Game Over at Blockbuster?

One man's loss is another man's gain -- and when it comes to business, some investors can profit from others' failure.

Video-rental chain Blockbuster (NYSE: BBI) has been locked in a high-profile, life-and-death struggle against online video-rental outfit Netflix (Nasdaq: NFLX), with each seemingly trying to top the other. In most contests, Netflix has come out on top.

Just the other day, however, Blockbuster garnered some positive press from the news that its new Total Access plan to let customers rent movies online and then return those films at one of its bricks-and-mortar locations helped the company reach the 2.2 million-customer mark.

As Rick Munarriz noted, while that may have helped Blockbuster out in the short term, Netflix will soon be rolling out digital movie downloads. To me, it seems that Blockbuster's moves are simply desperate Hail Mary passes toward its receivers downfield.

Video games have always generated large amounts of sales for Blockbuster; rentals and sales have added considerably more than $1 billion to the company's top line, and those sales have accelerated as the company added new stores through expansion and acquisition. Initially, Microsoft's (Nasdaq: MSFT) Xbox 360 helped spur sales growth, but as the industry awaited new game platforms like Sony's (NYSE: SNE) PlayStation 3, sales fell amid a dearth of new titles.

That slide apparently caused Blockbuster to rethink its strategy. In 2005, it began to sell off "non-core" assets, first in its movie-rental business, and now in its video game business. Its Game Rush store-within-a-store concept was cut back last year, and now the company has announced that it's selling its Rhino Video chain of stores to GameStop (NYSE: GME). Rhino Video sells and trades both current titles and legacy titles going all the way back to the original Nintendo.

That's why a Blockbuster investor's loss is a GameStop investor's gain. GameStop was able to post a 29% increase in revenues during the nine-week holiday sales season, for a total of $1.7 billion. Its same-store sales rose nearly 24% from last year. Those rosy numbers led the company to increase quarterly sales guidance to 23% growth year over year, even with a shortage of PlayStation 3 and Nintendo Wii consoles.

Like its "no late fees" push that still charged fees, and its failed bid to undercut its rivals with price cuts, it looks as though Blockbuster's game-rental business has been flagged for another ineligible receiver.

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Fool contributor Rich Duprey owns shares of GameStop and rents movies from Netflix but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.