You know a company has achieved success when its brand name becomes a byword for the service. Millions of Americans use the word Netflix when they talk about renting a DVD online and websites devoted to the company draw thousands of loyal fans. But just as the dotcom pioneer is on its way to reaching the ranks of Google or Xerox in name recognition, established players are trying to usurp its status.

Netflix pioneered the form of subscription-based DVDs five years ago when it combined a new-media interface with conventional transportation: consumers use the Web to select the three films allowed at any one time, while the distribution network relies on the postman. For a monthly cost of $18 (€13.95) and no late fees, the service attracts 2.3 million subscribers and consistent profits.

Analysts say the company has shaken up the video rental market since its arrival in 1999, but emerging technologies may change film distribution entirely.

The story of Netflix founder and chief executive Reed Hastings's eureka moment has become the stuff of internet lore. Faced with $40 in late fees he owed a video store for one film, the story goes, he set up Netflix to create a model that didn't involve such charges.

The company he owed was global rental chain Blockbuster. Seven years later, it became Netflix's rival with its online launch in August.

"We're all sick of late fees, who's not?" asks Adi Kishore, an analyst with the Yankee Group in Boston. "But Blockbuster makes a high percentage of its revenues from those fees and it's a huge percentage problem for them."

Although analysts say Blockbuster's entry into this market signals a shift in its operations, some caution the success of an online service might be overblown. Netflix revenues are expected to reach $490 million this year, but this is a fraction of the $8 billion US home video market last year.

"It's certainly a nice chunk of change, but it's hardly replacing the home video market any time soon," says Todd Chanko, an analyst at Connecticut-based Jupiter Media.

Netflix recently postponed plans to expand its service to Europe, but a company called Screenclick (formerly dvdrentals.ie) operates a similar service in the Republic.

Blockbuster is not the first company to compete with the market leader. A number of smaller services, which specialise in independent movies, have existed for almost as long as Netflix. But, according to the analysts, the real competition didn't start until retail giant Wal-Mart set up its online service in 2003.

Wal-Mart maintained its low-price reputation when it debuted at $19 a month - at the time undercutting the established internet service by $3. But Netflix saw little need to react until Blockbuster entered the picture, resulting in all three companies lowering prices to sub-$18 levels.

Analysts say this virtual price war does not bode well for Netflix profits and the company's share price sank to the single digits this month from a $40 high in February.

Although the lower subscription prices will put a dent in Netflix's earnings potential, analysts say the competition demonstrates the prospects these companies have for the future of the business.

"The price war is a reflection of the fact that it's not just some tiny little dusty corner of the business," says Josh Bernoff, an analyst with Forrester Research. However, "when big companies get into areas that small companies pioneered, it's sometimes bad news for the small ones," he adds.

Mike Kaltschnee runs a weblog, hackingnetflix.com, representing a core of vocal fans of the service who give the site more than 2,500 unique visits a day. He insists the conventional retailers will find it hard to match Netflix's cult appeal.

"They just did it right, they're an internet company. Blockbuster doesn't get the internet," he says. "Netflix has done a nice job of making the experience good."

So far, the only serious competition for Netflix has come from the bricks-and-mortar companies. But Netflix is bracing itself for the entry of internet behemoth Amazon.com. Although the online retailer has not made a formal announcement, Netflix executives have said it is imminent.

Analysts say Amazon is well positioned to convert its customer base to DVD subscribers, but it would involve the acquisition of distributions centres, something the company has said it is loath to do.

Another option open to Amazon is acquiring Netflix, since its recent low share price makes it an attractive takeover target.

Although Netflix exploited what some analysts call a "technology gap" when it pioneered the online DVD service, new technology may make its current operations irrelevant.

Increased broadband and digital cable access mean companies can send content directly to customers without the need for a DVD. This system of "video on demand" will be in full swing in the US by 2006, says Laura Behrens, a media analyst with research firm Gartner G2.

Once the service is further rolled out, she says, "it becomes entirely a business proposition instead of a technical proposition".

Companies such as Movielink and Cinema Now offer a limited service over the internet, but connecting the PC to the television is not an easy task for the average customer. Future PC/TV convergence is expected to allay this problem and cable chains already offer successful video services.

But analysts say the main reason why video on demand is not as popular as the DVD services is thanks to Hollywood. The current system of new releases gives video and DVD a two-month jump on their cable counterparts and Ms Behrens says the studios will not change this until revenues from video on demand increase.

The studio changes are expected to take place over the next two years and Netflix executives have said they are poised to adapt to this transition. The company is planning a partnership with video recording service Tivo in 2005 that will enable films to go straight to the recording box.

Although analysts are quick to herald the revolution video on demand will bring, they say the process will not be overnight.

"The simplicity and the familiarity of the plastic disc in its box should not be overstated," says Ms Behrens.

"The source doesn't matter, it's the content," she adds.