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When Carl Icahn scored a seat on the board of Blockbuster in 2005 after a nasty proxy fight, he called it "a satisfying victory," as I reported on Bloomberg at the time. Six years later, he changed his tune, saying his investment in the video rental chain was the worst of his career, as Forbes noted. Icahn now is taking another stab at the video businesses through a $168.9 million bet on Netlfix (NFLX +5.49%), and it appears that he hasn't learned his lesson from his earlier misstep.

Like Blockbuster, Netflix needs to change its business model in order to survive. It currently has more than 27 million streaming members in the U.S., Canada, the U.K., Ireland and Latin America, by far the most of any company. That market dominance, however, won't last because new entrants seem to be entering the video streaming business by the day. (AMZN +0.49%), expects its Amazon Prime service to reach as many as 10 million customers by October 2013, up from 3 million to 5 million in 2011, according to Bloomberg News. Hulu, which is backed by major media companies, has 2 million customers for its Hulu Plus paid service and continues to add original content. Even Wal-Mart (WMT -2.74%) has gotten the video streaming bug. Its Vudu service is now advertising $2 rentals for 2 nights.

As he did with Blockbuster, Icahn is pressing for Netllix to merge with a larger rival. That hasn't happened yet for many reasons. Maybe the company's loquacious CEO, Reed Hastings, can't imagine having a boss, or perhaps his asking price is too high. It remains to be seen whether any company is large enough to accommodate the egos of both Hastings and Icahn.

The Blockbuster story didn't have a happy ending. The chain filed for bankruptcy in 2010. Charles Ergen's Dish Network (DISH +1.80%) bought it in April 2011 in the hopes of transforming it into a "Netflix killer." Ergen figured that he could use the chain's stores to sell mobile devices that would enable customers to stream Blockbuster movies. He has scrapped the idea.

"The plans broke down when U.S. regulators didn't immediately approve a waiver allowing Dish to use its satellite spectrum for terrestrial data and voice transmission," according to Bloomberg News.

Investors need to remember that Icahn does what's in his best interest. Other shareholders who come along for the ride sometimes reap the benefits of his activism, but in the case of Netflix, that seems unlikely.

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