Time to Concede the Battle of Hastings?

These aren't golden days for classic entertainment outlets like bookstores and video game rental stores. It's hardly surprising to see a company that looks like a cross between Blockbuster (NYSE:BBI), Barnes & Noble (NYSE:BKS), and your local flea market is having trouble growing sales. Hastings Entertainment (NASDAQ:HAST) is that crossbreed, operating "new and used entertainment superstores" across the Midwest where you can buy, sell, rent, or trade CDs, DVDs, books, and video games.

Hastings (no relation to Netflix (NASDAQ:NFLX) CEO Reed Hastings) reported quarterly earnings this morning, with flat revenues year over year and a drop in net earnings from $0.06 to $0.02 per diluted share. Management says that the drop is a result of aggressive clearance sales and more marketing of game and video rentals, plus the fact that the year-ago quarter saw Harry Potter drop by to increase sales.

The breakdown of comparable store sales by segment shines some more light on the situation. The largest decline came from the music division, 7.9% lower than last year. Management blames a lack of blockbuster albums this year, but I have a sneaky suspicion that the Midwest might be waking up to Apple's (NASDAQ:AAPL) iTunes Music Store and its legal music download brethren. "Boutique" items like T-shirts and bobblehead dolls sold 4.9% slower than in 2005, and book sales, as already explained, dropped by 3.2%.

Now we're into black-ink territory. Video sales jumped 9.8% and video games took off to the tune of 22.2%. That heavy marketing that cut into margins and net earnings seems to have boosted sales significantly. Too bad it had to hurt the bottom line.

Hastings is trying to keep up the hunky-dory veneer, but the only way to keep sales from dropping was to overspend on marketing and hand out deep discounts to customers. If this trend continues -- and I really don't see why it wouldn't -- this company will sell its last DVD for a nickel just to meet revenue targets before too long. It's like that old saw about losing money on every unit sold but making it up in volume. When your competition looks as good as Netflix and Amazon (NASDAQ:AMZN), you need some new ideas. Sadly, Hastings doesn't appear to have any of those at the moment.

Further Foolishness:

• Two Fools recently butted heads over Netflix' chances.
• Even networking companies want to get into your living room now.
• Invest in what you know, Fool.

Netflix and Amazon are both Motley Fool Stock Advisor recommendations. Try a 30-day free trial to see what a real entertainment superstore looks like.

Fool contributor Anders Bylund is a Netflix shareholder but holds no other position in any of the companies discussed here. He thinks the Battle of Hastings was fought in 2002, not 1066. You can check out Anders' holdings if you like. Foolish disclosure can give you hours of enlightening entertainment anytime.