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Blockbuster Inc. (NYSE: ) shares dropped after competitor Netflix reported better-than-expected earnings on a sharp increase in subscribers. Netflix managed to sign on some 168,000 new customers while spending less money to attract them to the service. The result was $26.6 million in earnings, which is up from $25.6 million during the same period last year. The strength also comes amid a less-than-desirable economic environment.

Blockbuster shares are now trading near their 52-week low despite an analyst upgrade not long ago. Pali Research analyst Stacey Widlitz is bullish on the stock given its decision not to acquire Circuit City (NYSE: ). The analyst also noted the strong same-store rental comps and 60% revenue from new releases. As a result, Widlitz increased her rating on the company from a "neutral" to a "buy". However, shares failed to rally and remain near all-time lows.

Blockbuster has been hurting ever since the growth of high-speed internet made it easier to download movies online. Meanwhile, online competitors surfaced that delivered movies via mail or simply streamed it directly to the computer. These services - offered by the likes of Netflix and Amazon - were the primary reason that Blockbuster decided to pursue Circuit City to diversify away from retail DVD rentals. However, with this unlikely, many shareholders are wondering where the company is headed.

Blockbuster is a global provider of rental and retail movie and game entertainment, with over 7,800 stores in the United States, its territories and 21 other countries. The company has around 2,975 retail stores in 21 markets outside of the United States under various brands. There are also 195 domestic franchisee entities operating 850 stores in the United States as well as 279 international franchisee entities operating 907 stores outside of hte United States.

Shares of Blockbuster dropped $0.05, or 1.89%, to $2.60 on the day.

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