DVD rental business has rapidly become commoditized as customers shop by price.

That, at least, appears to be the message Netflix's earnings conference call, on which top execs spent a considerable amount of time from the very start talking about the toll Blockbuster's (BBI) new online offering has taken on its business. Competition from Blockbuster, the company has said, hurt first quarter performance.

Netflix CEO Reed Hastings said he's confident Blockbuster's low prices aren't "economically viable." He added that it's "not a question if, but when Blockbuster will reset prices."

Perhaps, but customers are no dummies. They obviously like the combination and flexibility of mixing bricks-and-mortar with online. More importantly, they have now proven that if service and selection are similar, they'll go with the company that offers the lowest price, margins be damned.

» marketwatch