses, it looks like the PS3 may start to contribute to the Sony P&L.

Holding prices may keep margins high, but drop unit sales.

There are two factors that work in favor of the console producers. The first is that, as their manufacturing volume has gone up, component prices have come down. That means if retail prices are lowered, the companies can still make money.

The other factor is that all three companies get licensing fees from each video game that is sold to run on its platform. With new offerings like Grand Theft Auto IV on the market, those fees should soften the blow of lowering hardware prices.

Watch for the price of game consoles to be dropped -- and soon.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

After over four years and billions of dollars in losses, Microsoft (NASDAQ: MSFT)'s game division has finally started to make money. Although Wall Street was disappointed with some of the software company's numbers for Windows and Office, the firm's "entertainment and device" division made $89 million on $1.58 billion in revenue. In the same quarter last year, the operation lost $324 million on $936 million in revenue.

According to the company, "Cumulative console sales surpassed 19 million during the quarter, up 74% from a year ago. Server and Tools revenue growth of 18% added to its string of consecutive double-digit revenue." The Xbox has finally arrived.

The news shows that Microsoft is willing to spend massive amounts of money to enter a business and stick to it. When the Xbox was launched, Sony (NYSE: SNE) ruled the game business and there was no reason to think that Microsoft could do well. Gaming could not take advantage of Microsoft's core strengths in PC and server software. The move was an attempt at diversification.

After all the years of battling, the Xbox 360 now outsells Sony's PS3 in most months. If the software company could only make money on MSN.

Douglas A. McIntyre is an editor at 247wallst.com.

As people spend more time on the Net, Hollywood has been moving to online video. But people are also spending lots of time on Microsoft (NASDAQ: MSFT)'s Xbox.

So why not have cool Hollywood content for that?

Well, Microsoft has retained Peter Safran, who is an entertainment mogul who operates Safran Company. Some of his films include Scary Movie and Meet the Spartans.

Basically, Safran will produce a variety of shortform video shows for the Xbox Live, covering such things as comedy, sci-fi and so on (hey, the Xbox has a mostly young male demographic).

To get some perspective on things, I interviewed Chase Norlin, who operates Pixsy (a video search engine). According to him:

"Producing content for Xbox 360 represents the most significant trend impacting the entertainment industry today: the shift in the economics of content creation and distribution. Given the multitude of new content distribution opportunities available today (web, mobile, video on demand, and game consoles to name a few), expect to see all the majors leveraging the 'create once, syndicate everywhere' model. We are entering an era where a new type of 'digital Hollywood studio' is truly achievable."

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

Imagine if the Sony (NYSE:SNE) PS3 actually came out of the shadow of the Nintendo Wii and Microsoft (NASDAQ:MSFT) Xbox 360. During 2007, PS3 ran in third place in sales in most regions and most months. The machine was viewed as too expensive and did not have enough new games to run on it.

There is a case to be made that some of this could change. Production scale is moving up on the machine. That means lower component costs and another chance to cut prices. According to Reuters, "2008 will be a turning year for the PS3," said iSuppli analyst Pamela Tufegdzic. "Sony is offering a better forthcoming software pipeline with blockbuster titles like 'Gran Turismo 5,' which will boost PS3 sales this year."

Not so fast. Nintendo and Microsoft are not going to stand by and let their sales be stolen. Nintendo has already introduced a radical new platform called Nintendo Fit. It allows users to stand on a balance board and be physically involved in games that include things such as downhill skiing. Microsoft has its own arsenal lead by Halo 3.

Sony's PS3 may be in for slightly better times, but it is far behind in a race that it may never win.

Douglas A. McIntyre is an editor at 247wallst.com.

For years Playstation revenue carried Sony's (NYSE: SNE) earnings. The PS2 was one of the great selling consumer electronics products of all time.

Sony nearly failed with the launch of the PS3. Microsoft's (NASDAQ: MSFT) Xbox had taken too many customers and the Nintendo Wii became the world's top game console. Sony's CEO had to step down, and Sir Howard Stringer was brought in from the US to run the company.

Net income at Sony moved up 25% to $1.9 billion for the quarter ending December 31. Revenue rose almost 10%. Some of this is due to the fact that for the first time in years Sony's game division has finally gone into the black.

TV sales were the big winner for Sony during the quarter. Financially, the game unit, which includes PS3 only made a modest contribution. But it is no longer a drag on earnings. According to Reuters, "its game business swung to a profit after Sony cut production costs and retail prices of the PlayStation 3 game console and broadened its game software lineup."

Sony waited a long time for the PS3 to work out. That may be paying off.

Douglas A. McIntyre is an editor at 247wallst.com.