updated 12/6/2006 6:10:17 PM ET 2006-12-06T23:10:17

Blockbuster Inc. expects the number of consumers who rent movies at stores will continue to decline but plans to offset that with online rentals, an executive said Wednesday.

Chief Financial Officer Larry J. Zine said Blockbuster has closed 400 U.S. stores in about a year and believes it is close to the optimum number of outlets. But he predicted more consolidation in the industry, which includes a couple of large chains and lots of independent stores.

“Our strategy is to grow online and take advantage of consolidation in stores,” Zine said at an investor conference in Santa Monica, Calif.

Blockbuster has lost more than $4.4 billion since early 2002, and the shares have barely poked above $10 in more than two years. But the company has posted profits in some recent quarters.

Michael Pachter, an analyst with Wedbush Morgan Securities Inc., which sponsored Wednesday’s conference, said Blockbuster has struggled, but he has a “buy” rating on the stock “because we think they’re turning the corner.”

The chain dominates the rental-store business but faces fierce competition from online rentals and discounters selling cheap DVDs. Blockbuster started its own Web-based rental service to compete with Netflix Inc., but Netflix has nearly four times as many online subscribers.

On Tuesday, Blockbuster took a shot at its rival by offering free rentals to Netflix members who tear off the address flaps from the envelopes they use to mail movies back to Netflix. The free rentals are good at Blockbuster stores through Dec. 21.

In trading Wednesday on the New York Stock Exchange, Blockbuster shares fell 11 cents to close at $5.44.

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