Blockbuster is making their customers happy but that's also hurting its bottom line.

In a story from The Hollywood Reporter, Blockbuster had a $46.4 million first quarter loss that is being blamed on their new Total Access program. At this time last year, their losses only totaled $1.9 million.

The Total Access program allows "online subscribers" to "exchange movies via U.S. mail or at Blockbuster stores."

However, "revenue rose 5.4% to $1.47 billion, better than the $1.37 billion analysts had predicted." This knocked Blockbuster's stock back 13% to $5.40.

In addition to this, Blockbuster "sold its European video game retail business, the Game Group, for $150 million in cash and that it expects to use the proceeds for paying down debt. The company has already paid down half of its former $1 billion debt."

According to "Blockbuster CEO John Antioco... the company spent $70 million in the first quarter to market Total Access and to purchase more DVDs for the large amount of new customers it was attracting."

The CEO claims "his company captured 60% of the growth of the subscription DVD-by-mail industry, with leader Netflix getting the bulk of the remaining growth."

The Total Access program "added nearly 1.5 million people to Blockbuster's sub base, bringing the total to 3 million," while "Netflix had 6.8 million at the end of the first quarter."

Due to the way the company "is growing Total Access" it "has resulted in a squeeze of gross margins down to 51.7% from 56.5% a year ago, a decline that clearly spooked some investors and analysts, but Antioco said he has no intention of tapping the brakes even though, if he did, Total Access could be profitable now as opposed to next year."

"We now have the fastest-growing online rental service in the marketplace and intend to keep it that way," Antioco states.

Evan Jacobs