While movie renter Blockbuster (NYSE: BBI) saw Q1 profits of $45.4 million ($0.20 per diluted share) compared to last year’s $49 million net loss, the closing of over 400 retail locations depressed revenues, which were down 5.4 percent to $1.39 billion from Q107’s $1.47 billion - a decrease of nearly $80 million. At the same time, same-store revenues in the U.S. grew 2.9 percent year-over-year. As has become its custom, Blockbuster didn’t break out the performance of its by-mail business, which is dominated by its main rival Netflix (NSDQ: NFLX). The shuttering of 412 brick and mortar stores included Blockbuster’s divestiture of Gamestation chain of 217 locations in the UK.

Release | Webcast (9:00 AM EDT) | Transcript (via Seeking Alpha)

—A Blockbuster iPod?: According the conference call transcript, James Keyes, Blockbusters’ chairman and CEO, said the development of a digital platform is the third part of its “strategic initiative.” The first part involves “restoring” its DVD rental business, the second is being identified as a “convenience retailer for media entertainment” through the sale of DVDs, video games, Sony (NYSE: SNE) PS3 players, Blu-Ray players, videogame consoles, etc… The digital strategy will continue to rely on online movie service Movielink, which Blockbuster acquired last August. Next month, Blockbuster will start testing a “digital download kiosk,” which is powered by NCR Corp. Blockbuster is currently in talks with hardware makers to try to develop a portable device—a Blockbuster iPod?—to support the new download service. More after the jump.

—Missing digital link: The remaining missing pieces of our digital offering are relating to subscription content, Keyes told analysts during the call. In addition to the download kiosk and the development of a portable player, Blockbuster is trying to acquire content and to find distribution partners. Keyes: “These are just a few of the many examples of work underway in the digital space. I can assure you that Blockbuster has not at all backed away from an online strategy. We called a time-out from our by-mail initiatives, both to make that business profitable and to develop a plan for true digital delivery.”