Some might say that Blockbuster (NYSE:BBI) gave up on the DVDs-by-mail market when it quietly settled a patent infringement lawsuit that Netflix (NASDAQ:NFLX) brought against it and scaled its online Total Access program way down.

Walk into a Blockbuster store today, and you'll barely see a mention of the service. That's a stark contrast to the olden days, when Total Access posters were everywhere in the stores and those online customers cleaned out store shelves with their free trade-in rentals.

Well, the in-store exchanges are new and improved. This time, they even make sense. Blockbuster clearly hasn't surrendered to Netflix in that space. 

Here are the key differences between the old in-store exchange program and the new one:

Old

New

Bring in your return envelope and get an additional in-store movie for free!

The off-the-shelf pick is your next Total Access movie -- no extra freebies.

Return that movie in three days or suffer the late fees.

No late fees; you just won't get a new mailing until you return the in-store rental to the store.

Online renters clean up store shelves like African driver ants strip the flesh off a fallen antelope.

Without the "free stuff" incentive, this program won't hurt store inventories very much.

Coaxing Total Access customers to stores by the busload for free, extra movies that didn't count against the mailing limits, well, that was a pretty stupid idea. Customers who wanted to pay per rental, old-school style, were turned off by gaping, empty store shelves. Franchise owners got nothing more than the occasional impulse rental or concession sale out of it. That idea was always destined for failure.

The new model shows how CEO James Keyes is applying his extensive retailing knowledge to save Blockbuster's bacon. It's a convenience for online renters who will reduce the return cycle by a day or so. The model’s also economically defensible and won't inconvenience the company's traditional full-price customers.

In addition, gamers will soon be able to get their video game fix through Total Access. Blockbuster will ship titles for the Nintendo (OTC BB: NTDOY.PK) Wii, Microsoft (NASDAQ:MSFT) Xbox and Xbox 360, and Sony (NYSE:SNE) PlayStation 2 and 3 from an online queue akin to the DVD queue. Given the recent success of GameStop's (NYSE:GME) gaming sales despite the recession, this could be a serious vitamin boost to the Total Access program.

Online sales already generate profits for Blockbuster. There's more of that to come. I'm not selling my Netflix stock anytime soon -- but I just might buy some Blockbuster, too.

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Fool contributor Anders Bylund owns shares in Netflix, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a bio if you like, and The Motley Fool is investors writing for investors.