Mr Video faces another legal wrangle

At least four former franchisees in KwaZulu-Natal have confirmed they were forced to close their shops because they could not pay their debts. Some have lost everything because their assets were attached to settle outstanding debts that ran up to R500 000 for each franchisee. The debts include bank loans and royalty fees.

http://www.busrep.co.za/
June 18, 2008

Mr Video faces another legal wrangle
Thabiso Mochiko

Johannesburg - Mr Video could be hit by further litigation - this time from some of its former franchisees who have accused the DVD rental company of "grossly unfair business practices".

Former franchisees based in KwaZulu-Natal claimed that Mr Video had squeezed them out of business by, among other things, forcing them to buy DVDs that were not attractive to the market and threatening them with closure if they refused to do so.

Mr Video also dictates what type of confectionery can be sold in the video outlets.

At least four former franchisees in KwaZulu-Natal have confirmed they were forced to close their shops because they could not pay their debts. Some have lost everything because their assets were attached to settle outstanding debts that ran up to R500 000 for each franchisee. The debts include bank loans and royalty fees.

According to one former franchisee, the franchise agreement has a "notarial bond" clause that allows Mr Video to attach the franchisees' assets if they are unable to pay the fees stipulated in the agreement.

Franchisees are expected to pay 5 percent of their turnover to the franchisor as royalty fees and a further 3 percent to an advertising fund.

"The franchise agreement had no protection," said a former franchisee. "In fact, it has given the franchisor the ability to bankrupt their stores."

Andre Grobler, the chief operating officer of Mr Video, said he was not aware of potential litigation but was aware of outstanding debts.

Grobler said: "These are pretty wild allegations and we will most certainly respond on a per case basis where applicable, as every case will have its unique set of merits."

He added that franchisees were not forced to buy certain movies but bought stock directly from the suppliers. "We only make recommendations."

Another former franchisee said this was not about revenge for business that had gone wrong, but rather that Mr Video had given no consideration to the shrinking DVD rental market and was still opening franchise stores without adequate research.

"The group is not looking after existing stores, but setting up new stores at a profit ratio of between R100 000 and R200 000 per store," said the former franchisee.

The latest allegation comes a week after Nu Metro and international movie studios such as Fox, Universal and Warner Bros won a court case that will prevent Mr Video shops from buying DVDs not bought through Nu Metro, which is the authorised distributor for certain movies.

However, Grobler said the victory was premature.

"While we have signed an agreement with the applicants to cease renting the films under dispute, we are still waiting for the judge to hand down his judgment on whether Nu Metro is a valid applicant in this case," he said.


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