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Blockbuster Fourth-Quarter Profit Falls 28%

Blockbuster, the nation's largest video rental chain, reported a 28% decline in fourth-quarter earnings on Tuesday due to store closures and higher costs associated with growing its online business.

Quarterly net income dropped to $10 million, or 5 cents per share, versus $18 million, or 9 cents per share, a year ago.

Adjusted earnings, which factored in a $5.1 million goodwill impairment charge, were $20.4 million or 9 cents per share in the October-December period. That compared with earnings of $25 million, or 12 cents per share, a year earlier that were adjusted for a reserve charge.

The adjusted earnings were ahead of the 5 cents per share expected by analysts surveyed by Thomson Financial.

Revenue edged up 1% to $1.51 billion from $1.49 billion in the prior year, surpassing Wall Street's estimate of $1.47 billion.

Blockbuster said sales and rental revenue combined at stores open more than a year, or same-store sales, rose 1.5%. Same-store rental revenue fell 1.8%, but same-store merchandise sales jumped 9.3%.

Blockbuster Online, the company's DVD-by-mail business, grew to 2.2 million subscribers during the quarter, propelled by the Total Access program, which allows subscribers to return DVDs rented online at Blockbuster stores.

The lower margins and higher fulfillment costs associated with Total Access ate into fourth-quarter profit as Blockbuster struggled to grow its online business amid competition from rival Netflix .

Chairman and Chief Executive John Antioco forecast Blockbuster would have 3 million Total Access subscribers by the end of the first quarter, which he said would be a near doubling of the subscriber base in five months.

Blockbuster said fourth-quarter revenue from its online rental service rose by $30 million. The service added about 700,000 subscribers during the period.

"This growth will require some investment in the first half of the year, but we believe this investment is the right strategy to deliver value to our shareholders and should result in more online customers, more in-store customers, a larger share of the overall domestic rental market, and increasing revenues," Antioco said in a statement.

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