The future direction and leadership of Blockbuster Inc. (BBI) is at stake this week when shareholders settle an increasingly personal proxy fight between management and corporate raider Carl Icahn (search).

Shareholders could endorse chief executive John F. Antioco's (search) aggressive but expensive plan to keep the chain ahead of competitors, or they could support Icahn's call to cut spending and return more cash to investors.

There is yet a third option: Investors could split the difference, and vote to retain Antioco, who is also chairman, while electing two Icahn allies to the board. Some analysts predict this outcome, which would make for interesting board meetings.

Antioco calls the election a referendum on his strategy of responding to a decline in rentals by building an online-rental service and eliminating an unpopular late-fee policy.

The moves have drawn more customers to the stores but at a price: Analysts say they will raise Blockbuster's 2005 spending by $170 million and cost up to $500 million in lost late fees.

Antioco said he has spoken by phone with sympathetic shareholders, but he declined to predict the vote. Icahn did not return messages left with a spokeswoman.

Icahn is Dallas-based Blockbuster's largest single shareholder, with 9.7 percent of the Class A shares and 7.7 percent of the Class B shares, which count double in the voting.

The intent of the largest remaining shareholders isn't clear. One declined to comment, others did not return calls.

Nine of the 10 biggest investors have recently bought Blockbuster shares, which have risen from $8 to $10 since splitting from former owner Viacom Inc. (VIA) in October but are one-third their value of three years ago.

No institutional investor's portfolio is more weighted toward Blockbuster than Alsin Capital Management of Eugene, Ore. Alsin's stake is just 155,000 shares, but that's more than 11 percent of its holdings. Portfolio Manager Glenn Surowiec said the firm would vote for management.

Surowiec said Viacom stripped cash from the company without investing enough for growth and was slow to offer an online rental service to compete with Netflix Inc. (NFLX) He said Antioco is trying to fix Viacom's mistakes.

"We're comfortable with Antioco's strategies," Surowiec said. "In a year or two, we'll know whether today's spending will generate tomorrow's returns."

Tobias Capital Inc. of New York held more than 1 million Blockbuster shares. Luckily for Antioco, principal Seth Tobias sold the shares recently and can't vote at the shareholder meeting.

Tobias echoed a complaint made by Icahn: Blockbuster missed a chance to grow by failing to buy rival movie-rental chain Hollywood Entertainment Corp. (HLYW)

"We felt they were going to be unsuccessful in the fight for Hollywood, and we weren't happy with how the online business was progressing," Tobias said. "We weren't happy with management."

Antioco said antitrust regulators wouldn't let Blockbuster buy Hollywood, which was acquired by Movie Gallery Inc. The company expects the online business to reach 1 million customers in June. Netflix has 3 million.

Shareholders will pick three directors. The management slate consists of Antioco and two other incumbents. Icahn recruited two entertainment-industry veterans to join his ticket.

If he sweeps all three seats, Icahn would turn the company upside-down without achieving a majority on the seven-member board. Antioco, who has led Blockbuster since 1997, says he would quit as CEO.

Marla Backer, an analyst with Soleil-Research Associates, predicted Antioco would win. So did analyst Michael Pachter of Wedbush Morgan Securities, but he saw a split decision, with the two Icahn allies also winning.

Such a result could be possible if enough shareholders vote an Icahn proxy but withhold votes for Icahn himself, as recommended by a firm that advises institutional investors on proxy issues.

Many proxy challenges evaporate before coming to a vote. Sometimes the challenger goes away after getting a better price for his shares, as Icahn did recently with Oklahoma oil company Kerr-McGee Corp. (KMG)

The Blockbuster fight, however, has moved closer to a vote and taken on personal tones.

Icahn, a billionaire whose investor group walked away from Kerr-McGee with a one-day gain of $57 million, pilloried Antioco for a 2004 compensation package that could be worth more than $50 million if the stock price rises.

Antioco answered by saying he would quit as CEO if he lost the chairmanship. He also showed off his golden parachute — severance benefits that include the early vesting of stock options.

Last Thursday, the two men talked for the first time in weeks. They accused each other of lying to shareholders.

The spat took place during the company's conference call to brief analysts on a $57.5 million loss in the first quarter.

Shareholders usually don't speak on such calls, but Antioco let Icahn in because "I'm not sure he has anything new to say. But if he goes on with a self-serving political speech, we'll cut him off, and that's what we did."

The call operator cut Icahn off in mid-sentence, saying his comments about a possible sale of the company weren't appropriate.

Pachter, the analyst, believes management is too sensitive about criticism.

"I don't believe Carl Icahn has any personal vendetta," Pachter said. "He is interested in one thing — money."