Blockbuster yesterday reported a loss of $57m (£32m) in the second quarter and warned it was no longer on track to meet full-year forecasts because of the continued rapid decline of the film rental market.
The high-street chain also revealed creditors had recently agreed to waive certain debt agreements to help it avoid defaulting on payments. Its shares fell 10% to $7.19.
The company has been working to build other revenue streams to offset the drop in its traditional rental business - including DVD sales, online rentals and free-standing video game retailers.
Blockbuster has been tripped up by changes in consumer habits as well as in technology. Consumers are increasingly buying DVDs and building their own libraries instead of renting. Those who do rent, meanwhile, are being courted by a new generation of online rental firms, like Netflix, that send films via post. Another nascent threat is pay-per-view movies on cable.
Blockbuster cautioned investors about its second-quarter figures a week ago, when it cited a lack of big film releases.
The business, which grew from a single store in Dallas to become the world's largest rental chain, said revenue fell 1.4% to $1.4bn. Revenue at locations open for more than a year dropped by 4.7%. The quarterly loss compared with profits of $48.6m a year ago.
Rental revenue fell by 5% to slightly more than $1bn, hurt chiefly by Blockbuster's much-publicised initiative to eliminate late fees. In the same quarter a year earlier, it recorded $138m in fees from customers returning films after their due date.
The company said its online rental business passed the one million subscriber mark and reiterated its aim of reaching two million by the end of the first quarter next year. Netflix has 3.2 million subscribers.
Chief executive John Antioco said that excluding the effect of late fees, rental revenues including online increased by 9%. "We believe we are affecting a permanent improvement in our business that will enable us to address the decline in our core rental business, develop new revenue streams and drive future growth," he said. Merchandise sales grew 12% to $360m, driven by video games.
"I think they are in the mode of 'just try things and maybe they'll work'," said Stacy Widlitz, an analyst at Fulcrum Global Partners. "Unfortunately all these things have cost a lot money. I don't think they will ever make up for the late-fee loss."
Blockbuster had previously forecast flat full-year profits compared with 2004.
