Blockbuster unveiled a video streaming service limited to Dish Network satellite subscribers, a move to better compete with movie rental giant Netflix and rival cable and satellite TV providers.
For non-Dish subscribers, the company plans to unveil an online streaming plan later this year, Blockbuster president Michael Kelly told Reuters in an interview.
Blockbuster, the once-dominant video store chain, is trying to rebuild its brand in an increasingly crowded market with backing by deep-pocketed parent company Dish.
The streaming push comes as Netflix has stumbled with an unpopular price increase and other missteps that have sent the company's shares tumbling 50 percent in two months.
Called Blockbuster Movie Pass, the new subscription service will start at an additional $10 a month for streaming plus movie and video game DVD rentals by mail and at the company's more than 1,500 stores.
At Netflix, mail plus streaming starts at about $16 a month.
"It's definitely not a Netflix killer, but I do think it offers a lot of value for Dish customers," said Tony Wible, an analyst with Janney Montgomery Scott who has a "sell" rating on Netflix.
Shares of Netflix gained 0.65 percent to close at $129.36 on Nasdaq. Dish shares rose 5.35 percent to $26.76, also on Nasdaq.
Movie Pass starts October 1. It will be free for new Dish customers who sign up by the end of January for certain packages that cost at least $40 a month. The streaming option will carry new movie releases from Walt Disney Co and Sony provided by Starz, the cable channel operator set to pull its content from Netflix in February.
The Blockbuster streaming library is smaller than the Netflix online catalog of more than 20,000 titles. Dish will offer more than 3,000 movies for streaming to TV and more than 4,000 for computers, plus hundreds of TV shows.
Movie Pass will be "a good retention tool" for Dish, Pacific Crest Securities analyst Steve Clement said. "I don't know how compelling it will be for new" subscribers, he said.
Cable and satellite providers have been losing customers as entertainment options grows.
Adding the new package to Dish satellite TV service, which has about 14 million subscribers, offers consumers a broad menu of entertainment options by mail, television, streaming or in-store, Dish Network CEO Joe Clayton said.
"Hulu is very good at doing TV shows. Netflix is good at movies. No one is doing all of the above like we are doing," Clayton said at a news conference in San Francisco.
In response to the Blockbuster news, Netflix noted it offered streaming without requiring a satellite subscription.
"We still offer this amazing value without a cover charge," Netflix spokesman Steve Swasey said.
Last week, Netflix cut its subscriber forecast by 1 million, saying it expects to end the third quarter with 24 million subscribers as it faces cancellations from price increases. The last time Netflix reported a subscriber decline was the second quarter of 2007 when Blockbuster was aggressively pushing a DVD rental package called Total Access.
Blockbuster said it picked up 500,000 new subscribers, a combination of paying and free-trial customers, in the past 30 days. The company does not disclose its total subscribers.
"The biggest negative for Netflix in the addition of new competitors isn't that they are going to steal away subscribers, it's that it potentially increases the cost of buying content," Piper Jaffray analyst Michael Olson said.
(By Lisa Richwine in Los Angeles and Paul Thomasch and Sinead Carew in New York; Editing by Derek Caney, Richard Chang and Carol Bishopric)