Netflix delivers its comprehensive library of movies and TV shows online and through the mail in their ubiquitous red envelopes.
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I ran a DCF on NFLX using the FCF from 2006. Assuming only a growth rate of 5%, terminal growth rate of 3%, and a discount rate of 20%, NFLX's future cash flows are worth $1.2B. Taking cash minus total liabilities, the company has equity of at least $200M. Add the present value of the DCF to the $200M and that puts the company right at its current market cap. A growth rate of 10% values the company at $1.8B, which offers a good margin of safety.
As far as current operations go, NFLX looks pretty good and is generating lots of cash. The Blockbuster threat is only a short term problem. Winning the OnDemand battle is what really matters. And that is all speculation right now.