The end of late fees was a popular move but has hit revenues

The world's largest video rental chain said turnover had dropped 1.7% to $1.39bn (�799m) in the latest quarter from $1.41bn a year earlier.

And it made a net loss before one-off charges of $24.6m compared with a net profit of $5.2m a year previously.

The company has been struggling against a decline in the video rental industry.

It has also been hit by the growth in online video rental companies, which has seen Blockbuster have to spend money launching its own internet service.

Blockbuster also dropped its so-called "late fees" back in January to try to woo back customers, despite this ending a valuable revenue stream.

Reduced spending

Including one-off charges for each period, the company made a loss of $491.4m in the quarter, down from a $1.4bn loss in the same period of 2004.

Blockbuster now intends to cut costs by more than $100m in 2006 and by $50m in 2007 by reducing both overhead and marketing spending, and selling off non-core assets.

It is also restructuring some of its debts.

The video rental chain was spun-out of former parent company Viacom last year.