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There's a lot of excitement about Netflix (NFLX). Some people believe in the company, which is why it still sports a P/E of 53 in a market trending toward 10. Others see it as being on its last legs, a screaming short. History tells me that while the latter may prove right about Netflix, they are wrong in the long run when it comes to content.

The argument is based on Liberty Media's (LSTZA) Starz' unit's breaking off negotiations with Netflix, which will take away that content from Netflix subscribers at the end of February -- potentially very bearish for Netflix. Maybe; certainly in the short run, but in the long run, not so much.

You can't beat the house. In this case the house is the distribution channel. It is always the distribution channel that determines the price and sale conditions of content. It was that way in the 1920s with movie theaters; in the 1950s with TV networks; in the 1980s with cable networks; and it's still that way.

Rocco Pendola's summary point is this:

There has never been room for what Netflix does. And aside from collecting a quick buck to pad the bottom line there has never been a good reason for studios to license content to Netflix.

Uh, no. There is always room for distribution. Distribution is really all that matters. Netflix was made by its creation of a channel, the delivery of DVDs to the home via mail. NFLX did this efficiently and still does. It's a service people are willing to pay for.

The fact that NFLX's going into streaming of content would seem to be a problem. There is a lot of competition in that area. In fact, the studios even backed their own play. Anyone want Hulu? Reportedly six companies -- which all have digital streaming channels -- do: Yahoo (YHOO), Google (GOOG), Amazon (AMZN), Microsoft (MSFT) and Apple (AAPL). So does Netflix. Hulu has content, and all these channels think content is the key to success in distribution.

But history says that's backwards, that it's distribution that is the key to success in distribution. Having a channel to the customer is the key to success, not having something to sell but a willing buyer.

There's a false assumption in the Hulu auction: That the winning channel buyer will be able to drive out channel competitors by controlling access to content. Again, history says no. Dumont made great television shows but ultimately its channel wasn't strong enough to compete.

The channel is the house, and you can't beat the house. Whether Netflix is a winner or loser at these prices is not for me to say. But in the end, I know, channels will beat content in content distribution online. They always have, and they always will. Netflix may or may not be the winning channel, but the winner will be someone like Netflix.

Source: Netflix: The Channel Always Wins