Blockbuster have managed to get one up on rival Netflix by offering movies on demand on T-Mobile’s new HTC HD2 smart phone, with Android and Windows Mobile phones coming soon. But considering they have debts of $1 billion, is it too little too late?

The former DVD rental giant also announced as part of a revamp that it has  signed a new agreement with movie studio Warner Bros., allowing them to offer the studio’s new releases about a month before main competitors, Netflix and Redbox.

The problem is that Blockbuster are still haemorraging money with hundreds of unprofitable stores and ongoing losses that had analysts warning they may file for bankruptcy. “Blockbuster is trying to keep itself from bleeding to death, but they’re putting on a lot of Band-Aids,” said Michael Pachter, Blockbuster analyst at Wedbush Morgan Securities.

Blockbuster have been ridden with a massive debt for the last 6 years since media conglomerate Viacom sold the company in 2004. As part of the deal, Blockbuster had to pay Viacom shareholders a $5 per share dividend, and the movie rental company accumulated about $1 billion of debt doing this. Blockbuster were happy with the deal because at that time, they were making profits of about $500 million a year. However, bad decisions, such as canceling all late fees and increasing competition eroded the company’s profits.

Its bitter rival Netflix, by this time was leading the market in DVD by mail services which caught the publics imagination. Blockbuster struggled to catch up. By the time Blockbuster’s competing service, Blockbuster Mail, launched in 2004, Netflix had already been around for six years and had became the name in movies by mail.

“Asking if Blockbuster can compete with Netflix online is like asking if Best Buy can compete with Amazon online,” said Pachter. “The answer is no. It doesn’t matter how well capitalized you are, if the branding isn’t there, you’re not going to be able to compete.”

Blockbuster is also going for Redbox, launching a new partnership with NCR to place 10,000 DVD kiosks around the country by the end of the year. But competing will be difficult: Redbox already has 20,000 kiosks in place, and the company’s revenues increased by 99% in 2009.

In  spite of its many problems, there could still be hope for Blockbuster. While rumors continue to circulate about a Netflix iPhone application, Blockbuster got to market first today with mobile movies. The new service allows users to download movies to buy or rent, similar to Apple’s iTunes service. Eventually, customers will be able to watch a movie on their phone, and then pick up where they left off on their Blockbuster On Demand enabled TV or Blu-ray player.

Analysts applaud Blockbuster for trying the new venture, but they say its impact will be minimal. Pachter said he expects the company’s mobile service will add no more than $5 million to Blockbuster’s revenues. Last year, Blockbuster lost $355 million on revenues of $4.1 billion.

To solve its debt problems, Blockbuster has to get its core in-store retail business stabilized. One way the company is doing that is by continuing to shut down underperforming stores. By the end of the year, the company will operate about 3,000 stores in the United States, down from about 4,500 at the start of 2009.

But analysts say the deal with Warner Bros. is the most encouraging news the company has had in a while. In addition to giving Blockbuster a one-month head start over Netflix and Redbox on new releases, the terms of the deal will also ease the company’s financial strain.

“There’s still demand for physical video stores, but that will go away if Blockbuster were to fail,” said Charles Wolf, Blockbuster analyst at Needham & Co. “The movie studios realize that, and they realize that there is an important role to be played by Blockbuster’s stores.”

Blockbuster are doing all the right things, just way too late. With both Amazon and Wal-Mart heavily discounting DVD’s for loss-leader type prices during the first week of launch and rival NetFlix tying up mail-order dvd rental and streaming movies. Not to mention the Red Box video rental kiosks,. Blockbuster may not be dead, but they are surely being read the last rites.

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