Bankruptcy reorganization or not, Blockbuster is still in it to win it.

If you've been watching commercial television lately, there's a better than fair chance that you've seen Blockbuster's "why wait" attack ad. In the spot, a family is told that their flight has been delayed by 28 days. A couple at a restaurant and a kid at the orthodontist's office are told of similar waits.

"You'd never wait that long, so why wait 28 days for new releases," the announcer says.

The ad is a shot at Netflix (Nasdaq: NFLX) and Coinstar (Nasdaq: CSTR), who have struck deals with most of the major studios. In exchange for cheaper DVDs, Netflix and Coinstar's Redbox have agreed to hold back from offering new releases during their first four weeks on the DVD market.

This is a huge opportunity for Blockbuster -- and it's not going to let it go.

The reawakening of Blockbuster
The "why wait" spot has been out since this summer, but it seems as if Blockbuster has been ramping up its marketing budget to get the commercial noticed in recent days.

Is it a coincidence that I've been noticing the ads frequently since Netflix's announcement last week of its first rate hike since 2004? I don't think so. Blockbuster has done a lot of dumb things over the years, but dumb luck isn't its strong suit.

Netflix is vulnerable. Redbox is vulnerable. They just don't know it, because their shares recently hit all-time highs.

A year ago, Blockbuster didn't stand a chance. Its storefront could never match the low overhead of a Redbox kiosk, so it turned to NCR (NYSE: NCR) to roll out licensed Blockbuster Express machines to match Redbox's dollar rentals. It was once a serious threat to Netflix's mail-based disc deliveries, but its cash-strapped balance sheet failed to give it the pricing flexibility necessary to effectively compete.

General Motors (NYSE: GM) and Six Flags (NYSE: SIX) have emerged from bankruptcy this year, with strong enough balance sheets to finally dream out loud. Is Blockbuster the next broken company to get a redemptive shot?

The timing is perfect
If you want to see Knight and Day, Going the Distance, or Vampires Suck today, there's a good chance that a copy is available at a Blockbuster near you. If not, you stream all three of them on-demand through Blockbuster. You'll have to wait until after Christmas to squeeze a DVD out of Netflix -- and who knows how many years after that it will take for a couch potato to stream a digital copy through Netflix.

Netflix always proposed a value-priced smorgasbord, but its rates will be climbing by as much as 18% come January. I'm a longtime Netflix shareholder and subscriber, and I think investors are naive if they don't think this will have an impact on the company's churn early next year.

A third of its subscribers aren't streaming at all, so they may be the first to question the hike -- especially since Netflix caving to the studios was supposed to be about lowering costs.

11 months ago
Netflix struck its first studio deal with Time Warner (NYSE: TWX) back in January. It was supposed to be a win-win-win deal.

  • Time Warner would win because 75% of its DVD sales take place during a release's first four weeks on the market. Keeping titles out of dirt cheap Redbox and Netflix services would encourage purchases of full-priced on-demand rentals.
  • Netflix would benefit from reduced costs, and Time Warner would be providing a greater number of discs.
  • Subscribers would benefit from greater availability, despite having to wait four weeks when the flick had already slipped from the best-seller and most rented lists.

The deals are probably still working for Time Warner and Netflix, but what about the 16.9 million subscribers? I don't know if it's just me, but I'm still staring at long waits for newer releases in my queue -- and that's after the rest of the country has had four weeks to check them out. Instead of passing on the cost savings, Netflix is increasing its rates a year after the Time Warner deal was inked.

Sure, Netflix has invested some of those DVD cost savings into streaming content deals, but how does that help the nearly 6 million accounts that don't seem to care about streaming?

Blockbuster knows that there will be a lot of Netflix subscribers either canceling the service or trading down to cheaper plans with fewer discs -- and turning to other options to help satisfy the void of new releases.

Netflix and Coinstar are soaring right now, but Blockbuster is finally parking itself on the landing strip -- where it should have been all along.

Does Blockbuster stand a chance against Netflix and Redbox? Share your thoughts in the comment box below.

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Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. Rick 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.