The CEO of Netflix, Reed Hastings, knows he’s in the wrong business. DVD distribution, like VHS distribution before it, will soon die out in favor of streaming online video that can be play on both PCs and TVs. Netflix is no longer competing with Blockbuster or even the new upstart Redbox, they are racing with established and new online video suppliers to win over an increasingly tech-savvy consumers. Mr. Hastings, a forward thinking leader, knows that he’s in the media distribution business not the DVD distribution business and he has big plans according to today’s excellent Wall Street Journal article.

Today, the challenge for Neflix is securing licensing rights to relevant, interesting, movie-titles and getting them into people’s homes before Apple, Google, Amazon, and other Internet start-ups, do. Already competition is stiff and it seems that there won’t be a clear winner anytime soon as licensing fees are expensive, especially as Internet companies have to compete with traditional television subscription services like Time Warner and Viacom. Plus, connecting televisions to streaming online content isn’t a perfect science and it’s still too much of a trouble for most consumers.

New televisions connected to newer computers are capable of playing streaming content, but few consumers are plugged in–leading the way for companies, like Netflix, to develop hardware that can connect online content to televisions. Still, no product is dominant in the market and even Netflix, after developing their ‘box’, decided to allow another company to distribute and develop it since the hardware market requires a completely different skill-set and the room for failure is too great.

Traditional online media distributors like iTunes, Amazon, Google, and, perhaps, Netflix, are facing a new wave of free, or partially free streaming video-on-demand sites like The Auteurs, Babelgum, Hulu, Joost, Jaman, Snagfilms, and plenty of others. These small start-ups are user friendly and are usually dedicated to streaming niche genre titles. Some of them, like The Auteurs, are pairing up with independent filmmakers to distribute original films. Clearly, competition abounds.

The future of movie distribution will rely on the Internet–it’s just a matter of time before consumers will stop paying for cable channels and DVD rentals and start logging online to sites that stream the media they want. It’s up to smart leadership, like Netflix’s Reed Hastings, to see the upcoming trend and master it. It’s going to be a tough fight since clever start-ups and experienced Internet giants like Google and Apple are all trying to master the same trend. I’m reminded of the competition between Blu Ray and HD DVD players and the VHS or Betamax battle before that. This time around the media distribution playing field will be much larger and more competitive.