Blockbuster lures Netflix customers with free DVDs

By U.S. News & World Report

Through Dec. 21, Netflix customers can get free movie rentals at Blockbuster stores in exchange for the Netflix mailing labels they normally would throw away (one DVD rental per label).

The promotion highlights the advantage that Blockbuster (BBI, news, msgs) has over its Web-only competitor: physical stores for video renters' immediate gratification.

"We want these movie fans to experience getting the movie they want without the wait," says Blockbuster CEO John Antioco.

'An interesting approach'

Derek Brown, an analyst with brokerage house Cantor Fitzgerald, calls the move "an interesting approach that has the potential to do what Blockbuster wants, which is get consumers into their stores with greater frequency. But history over the last 12 months suggests that Netflix has more than held its own despite the pricing and retail advantages Blockbuster has."

Netflix (NFLX, news, msgs), which leads the online DVD-rental market, offers overnight movie delivery to the majority of its 5.7 million customers.

Blockbuster has told analysts it expects to have 2 million subscribers to its online service by the end of the year.

The free rental promotion could draw more subscribers to Blockbuster's program, which also recently started a "Total Access" feature that marries the benefits of Netflix's online model (pick movies on a PC, receive them by mail, keep them as long as you like) but adds the twist of being able to return the DVDs by dropping them off at one of the company's 5,000 stores nationwide.

But by expanding its online customer base, Blockbuster could end up hurting the same stores that give it an advantage.

"The more consumers use this type of service online, the less frequently they go into stores," Brown says.

This article was reported and written by Kenneth Terrell for U.S. News & World Report.