America's No. 1 video chain is swallowing No. 3 in a $40 million deal that gives Blockbuster Entertainment Corp. a total of more than 1,700 stores. Blockbuster agreed to acquire Erol's Inc. of Springfield, Va., a chain of 208 outlets that pioneered the video rental business in 1980 but has struggled amid management shuffles and stiff competition. The deal ``provides an outstanding opportunity for Blockbuster and its franchise owners to broaden the base of ourstores,'' Blockbuster chairman and chief executive officer H. Wayne Huizenga said Monday. Erol's, the nation's third-largest chain behind West Coast-National of Philadelphia, has stores in Philadelphia, Baltimore, Cleveland and Chicago as well as 112 stores in the Washington, D.C., area, where Blockbuster has only 48 outlets and was looking to expand. Blockbuster, based in Fort Lauderdale, opened its 1,500th store Monday, in Vancouver, British Columbia. In all, the chain has stores in 44 states, the District of Columbia, Guam, Puerto Rico, Canada and England. Erol's founder and principal stockholder, Erol Onaran, said the buyout was in the best interest of his 2,600 employees. ``It was going to be a fight,'' said analyst Drew Beja at Advest Securities. ``And Blockbuster had the resources to win the fight.'' Onaron founded Erol's as a stereo repair shop in Washington in 1963. It was an early pioneer in the video industry, opening stores exclusively devoted to rentals in 1980, and led all other video chains in revenue until Blockbuster surpassed it in 1988. But Erol's has been stagnating since then, and didn't begin to sell franchises until last August, said Frank Molstad, editor of Video Store magazine. In contrast, Blockbuster has been expanding by 400 to 500 stores a year since Huizenga bought the company in 1987 for $19 million, and Huizenga has said sales this year could top $1 billion. Erol's had revenue of $100 million last year, said Jerry Falkner, an analyst at Southwest Research Partners in Boca Raton. While more than 1,700 stores by the end of the year, Blockbuster will still have only about 10 percent of the home video market, said Fran Blechman Bernstein, an analyst with Merrill Lynch.
