Blockbuster Lives on in Mexico as Upscale Chain
While the last Blockbuster video-rental store in the U.S. closed this month, the brand lives on in Mexico as an upscale chain with aspirations to sell everything from televisions to banking services.
After deciding to shut its U.S. Blockbuster outlets in November, Dish Network Corp. (DISH) agreed to sell the chain’s Mexican stores for $31 million to Grupo Elektra SAB, a retail and financial company controlled by billionaire Ricardo Salinas.
The Blockbuster name has more panache in Mexico and many of the stores are located in well-heeled neighborhoods, said Juan Elizalde, an analyst at Banco Ve Por Mas SA. Renting out movies and video games also is still seen as a viable business model in the country, even though pirated DVDs are readily available from street vendors. Blockbuster Mexico doesn’t have the tarnished image of the U.S. chain and could be used by Elektra to create something more ambitious, he said.
“They’re seeing potential in the client base and the value of the brand,” Elizalde said in a phone interview. “The stores in Mexico haven’t had the same problems. They still generate cash flow. It’s attractive.”
The deal with Dish brings 1.6 million Blockbuster members to Elektra, along with 300 locations, boosting the company’s square footage by 7 percent. Blockbuster Mexico generated $117.7 million for Dish in the first three quarters of 2013, a gain of more than 3 percent from the year-earlier period. That was only 1 percent of Dish’s revenue and would represent about 3 percent of total sales for Elektra.
Still, that’s just a starting point, according to the Mexico City-based company, which wants to use the chain as a springboard into other products. It provides Elektra with a new way to sell electronics and financial services, such as online banking. The company also could use it to promote TV Azteca SAB original video content and the Totalmovie pay-per-view movie system, which are owned by other branches of Salinas’s empire.
“Adding Blockbuster gives Elektra a new dimension in a higher market segment that we haven’t focused on before,” Luis Nino, the chief executive officer of Elektra’s Banco Azteca division. “We want to offer them the possibility to buy new products and access their banking information online.”
The stores already carry a range of goods, such as DVD players, “Angry Birds” plush toys and spicy tamarind candy. DVDs line the walls, touting new releases such as Matt Damon’s “Elysium” and horror film “The Conjuring.” The chain even offers to pick up customers’ rented movies at home for 10 pesos.
It costs about 45 to 50 pesos (less than $4) to rent a recently released DVD, with rentals lasting one or two nights. Blu-ray discs -- a higher-resolution format -- cost as much as 60 pesos, while video games range from about 60 to 100 pesos. Blockbuster Mexico rented out more than 5 million movies and games in 2013, generating about 2.3 billion pesos in sales, according to Elektra.
At a Blockbuster in Mexico City’s Roma district -- a neighborhood of cafes, street fairs and century-old homes -- Jose Molina waited in line to return “FIFA 14,” a soccer game for the Xbox. The student and part-time call-center worker said he uses the store to try out new games.
“It usually takes me about four to five days to finish a game, so it’s convenient,” Molina said. “If I like it a lot, then I’ll buy it.”
In the U.S., DVD rentals are increasingly seen as a relic of a bygone era. Blockbuster had about 9,000 locations in its home market in 2004 when the company was spun off by Viacom Inc. (VIAB) Then streaming video services such as Netflix Inc. devastated the industry. Dish, which acquired the chain out of bankruptcy in 2011, decided to close the final 300 U.S. locations after divesting Blockbuster’s other international assets, including operations in the U.K. and Scandinavia.
In Mexico, Blockbuster members are seen as higher-end consumers than Elektra’s other retail customers, who may spend as long as two years paying off a flat-screen TV at $5 a week. The acquisition will help the company elevate its clientele, Nino said.
Edward Arguelles, Blockbuster Mexico’s CEO, will continue to lead the chain, which includes two movie theaters branded Blockbuster Cinema. Most of the company’s 2,600 employees will be kept on as well, Nino said.
For now, Blockbuster doesn’t face the existential crisis in Mexico that it did in its home market, Elizalde said. While services such as Netflix have rolled out in the country, there are fewer legal channels for getting movies.
Outerwall Inc.’s Redbox, which runs automated DVD kiosks across the U.S., isn’t available in Mexico. More common are bootleg videos: Nine out of 10 movies purchased in the country are pirated copies, according to data from the Mexico City-based Business Coordinating Council, known as CCE.
Only 31 percent of Mexican households had Internet service last year, according to the national institute of statistics. Per-capita income also was less than 20 percent of the U.S. level, based on World Bank data, making entertainment services more of a luxury.
Still, even loyal Blockbuster customers know they have other options. At the Roma store, Molina said he typically downloads his favorite TV show, “The Walking Dead,” at home. That way he can avoid worrying about late fees.
For Elektra, the Blockbuster brand and real estate should continue to yield benefits, whether or not video rentals disappear, according to Gaspar Quijano, an analyst with Vector Casa de Bolsa SA.
“We don’t think Elektra will worry about continuing a business that is on its way out,” he said in a note this month. “Their sights are set on the retail space and locations.”
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