Netflix has already killed the old distribution model. For the price of about 8 full-price DVDs per year, you can watch any video in the Netflix catalog with the assurance of consistent quality and convenience. You can even watch multiple video streams at once, if you have a network pipe that's fat enough and a few extra screens.
I have a decently-sized collection of DVDs. But my indexing and search system sucks, in that it heavily relies on physical discs being replaced in exactly the right spot, which is often hard to reach. Now, a decent HTPC with networked storage would solve that problem handily. But I would still have to read the video files off all the discs and put them into a media catalog.
Netflix has already done all that work for the videos they are licensed to distribute. So if I know that a movie I want to watch is buried behind two rows of DVD cases, certainly no longer in the genre+alphabetical order that I try in vain to enforce, and possibly not even in its case, I'll definitely check to see if it's on Netflix before I get off the couch.
And if I know I don't own the DVD, and it's not on Netflix, I'm certainly not going to go check a dozen walled gardens that will probably still want me to pay $2.99 to view each TV episode one time, or $4.99 to see one movie one time, and maybe they also want me to log in using credentials from a cable or satellite provider.
It only takes a few instances of being annoyed and frustrated like that, and a few instances of finding exactly what you desire from friendly pirates, before skipping the former. I have already demonstrated my willingness to pay for content that I like. But that willingness has limits.
I bought the Ghostbusters DVD, because I knew that I'd want to see it again, at multiple times of my choosing in the future. And I also know how to use certain programs to take the video off the physical medium and transcode it to a file viewable on my kids' Android tablets. That's still not as convenient as Netflix, because I have to do that extra work, and there's still no central entertainment nexus, where I can search in just one place for the video I want to watch.
That's the thing that will kill the walled gardens. People don't want to have to flip through 57 channels and still not find anything they want to watch. They want to open up the program guide, maybe search, maybe look at recommendations and reviews, and then press play. If consuming your entertainment becomes too much like work, your audience shrinks. As long as Netflix has the infrastructure to make consuming entertainment convenient it doesn't need to carry exactly the content people want. All they need is a reasonable alternative.
For example, if people search for "Indiana Jones" on Netflix, they might see a "not found" result. Instead, Netflix could have said "not found, but..." and made suggestions.
Features like "Indiana Jones and the Raiders of the Lost Ark": "The Librarian and the Spear of Destiny", "Allan Quatermain and the Kingdom of Skulls", "The Da Vinci Code", "The Mummy", (>> more >>) ...
Features starring Harrison Ford: "Star Wars", "The Frisco Kid", "Witness", "Cowboys and Aliens", (>> more >>) ...
Features directed by Steven Spielberg: etc ...
Features set between 1917 and 1945: etc ...
Something like that would kick those distributors who refused to license content at a reasonable price right in the wallet, because Netflix would be forcing them into direct competition with all the other features that include the same old tropes and plots. Likewise, anyone who could seize the initiative from Netflix as the first place that people check for the features they want to watch could kill them, too.
All it would take is a better search engine, with support for alternative recommendations.