B’buster bullish on expansion

Despite the negative impact of the Mexican economic crisis on several Latin currencies, Blockbuster Entertainment is bullish about its regional franchise prospects for 1995. The company recently signed deals in Colombia and Peru, and further announcements should soon follow.

Yet since uncertainty persists in several territories, Blockbuster has had to scale down its short-term growth projections, says the company’s Latin America VP, Guillermo Rotman.

“Realtors are waiting to see what happens to their currencies – it’s more difficult to get sites at the moment,” Rotman says.

“But long-term, it’s a minimal impact, because the market’s still there and the VCRs are still there,” adds Rotman. Even in troubled Mexico he expects to see growth this year.

How much Mexico can, in fact, grow with purchasing power considerably eroded, is open to debate. Execs at Video Visa – the country’s dominant distributor and retailer – are upbeat, claiming that after past devaluations, demand for entertainment has risen.

But in 1987, the time of the peso’s previous plunge, only upper-income households had VCRs, and movie ticket prices were frozen by the government, so market variables were notably different.

Still, rentals should be buoyed this year by the opening up of new stores that began construction before the devaluation, says analyst Shannon O’Neal, who follows VideoVisa for Banque Indo-Suez in Mexico City. O’Neal says prospects will also depend on the outcome of contract renegotiations between Mexican distributors and the studios.

Despite the uncertainty, Blockbuster’s Mexican franchisee is this year contractually obliged to add 20 stores to the 100 or so it already operates. Similarly, in Venezuela, where the economy has not grown in years, the local franchise plans to increase its 13-store count by 50% this year.

The fledgling, two-store operation in Argentina should see 14 openings this year, says Rotman. This despite a new 10% surtax that was recently added to an existing 21% value added tax on sales and rentals (the extra levy goes to help subsidize local filmmaking).

The new taxes, plus a decline in purchasing power, suggest a difficult year for the sector in Argentina, says Diego Lerner of BVI Home Video. It will be a feat, Lerner says, if the sell-through and rental segments even equal last year’s figures.

Prospects are much healthier in Brazil, where sell-through is set to soar. BVI has paved the way, and now other distribs are prepping series of titles. Sales should reach 2.5 million units this year, up from 1.5 million in 1994.

Scheduled to open its first Brazilian store in Sao Paulo on March 23, Blockbuster will make the most of the country’s healthy growth prospects by opening nearly 20 stores in 1995. Local franchisee the Moreira Salles Group is contracted to open up to 250 outlets by 2002.

With franchises begun in all the major countries, Blockbuster’s Miami-based execs will now attend to the smaller markets. Rotman says Panamanian efforts to combat piracy have encouraged the company to make an entry there and he intends to establish franchises in every Latin nation, eventually.

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