Maybe Blockbuster Entertainment (BBI: NYSE) is through with losing market share. After a few years of playing catch-up with Netflix (NFLX: NASDAQ), it looks like the quintessential American movie store has crafted a reasonable imitation to the new-kid-on-the-block, mail-order movie service.

You’ve probably seen the commercials. Alec Baldwin’s soothing voice tells us we can now get our DVDs through the mail, just like Netflix. But with Blockbuster Total Access, you can get the movies through the mail and exchange them at your neighborhood Blockbuster Store if you can’t bear to wait the two days for the new movie to be mailed to your house.

On the surface, shipping and store exchange appear to be a great improvement to Blockbuster’s store-only rental system. And the starting price for both Netflix and Total Access is $9.99. So if you really want to go out on a limb, Blockbuster is giving away two services for the price of one.

The introduction of Total Access has propped up Blockbuster’s perpetually sinking stock a couple of cents. It’s even persuaded one analyst to downgrade Netflix to market perform, assuming that Blockbuster’s changes would help it regain some of its lost market share.

However, copying Netflix’s business model and tacking it on to Blockbuster’s existing bricks and mortar operation won’t save this company for the same reasons that the movies-in-the-mail business will soon begin to falter: Convenience and instant gratification.

Customers like Netflix because it eliminates a time-consuming chore: Driving to the movie store. Remember how angry you felt in the pre-Netflix days when you dropped by Blockbuster after work, only to find that the movie you were looking for was gone? Everyone’s pressed for time, and an extra trip to the movie store is never a welcomed task.

To recap: Netflix offers movies through the mail, and you might have to wait a couple of days to receive a new one to watch. Blockbuster has the same deal, except they offer a chore (the trip to the movie store) along with the mailed movies for about the same price. As far as we’re concerned, this competition ends in a tie. We doubt many people will switch to Total Access just to earn the right to waste gas on a trip to the video store.

Of course, this doesn’t mean that movies in the mail will remain the business standard for years to come. You have to cut out the mailing part to make the process truly modern and convenient. But as it stands, movies through digital cable are just too expensive to be embraced by all consumers.

The company that finds a way to deliver movies cheaply via digital cable, satellite or the Internet will win this race. Then the consumer will have what he has always wanted: new movies anywhere, anytime — instantly.

Best,
Gunner
June 4, 2007

Greg Guenthner

Greg Guenthner uses his experience as a former journalist to dig up the hard-to-find headlines that could lead to big gains for your micro-cap portfolio. Greg offers his readers the scoop on topics ranging from alternative energies to biotechnology, digging up the best penny stock opportunities before they’re discovered by the mainstream media. On top of contributing to Penny Sleuth, Greg also heads Penny Stock Fortunes and Bulletin Board Elite. Special Report: Imagine Getting Rich as Ignored Stocks Soar - You could turn $200 into $1.2 million!

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