Blockbuster Loses Latest Battle

After waging a price war against Netflix (NFLX Quote), Blockbuster(BBI Quote) is now slashing payrolls amid wider losses.

Moreover, its online rental service lost subscribers during the third quarter, reflecting both a change in the Internet plan's offerings and increasing heat from Netflix, its top rival.

Blockbuster on Thursday posted a loss of $37.8 million, or 20 cents a share, for its third quarter. That compares with a loss of $27.5 million, or 15 cents a share, in the same quarter last year.

The latest quarter's results included a charge of $9.6 million, or 5 cents a share, related to severance payments and lease termination costs. Excluding that, the Dallas-based company had a loss of 15 cents a share, better than Wall Street's expectation for a loss of 18 cents, according to Thomson First Call.

Blockbuster reported a 5% drop in revenue to $1.24 billion, falling short of expectations for $1.28 billion.

While the top-line results were disappointing, the main concern raised by the report was Blockbuster's subscriber count for its online rental service. The service's subscriber count dropped to 3.1 million at the end of the third quarter from 3.6 million at the end of the second.

"The magnitude of the decline was surprising to many," says Michael Pachter, an analyst with Wedbush Morgan Securities. "Blockbuster is shifting its strategy away from growing online subscribers that weren't profitable. They had a bunch of gluttons coming to their all-you-can-eat buffet, and now they're getting rid of them."