With Blockbusters attempt to compete with Netflix in the online movie rentals they may be seen as a legitimate competitor to Netflix, however, the obvious differences in the companies gives Netflix the advantage. Blockbuster's new total access plan where customers can exchange and rent movies in the stores seems like a good idea for the company with thousands of costly stores and employees but the average store only stocks about 6,000 movies compared to 10 times that online. It simply costs more to operate a brick and mortar like Blockbuster. If there are price wars I'm picking Netflix who has years of experience building up their online company vs. Blockbuster burdened by fixed costs. Netflix just had a hiccup with revenue and earnings probably because of Blockbuster but longer-term they have this market over Blockbuster and Movie Gallery. It's not smart to predict to far, say 5+ years in a world of rapidly changing technology however. Who knows what will happen with Tivo and the future home entertainment networks.

Netflix as of May 10th 2007 is trading for $21.91 per share. Fear and market sell offs that drive down stock prices but don't effect long-term prospects are some of the best buying opportunities. Netflix is currently selling for about 6 times free cash. Five year average net margins of 3% compared to Blockbusters -8%.
If Netflix can grow free cash flow to 354.31 in five years the stock currently is undervalued using a discounted cash flow model.
354.31 / (1+10%)raised to 5 years= net present value of cash flow 214, below its current 220.

disclosure: author doesn't own any shares of Netflix