According to an article in the Wall Street Journal (subscription), Blockbuster is introducing a holiday promotion that will let Netflix subscribers rent Blockbuster movies for free. Netflix members can exchange the tear-off flaps from red Netflix envelopes for free rentals at any Blockbuster store.

Blockbuster is using the promotion to boost exposure of its Total Access feature, which lets customers exchange DVDs received through the mail with DVDs available in stores. The promotion is set to run through December 21.

“I think most folks know that if you get something free you’re getting what you pay for,” said Netflix spokesman Steve Swasey. “The very reason for online DVD rental is that you dont have to go to the store. Its the convenience, selection and value.”

While Blockbuster is desperate to hook Netflix customers, they may be fighting the wrong battle. The video download market is beginning to expload, and there is still room for Blockbuster and other movies to stake out their territory.

Apple’s video download service has proven to be successful, if not yet a blockbuster of its own. Apple’s selection is limited and the company only offers purchases, not rentals. BitTorrent recently announced video download deals with several major film producers. Microsoft has also joined the fray, offering video downloads via its XBox 360 Live.

Finally, video podcasts and vlogs are establishing themselves as options for free Internet video. Filmmakers are already experimenting with podcasting as an option for delivering large video downloads conveniently to viewers.

via Computers.net