• by Wendy Davis , Staff Writer @wendyndavis, January 3, 2007

With around 6 million subscribers, Netflix is the clear market leader in online rental companies, but Blockbuster is fast catching up. Blockbuster--a longtime movie rental chain--said this morning that it now boasts 2.2 million online subscribers. Of those, about half a million--almost 25%-- joined in the fourth quarter.

What accounts for Blockbuster's sudden online surge? The answer appears to lie in the company's brick-and-mortar stores. In November, Blockbuster unveiled its "Total Access" program, which gives consumers incentives to return movies to one of around 5,000 physical stores rather than by mail. Those who deliver movies to the stores receive free rental coupons.

With this plan--which leverages the physical stores to promote the Web business--Blockbuster was able to make significant inroads in building an online customer base. But, at the same time, Blockbuster continues to close physical stores--limiting the value of offers that depend on people's ability to easily reach a brick-and-mortar outlet. It's one thing to walk a few blocks (or drive a short distance) to return a DVD, but not too many people will be happy to get on a subway, or drive to another town, simply to return a movie in person.