But in moving to digital content, Netflix is coming up against a whole new set of hurdles. Sarandos now finds himself locked into a battle with the movie studios, who are clinging to their old model of milking as much revenue as they can from their blockbuster hits by charging cable channels a premium for exclusive rights to show these movies after their theatrical release. As a result, Netflix currently only has about 8,000 films available now for online streaming to PCs, and they are offered simply as a free supplement to customers’ existing DVDs-by-mail plans.

But Sarandos is pushing for a nonexclusive distribution model that would allow the studios to make money off a higher volume of rentals and sales to broadcasters.

“Every successful internet play is about broad access, never exclusivity,” maintains Sarandos, who so far has made successful bids for nonexclusive access to movies like Pan’s Labyrinth and The Good German.

In a similar vein, Sarandos is betting that broadening Netflix’s distribution channels through set-top boxes, videogame consoles, and other devices, will allow its customers to continue using the format wherever they’re comfortable.

“We want the service to be everywhere the internet is,” Sarandos says.

Analysts think Netflix could well force the studios to change their approach by virtue of the company’s sheer size.

“For Netflix, it’s build the presence, build the knowledge, and capability,” says Kurt Scherf, vice president and principal analyst at Park Associates, a consumer research firm based in Dallas. Scherf says that "in the longer term they [Netflix] will have enough reach to broker deals that matter.”

For all the wrangling over the digital future, though, Sarandos acknowledges that mail order will likely continue to be Netflix’s dominant distribution model, at least in the near term.

“We’re all trying to navigate a new business without prematurely killing the old one,” Sarandos says.