>I understand that the licensing terms make it impossible for Netflix to have such an extensive library, but they and the content producers need to work out something or people will start abandoning them and going back to the old-fashioned way of streaming movies... illegally or quasi-legally.
Not really, no. Think of Netflix as a provider of exclusive content and curated, rotating third party content for a low monthly price. It's more akin to HBO than a video store. IMO most people that have Netflix understand that. For the "video store" model to make economic sense, it pretty much has to have a la carte pricing per show or movie. Guess what? iTunes, Amazon, and Google Play are all doing that and it's 100% legal.
Personally I don't think that netflix streaming has to be a video store. I'm quite happy with what I'm getting now for the price. That said, it wouldn't shock me if someday they launch a parallel streaming service with a la carte pricing.