What a week for movie watchers! Wait, no. I meant movie industry watchers.

The smoldering rivalry between traditional rental king Blockbuster (NYSE:BBI) and online-delivery specialist Netflix (NASDAQ:NFLX) is one of my favorite shows right now, above and beyond anything you could rent from either operator. And Blockbuster's earnings call from Thursday morning was an especially refreshing turn in this intricate duel -- some would say a duel to the death. I disagree with that morbid sentiment, and I think you'll see why by the end of today's show.

Met him at the candy store
There's a new leader of the pack in Dallas -- longtime Chairman and CEO John Antioco recently stepped aside to be replaced by former 7-Eleven head honcho Jim Keyes. And let me tell you, if the new chief can change this business as much as he instantly changed the tenor of Blockbuster's conference calls, shareholders are in for a treat.

Keyes -- a longtime Fool favorite and repeat interviewee -- explained up front that he took this job because he saw so many parallels between Blockbuster today and 7-Eleven 20 years ago, and he feels confident that he can apply those decades of successful experience in this new setting. In short, he thinks Blockbuster is a turnaround explosion just waiting for a spark.

The similarities are indeed many. Keyes stepped aboard two companies in dire financial straits, facing declining market shares and new consumer preferences. At 7-Eleven, an intense focus on customer wants and needs paired up with savvy use of new technologies in inventory management to produce one of the greatest turnarounds in recent memory. That's what Keyes wants to do again with Blockbuster.

All I could do was cry
Let's have a brief financial intermission. CFO Larry Zine gave us plenty more detail about the costs of the Total Access program than the SEC filings and press releases did, and we even got more than we're used to from previous conference calls. Many thanks, good sir -- though the picture still isn't complete.

Zine said the aggressive rental program depressed gross rental margins by 7.8% and cost the company about $50 million in the second quarter as 600,000 net new subscribers signed on and people used the in-store coupons at a higher rate than expected. That's in line with the $200 million annualized cost that Netflix management figured it would cost to run Total Access in the current form.

I should really say "then-current form." Within hours of completing this call, Blockbuster made serious changes to its subscription-based rental plans. Now, the heaviest users, who weigh the most on profit margins, have to pay up for their expensive habits. The unlimited in-store exchange program now costs $25 at the three-at-a-time level, which really works out to almost six at a time if taken to the logical limit. It's still a better value than the actual six-movie option, though you do have to drive down to the local video store several times a week to get the full value.

Other, more limited plans remain at around the old three-movie Total Access price, $17 to $18 a month for three disc mailers in the house. This is the first of what we were told would be many planned changes to the program, as Blockbuster now wants to turn those truckloads of new customers into as much profit as possible -- without scaring too many of them away. This stratified array of plan choices makes plenty of sense with that goal in mind.

That's when I fell for the leader of the pack
In fact, I think it's exactly what the company needs. Keyes comes in with a clear head and established mass-marketing expertise, and his customer focus could mean many good things for this troubled old-line incumbent. "I certainly don't have all the answers," he said, "but I have plenty of questions. And I do bring to the table a confidence that I can put the tools in place to bring about this transition" into a more modern content-delivery paradigm.

Keyes' stated goal is to "create a culture and a business process at Blockbuster that's responsive to change and able to keep pace with the changing needs of our customers, because ultimately, if we exceed the expectation of our customers, we will in turn exceed the expectation of our shareholders."

Near the end of the call, he worried about the compressed capital structure in this time of need to "redeploy resources" to build a new, hip Blockbuster. "I know we can't just go spend the money overnight for this new investment," he said, so he'll have to come up with other ways to raise the necessary cash and follow through with the plans he's still formulating.

Then again, the same thing was true at his previous place of business, too -- and that became the touchstone for more efficient operations that led to much greater results once the oppressive market conditions had been countered. Necessity breeds innovation, and this CEO is brimming with new ideas.

They all stop and stare
So if everything sounds so great at Blockbuster, why should I doubt the impending demise of Netflix?

Elementary, my dear Holmes. This isn't a price war anymore. Those hurt everyone involved -- except consumers, who get to enjoy great value everywhere they turn. Just ask anyone following the Intel (NASDAQ:INTC)-versus-Advanced Micro Devices (NYSE:AMD) prize fight. No, this is becoming a service war instead.

When two fairly evenly matched competitors with very different strengths compete by coming up with better services and products, rather than cutting their way to the customer's heart, both of them can win. A duopoly can be profitable for everyone involved if the terrible twosome decides to stop trying to kill each other and instead focuses on growing the shared market together and just competing for a decent share of the spoils.

It doesn't have to be all or nothing. This has worked out OK for, say, DirecTV (NYSE:DTV) and EchoStar, or Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), over the years, and I think we're seeing the start of a more affable rivalry again that will reward shareholders of both companies. Great call, Jim, and I can't wait to hear what else you've got planned.

Further Foolishness:

Intel and Wal-Mart are Motley Fool Inside Value picks, and Netflix is a Motley Fool Stock Advisor recommendation. Either service is available for a free 30-day sneak preview.

Fool contributor Anders Bylund is a Netflix subscriber and shareholder but holds no other position in any of the companies discussed here. But now he's giving serious thought to owning both of these stocks. You can check out Anders' holdings if you like, and Foolish disclosure is the leader of our pack of Fools.