Amazon could do a better NetFlix than NetFlix does. They have the fullfillment centers. They have a vastly better recommendation engine. They could leverage their massive distribution and leverage their site to offer a better overall customer experience. (Why do I want to go to one place to buy a DVD and another to rent it? If I want to recommend one to you, I can't even point to NetFlix, and you may not be a customer anyway. If I can instead point to Amazon, and you can rent it or buy it, that's better.)
The only thing they don't have is the patent. How ironic.