Netflix Inc. (NFLX) has a plan for dealing with the growing number of DVD kiosks: Ignore them.

In late April, Netflix Chief Executive Reed Hastings turned the spread of self-service kiosks into a high-profile issue for entertainment investors. During Netflix first-quarter earnings call, Hastings said kiosks were beginning to bleed away Netflix subscribers, and by 2011, self-serve kiosks, which rent new release DVDs for just 99 cents, could be in "every 7-Eleven, every Starbucks and every airline gate."

But the alarmist words belie a calmer approach at the Los Gatos, Calif.-based company. Unlike its competitors, some of which are trying to compete with kiosks head-on, Netflix plans de-emphasize physical DVDs. Instead, it is focusing on it growing library of movies available online and is tinkering with its online recommendation tools. Already the company has begun to introduce finer parsing of the categories it uses to suggest movies to customers, one of the key lures for its subscribers.

Netflix's strategy reflects the company's conviction that DVDs ultimately have a limited lifespan and that movie distribution will move entirely online in the next few decades. That makes kiosks, Netflix believes, only a near-term threat to the company's business and not one strong enough to force decisive action now.

"Netflix continues to focus on our core business, we're absolutely dialed in on that," said Steve Swasey, a Netflix spokesman.

Netflix's moves run counter to its competitors, but that's nothing new. The company started out as a video rental company that saved movie viewers a trip to the store. Its catalog was posted online and it mailed customers their DVDs. It carved out a niche by not charging late fees, an irritant for many video renters. Later, it added streaming movies, a business it is trying to promote so that it can get away from DVDs entirely.

Streaming video "is energizing our growth," Hastings said on the first-quarter earnings call. While DVD sales remain the primary driver of revenue, streaming has helped prop up gross margins and is a primary reason the company is on track for a record 2009 "on all dimensions," he said.

The company's first-quarter revenue increased 20% to $394 million while net income rose 67% from a year ago.

Netflix's belief in waning days of DVDs hasn't calmed investors. Since Hastings' comments, Netflix shares have fallen 3% as investors worry about the company's approach to dealing with the cheap competition.

On Monday, Netflix's stock rose 13 cents to $44.61.

The company's approach to kiosks is at odds with its most significant competitor, Blockbuster Inc. (BBI). Last Tuesday, Blockbuster partner NCR Corp. (NCR) said it was acquiring the remaining stake in TNR Holdings, North America's second largest DVD kiosk operator. The acquisition will enable NCR to add thousands more kiosks across North America under the "Blockbuster Express" brand.

Redbox Automated LLC, the world's largest kiosk operator, says it plans to have about 12,000 kiosks up and running soon, with plans for more.

"The offer of just one dollar per night is something that is extremely hard to compete with for Netflix," noted Todd Greenwald, Signal Hill analyst.

But analysts also see the threat as a relatively short-term one to Netflix. "What will work against kiosks is the demographic shift to online ordering and viewing," said Mike McGuire, an analyst at market tracker Gartner Inc.

-By Ben Charny, Dow Jones Newswires; 415-765-8230; ben.charny@dowjones.com