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Blockbuster's dirty trick against Netflix

A nice casual Saturday afternoon in Naples, Florida. My kids are on spring break and we decided to leave the cold of Minnesota (although it was 61 degrees in Minneapolis yesterday). In beautiful Naples, it was 80 degrees, but with the wind chill -- 79. My son and I went to the local Blockbuster Inc. (NYSE:BBI) store to rent some movies for the week, and there it was the dirtiest of tricks.

As we were paying for the movies at the check-out counter, I noticed a Dell laptop computer about three feet to the left of the cash register. The laptop was open and properly set on the Blockbuster home page. I wanted to see if they carried an obscure movie that I hadn't seen in a while when what struck me was an "oh my God" expression. In the left-hand margin where you list your favorite websites, this Blockbuster store had three "favorites" affixed-in; Blockbuster's home page, Blockbuster's sign-up for the online, mail at home service, and ... the Netflix Inc. (NASDAQ:NFLX) membership cancellation page!

I couldn't believe it! The laptop was configured in a way that the customer has no ability to visit any other websites, just these three. I clicked on the Netflix cancellation tab and sure enough, right to the cancel the membership page. I asked the manager if he was doing this alone in his store. He said, "No, all the stores have this laptop with the same three tabs. Its our way of marketing our online service." I asked him if he had heard any customer objections to such dastardly tactics? He got a little red-faced and asked me if I worked for Netflix. I said no, but I thought Netflix was kicking Blockbuster's butt in the online business and had the eventual better business model.

He then asked me if I was a movie producer?! After taking off my sunglasses, swooshing back my hair -- okay, okay, got carried away here -- I said no, just a financial type guy. He seemed nervous. I felt like Colombo.

This tactic he claimed was coming from his regional headquarters. Blockbuster is aggressively trying to promote its online business, and what remains is the big question: Is Blockbuster's online customer migrating from its usual store-based business? If it is, then Blockbuster's bet to offer both bricks and mortar and online will not work as effectively as they planned. The same-store sales numbers will be the metric to watch very carefully.

In the meantime, I am going back to watch Rocky Balboa. Yo, Adrienne ...

Georges Yared is the chief investment strategist of Yared Investment Research. Please visit www.georgesyared.com

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Last updated: October 15, 2008: 03:55 PM

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