Yes, Netflix (NASDAQ:NFLX), you have a rival -- and its name is Blockbuster (NYSE:BBI). Thanks to the strength of its Total Access service, which lets online renters return movies in stores, Blockbuster has hit the 2.2 million subscriber mark, with roughly 2 million of those belonging to paying customers.
You see Blockbuster gunning for Netflix in its latest televised ads, which show an animated family favoring Blockbuster for its ability to fulfill the immediate gratification of in-store rentals (which are free when you return a mail-delivered flick at participating stores). Blockbuster may never close the gap with Netflix and its 5.7 million subscribers. Even with Blockbuster's successful step forward in 2006, in which it landed a million more subscribers, Netflix had already widened its lead by signing 50% more than that through the first nine months of the year.
That may explain why Blockbuster's stock rose 7% on the news yesterday, yet Netflix inched 3% higher as well. Blockbuster still isn't a Netflix-killer, but it seems to be succeeding in becoming a thorn in its rival's side.
This promises to be an interesting year. Later this month, Netflix will detail its plans for digital delivery, which may make Blockbuster seem like the slowpoke in terms of instant gratification on the rental front. We will also want to keep a closer eye on Blockbuster's finances. If the online business remains profitless and cannibalizes the company's more lucrative storefront business, growing Blockbuster's online base may not continue to appease investors. Remember that Amazon.com (NASDAQ:AMZN) was once looking to jump into this niche domestically, until it got spooked by Netflix and Blockbuster's cutthroat ways.
For now, we can safely assume that Blockbuster has an appealing product on its hands. Total Access has helped fuel a surge that, until just a couple of months ago, had found subscribers growing from just 1.2 million to a total of 1.5 million for most of 2006. The holiday marketing push is working. Now it's up to Blockbuster to prove to its shareholders that it's a workable model, too.
Foolanthropy is celebrating its 10th year! To learn more about our five Foolish charities or to make a donation, visit www.foolanthropy.com.
Amazon.com and Netflix have been recommended by David Gardner for his Stock Advisorsubscribers. Discover all of David and his brother Tom's stellar stock selections with a free 30-day trial subscription.
Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and investor -- since 2002. He is also currently kicking the tires of Total Access, and he likes what he sees so far, save for the disparity in availability wait times with his more accessible Netflix account. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
