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Will Blockbuster Bust Netflix?

Today, the inevitable happened. Blockbuster (NYSE: BBI  ) , which is still in the process of being spun off by Viacom (NYSE: VIA  ) , has finally launched a mail-order version of its service, meant to take the wind out of Netflix's (Nasdaq: NFLX  ) sails -- and sales. This could spell bad news for Netflix, possibly depressing the number of new subscribers signing on.

This is a move that feels long overdue. Back in May, Blockbuster's answer to Netflix was to provide a monthly rental program in which customers paid a flat fee for a similar rental structure, which included having a specified number of flicks rented at any given time without late fees. However, it still required that customers bring their DVDs back to the bricks-and-mortar Blockbuster they rented them from.

Part of Netflix's major claim to fame has been the innovation and convenience of its Internet-and-mail-order hybrid, under which customers would log onto the Net to order movies, which they would receive via the U.S. Postal Service and easily pop back into the mail when done.

Blockbuster Online's version represents a $2 discount to the monthly fee Netflix charges for three movies out at one time. In addition, USA Today pointed out that Blockbuster's online catalog includes 25,000 titles, a vast improvement to the in-store model, where most emphasis is placed on a glut of new releases and more obscure or older films get short shrift. In a new twist, it will provide two free movie rental coupons for its stores per month with the service.

Obviously, this could build quite a roadblock for Netflix. Incidentally, though, some Foolish community members have tried Blockbuster's service during beta testing, and its pros and cons have been thoroughly discussed on our Netflix discussion board: Lots of folks seem to think the Blockbuster version isn't that different.

However, much like Motley Fool Stock Advisor pick TiVo (Nasdaq: TIVO  ) , Netflix has a history of innovating. (In the past, when I have mentioned how TiVo may in some ways, both now and in the future, prove to be a competitive force for Netflix, many Fools have written me to remind me of TiVo Chairman and CEO Michael Ramsay's presence on the Netflix board and the idea that where rivalry could exist, so then could partnership synergies.)

Though both stocks dipped today, this is hardly a move that is unexpected (especially given the beta test). Many are banking that the power of branding may ultimately mark Netflix as the winner in online, all-you-can-eat DVD rentals. However, what may be the clearer differentiator will be continuously tapping into what works for movie watchers, a feat that Blockbuster and bricks-and-mortar rivals like Hollywood Entertainment (Nasdaq: HLYW  ) neglected for a long time.

Here at the Fool, many have come to Netflix's defense. Here are a few articles:

Netflix was once aMotley Fool Stock Advisorpick; TiVo still is. Check out the Gardners' other picks for six months, risk-free. Meanwhile, can Blockbuster take on Netflix, or not a chance? Chime in on the Netflix discussion board.

Alyce Lomax does not own shares of any of the companies mentioned.

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