VideoVisa Springs Forward As Peso Falls Back

Higher prices, greater piracy and the likely disappearance of some small-time retailers are among the unfolding effects of the peso devaluation upon Mexico’s video market.

But industry giant VideoVisa – which has a 65% share of the distribution market and 48% of retail – sees in the current crisis a chance to strengthen its grip.

“It’s a great opportunity for VideoVisa to recoup market share,” says promotions director Leonides Guadarrama. “In January, Blockbuster bought half what they usually buy.”

Blockbuster is apparently not buying any new product for February, Guadarrama adds.

Mexico’s Blockbuster franchise is currently cash-poor, Guadarrama maintains, because many of its property leases are dollar-denominated. Calls to Blockbuster’s Mexican head office were not returned.

VideoVisa, which is a publicly quoted company spun off from media conglom Televisa in 1993, has had to raise prices by an average of 20%, not only due to cost increases of dollar-denominated contracts, but also because of higher raw material costs in cassette manufacturing. However, the major studios have been receptive to contract renegotiations, says Guadarrama.

While tariff reduction under 1994’s North American Free Trade Agreement prompted speculation that the majors might start direct distribution in Mexico, Guadarrama says the devaluation now makes that highly unlikely.

“The studios are not used to dealing with a market that’s so unstable,” says Guadarrama. “And the vertical integration of the company protects us – they would have to use our retail outlets anyway.”

Though he expects the legal video market to contract, Guadarrama has already cushioned the blow by advancing the launch of a 24-hour rental service for premium titles. Called “Super Hits,” the promotion was tested in November with “The Flintstones.”

“With the promotion, ‘The Flintstones’ made the same amount of money for us in its first month of release as ‘Jurassic Park’ did without it,” he says.

As inflation prompts greater demand for cheap pirate pix, another VideoVisa tactic is to focus on lower priced sell-through product, such as “Looney Tunes” compilations.

The devaluation came at a bad time for Video Visa’s music joint venture with Handelman, launched in 27 Mexico City stores just days before the crisis hit. In response, VideoVisa has begun to source more CDs and cassettes from domestic rather than U.S. suppliers.

But the peso crunch may benefit another area of new business: direct advertising, which could attract clients needing to maximize returns on ad spending during the tough economic times.

VideoVisa has a verbal agreement with mobile phone company Iusacell for a direct mailing campaign involving 100,000 cassettes, and is also in talks with American Express, McDonald’s and Aeromexico about such projects.