According to The Hollywood Reporter, Wal-Mart Stores Inc. is turning over its online DVD rental business to Netflix Inc., signaling that the world's largest retailer couldn't beat the Internet upstart at its own game.

Netflix shares surged after the agreement was announced Thursday, rising $2.61, or 17%, to $18.11 in midday on the Nasdaq Stock Market.

Wal-Mart is offering its existing online DVD rental customers the chance to continue their subscriptions with Los Gatos-based Netflix at their current price for the next year. Those who don't sign up with Netflix by June 17 will lose their service. Wal-Mart plans to continue promoting the Netflix service on its Web site.