VZCZCXYZ0064
PP RUEHWEB

DE RUEHSN #0429/01 1001807
ZNR UUUUU ZZH
P 091807Z APR 08
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC PRIORITY 9289
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHME/AMEMBASSY MEXICO 6697
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHMCSUU/DEPT OF HOMELAND SECURITY WASHINGTON DC 0327
RUEAWJA/DEPT OF JUSTICE WASHINGTON DC

UNCLAS SAN SALVADOR 000429 
 
SIPDIS 
 
STATE FOR EEB/TPP/MTA/IPC, WHA/CEN 
STATE PASS USTR 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EINV KIPR ES
SUBJECT: BLOCKBUSTER CLOSES, BLAMES PIRACY 
 
SUMMARY 
------- 
 
¶1. (SBU) El Salvador's Blockbuster Video franchise closed in March, 
blaming increased optical disc piracy for its financial woes.  The 
local franchisee claimed a government policy of not targeting the 
small street vendors has caused an increase in pirated goods, 
especially in upper and middle income areas.  U.S.-based theater 
chain Cinemark blamed piracy for $1.3 million in lost revenue, also 
citing the same government policy.  On the other hand, local video 
chain GamesPlace, while acknowledging increased piracy, plans to 
expand and thought a good part of Blockbuster and the theaters' woes 
were caused by bad business decisions.  According to a recent 
survey, 84 percent of Salvadorans buy pirated goods and a majority 
thought it wasn't harmful.  Given El Salvador's broader crime 
problem and limited police resources, and with the 2009 elections 
approaching, the government is unlikely to risk a violent, unpopular 
confrontation with small street vendors in the near future.  End 
Summary. 
 
BLOCKBUSTER VIDEO CLOSES DOWN 
----------------------------- 
 
¶2. (U) In March, Corporacion de Franquicias Americanas (CFA), El 
Salvador's franchisee for Pizza Hut, KFC, Wendy's, and Blockbuster 
Video, announced that Blockbuster was ceasing operations and closing 
its remaining stores (NOTE: The same family also owns Benningan's, 
Tony Roma's, and Benihana franchises under a different corporate 
umbrella).  CFA publicly cited increased optical disc piracy as the 
reason Blockbuster closed. 
 
¶3. (SBU) CFA president Francisco Rovira told Econoff that they made 
the decision in November 2007, after Blockbuster "lost money for the 
last two or three years."  Rovira said the rental business had been 
dropping about 20 percent per year, and some of their remaining 
stores were only taking in about $3,000 in revenues while paying 
$5,500 in rent.  CFA had already closed 6 of 9 stores when the 
announcement was made; Rovira said they started closing stores in 
lower and lower middle income areas much earlier.  Blockbuster 
charged around $3 for most of its rentals, while pirated DVDs sold 
for only $1. 
 
¶4. (SBU) Rovira claimed a significant increase in optical disc 
piracy over "about the last three years."  After a crackdown on 
vendors around the time CAFTA-DR was implemented, violent street 
protests, where protestors burned police cars and buses, led the 
government to announce that it would no longer go after the "little 
guy," only the "big fish."  Since then, the number of small street 
vendors has increased dramatically, especially in the upscale parts 
of San Salvador where Blockbuster still did business.  Rovira 
routinely saw pirate movie vendors coming into the Blockbuster 
parking lot next to CFA's headquarters and intercepting customers 
before they'd enter the store.  Rovira said that CFA had raised 
small vendor piracy with all levels of the government, up to the 
President's office, but had received little response.  He thought it 
was now "too late" for anything to be done. 
 
CINEMARK, MOVIE DISTRIBUTORS ALSO STRUGGLING 
-------------------------------------------- 
 
¶5. (SBU) Javier Alfaro, local head of U.S.-based Cinemark theaters, 
reported similar financial problems that he attributed to piracy. 
After investing about $8 million in the nicest movie theaters in El 
Salvador, Cinemark is now considering closing two of five their 
locations.  El Salvador was Cinemark's only Central American market 
that wasn't growing.  Based on rough internal calculations, Alfaro 
estimated that piracy cost Cinemark about $1.3 million in revenue in 
El Salvador last year. 
 
¶6. (SBU) Alfaro, local 20th Century Fox and Columbia distributor 
Aranzazu Otaegui, and local Warner Brothers' distributor Mauricio 
Avila traced their current problems to the same source as Rovira. 
The government "basically gave the small producer and small 
distributor green lights," they explained, and they believed that 
the big producers had changed tactics to take advantage of this 
policy.  They said that the motion picture distributors have urged 
the police and Fiscalia (attorney general), to no avail, to take 
action against the small vendors. 
 
¶7. (SBU) Alfaro stated that the primary difference between El 
Salvador and their other Central American markets was that the 
piracy in those countries was "contained" to certain geographic 
areas, like central markets or city centers.  Cinemark's middle and 
upper class customers are unlikely to travel to those often 
dangerous areas to buy pirated movies.  In El Salvador, however, 
vendors are "selling on every street corner," even in the upscale 
neighborhoods.  Alfaro said that Cinemark even has problems with 
vendors selling pirated DVDs in the parking lot outside their 
flagship theater in the upscale "La Gran Via" shopping mall. 
Salvadorans seem much more willing to "roll down their windows" than 
other Central Americans, he added. 
 
GAMESPLACE: A PARTIAL DISSENT 
----------------------------- 
 
¶9. (SBU) GamesPlace Entertainment, a local video rental and 
"entertainment company," opened in July 1999 and operates two stores 
in upscale San Salvador neighborhoods.  GamesPlace President Eric 
Acuna Jubis said that he, too, thought piracy was endemic and 
hurting his business.  His rentals have dropped, and he reported 
having to pay a street vendor $50 per week to not sell directly in 
front of his Escalon store.  Jubis acknowledged that, with piracy at 
its current levels, GamesPlace "wouldn't make (him) rich." 
Nevertheless, Jubis plans to open a new San Salvador (Merliot) store 
in October 2008 and hopes to expand to five stores by 2009. 
 
¶10. (SBU) According to Jubis, GamesPlace offered a "total 
entertainment" experience that helped it compete with pirate 
products.  First, he made their stores attractive to children, 
offering action figures, and video games and toys (that the children 
could try out while in the store).  Creating a safe place where 
children wanted to come brought their parents, who would then rent. 
Second, he targeted the high-end film buff by expanding his 
selection of Blu-Ray discs (Jubis was not aware of any Blu-Ray 
piracy in El Salvador) and offering frequent renter promotions. 
Jubis reported that his clients rented an average of 10 movies per 
month, well above the industry average of 6 per month.  Finally, he 
offered a large selection of video games, where piracy is less 
common.  Jubis stated that video game piracy was largely confined to 
a few markets, and quality was very low.  For example, the pirates 
could crack and duplicate the playable parts of a game, but not the 
cinematic sections that advanced the plot. 
 
¶11. (SBU) Jubis thought that bad business decisions, not just 
piracy, were to blame for Blockbuster's failure.  Blockbuster was 
only releasing about 15 new titles per week, he said, while he was 
releasing 40.  Likewise, Blockbuster's stores were "poorly 
maintained" and their specials of "rent 5 and get a free coke" 
weren't going to draw repeat business.  He added that Blockbuster 
held on to its stores in marginal market areas too long, but he 
thought they could have made a go of their stores in the upscale 
areas. 
 
¶12. (SBU) Jubis similarly faulted the movie theaters, especially 
Mexico-based Cineapolis.  He said that the local distributors and 
theater owners were risk adverse on anything but the biggest 
blockbusters, and wouldn't order the films until they "knew they'd 
be hits."  Often, he would have the legal DVD release of a film 
before it was shown in the theaters, which also meant that 
good-quality pirated versions were readily available.  Jubis also 
alleged that Cineapolis in particular was over-duplicating its 
studio masters (beyond what the studio authorized).  This resulted 
in a lower-quality picture and audio problems in the theater; Jubis 
thought this made consumers more likely to accept the lower quality 
of a pirate DVD at home.  Similarly, Jubis claimed that 
representatives of one of the local TV stations would rent TV season 
boxed sets from him as soon as they came out, only to return them a 
few hours later.  That new series/season would then appear on the 
network's schedule a week later. 
 
¶13. (SBU) While he, too, had approached the police to do more, Jubis 
agreed with the government strategy of targeting the "big fish" 
first.  He described going with the police one day to crack down on 
some small vendors.  They confiscated two boxes (about 200 DVDs) 
from one vendor.  Thirty minutes later, the vendor had two new 
boxes.  Going after the vendor would do little, Jubis thought, when 
the big producers could flood the streets again so quickly, and when 
confrontations turned violent. 
 
SURVEY: PIRACY ILLEGAL BUT NOT WRONG 
------------------------------------ 
 
¶8. (U) In late February, the American Chamber of Commerce (AmCham) 
released its second-annual public opinion survey on the impact of 
piracy in the San Salvador metropolitan area.  According to the 
survey, 84 percent of Salvadorans bought pirated goods in the last 
year (primarily optical discs, clothing, and shoes).   Consumers 
reported paying "less than half" the price of the original goods. 
86.6 percent knew piracy was illegal, but 63 percent thought it 
should not be prosecuted (20 percent of that did not think it should 
be a crime).  70.9 percent thought buying pirated products was 
saving/being thrifty, not stealing, 66.9 percent thought it was 
helping the poor, and 55.8 percent thought it didn't harm anybody. 
 
 
COMMENT 
------- 
 
¶14. (SBU) Post will continue to promote and support intellectual 
property rights enforcement with the Government of El Salvador. 
With El Salvador's broader crime problem, however, targeting the 
producers is likely the best use of limited law enforcement 
resources.  Likewise, with memories of violent protests still fresh 
and elections approaching in January and March 2009, the government 
is unlikely to risk conducting an unpopular and probably violent 
crackdown on street vendors in the near future.  End Comment. 
 
Glazer