The days of the nickelodeon are long past, and most of today’s Hollywood celebrities certainly lack the style and class of their predecessors of the 1920s and ’30s, but movies remain a popular form of escapism from economic gloom.

And of course, the 21st century has its own spin on the movie business. These days, almost everything can be done online, and movie rental is no exception.

Launched in 1999, when DVDs were still in their infancy, Netflix (NSDQ: NFLX) was perceived by many as a quirky company with a niche business. Since then, it’s grown its subscriber base from just a few thousand to more than 10 million and its market capitalization to more than $2 billion. Netflix has expanded at a compound annual growth rate of more than 64 percent, and the industry it invented is now worth more than $8 billion annually.
Netflix has delivered on the promise of its first-mover status, maintaining its dominant position in the industry despite high-profile challenges from established, well-known players.

In August 2004, Blockbuster (NYSE: BBI), then the leading brick-and-mortar video rental chain, launched its own version of a mail-order DVD rental service. Though it initially gained an edge on Netflix, the Blockbuster offering morphed into its Total Access program, under which customers could rent or drop off movies either through the mail or in-store for a flat fee.

Even Wal-Mart (NYSE: WMT) tried its hand in the business, though its efforts were short-lived; its program only lasted about a year before the business was sold to Netflix in 2005.

Now, Netflix is about to put its stiffest competition to bed, as it appears Blockbuster’s bankruptcy is imminent. When that happens, Netflix will be left as the dominant player in the DVD rental business, online or offline, with the remaining competition being smaller regional players.

But Netflix isn’t banking simply on the absence of competitors to guarantee its profitability. It continues to innovate, partnering with device makers to allow subscribers to stream a large selection of movies directly to their televisions via the Internet.

Netflix pays nothing to its partners. Device-makers LG Electronics (Korea: 066570, OTC: LGEAF), Samsung (Korea: 005930, OTC: SSNLF) and Microsoft (NSDQ: MSFT) include “Watch Now” capabilities in their devices; it’s a mutually beneficial arrangement that adds a selling point for the device-makers and a potential subscriber for Netflix. Although Netflix’ library of “Watch Now” titles is still relatively limited, subscriber demand for the service is strong.

The recession has slowed subscriber growth over recent quarters, but by no means have people stopped signing up. Since this recession began, Netflix’ subscriber base has grown from 8.7 million to just over 10 million in February.

And Netflix offers diversion-hungry Americans tremendous value that should underpin steady growth. For $8.99 a month, customers can have one DVD out at a time with no monthly limit and unlimited access to “Watch Now” titles. That’s a lot of bang for less than $10 during the worst recession in decades.

Along more traditional movie lines, Regal Entertainment Group (NYSE: RGC) hasn’t weathered the recession quite as well. The share price is off by more than 50 percent since the beginning of the recession, and earnings have declined as traffic volumes have dropped off. Regal recently slashed its quarterly dividend from 30 cents to 18 cents to conserve cash. That 40 percent reduction will provide $75 million of additional free cash flow annually.

But, as is the refrain for too many companies these days, Regal’s earnings could be much worse; while the total number of visitors to its cinemas has declined, those who do come are spending more on each visit. The theater operator also recently sold its stake in online ticket vendor Fandango, which was losing market share and generating little return, to focus on its core business. Regal also raised admission and concession prices slightly in the fourth quarter.

Over coming quarters Regal plans to emphasis its offerings of 3D and IMAX showings, as well as to exploit programs through groups such as the Metropolitan Opera bring productions to your local big screen.

Going to the movies has never been a cheap date for my generation, but assuming the recession doesn’t run much deeper Regal should benefit from the fact that it’s still one of the cheaper ways to spend an evening.

Benjamin Shepherd is editor of Louis Rukeyser’s Wall Street and Louis Rukeyser’s Mutual Funds.