To Diana Taxin, the planned takeover of Erol's Inc. by arch-rival Blockbuster Entertainment Corp. probably means that her Metro Video store in Bowie has one less competitor.

There's a Blockbuster store across the street from her store on Route 450, and an Erol's is a couple of blocks away.

After the two big chains merge, Taxin figures, one of the stores will have to close.

"We'll probably split the customers," Taxin said. "We think it's going to increase our business."

Other local video store owners are similarly pleased by the plans for the area's No. 1 and No. 2 video chains to join forces after two years of fierce competition.

Although the merger will create one huge, well-financed competitor, it will save the smaller stores, which account for more than half of the locations locally, from being caught in the competitive cross-fire between the two brawling chains.

It will lead to the closing of some of the combined chain's stores.

It will also put an end to one of the independent video store owner's biggest nightmares -- that a huge, glitzy Blockbuster store will show up in the neighborhood on top of the Erol's that's already there.

"I think it's probably very positive for the independent retailer that's positioned properly," said Eric Heckman, president of Video Place, a Rockville-based chain with nine local stores. "Instead of competing against two giants, you compete against one giant."

"The independent stores can position themselves in their own personal strategy now without bouncing back and forth," said Steven Apple, editor of Video Insider magazine, a trade publication.

Fort Lauderdale, Fla.-based Blockbuster, the industry giant that entered the Washington market two years ago and now has 30 stores here, announced Monday that it had agreed to acquire Springfield-based Erol's, the area's largest video chain, in a deal valued at $40 million.

Blockbuster officials say they haven't decided what to do about all of Erol's 208 stores, about half of which are in the Washington area.

Industry observers, though, say most will be converted to Blockbusters and the rest -- smaller, in poor locations or redundant -- will be closed.

Even before the takeover announcement, many local video store owners and managers say, they were doing good business while the two big chains were fighting it out.

The smaller stores say they have been able to thrive by offering customers more personal attention, better service and video selections tailored to neighborhood tastes.

"There's a convenience factor, there's a selection factor, there's also a service factor," said Tayo Akintoba, who owns two Videotronix stores in the District.

"Any video store is going to survive," he added, "if they can offer elements of those factors. ... We tend to know most of our customers by their names, and we're able to help them in terms of finding a good movie or tailoring a movie to their taste."

"I think independent retailers take a different approach in terms of trying to satisfy their neighborhoods and trying to satisfy the film buffs and the video buffs rather than the weekend renters," said Ken Turner, general manager of Washington Video, a four-store local chain.

Many independent dealers and small chains have carved successful niches for themselves by stocking more classic and foreign films than the more hit-oriented Blockbuster or Erol's stores -- not to mention adult movies, in many cases.

"I've got everything you'd find at a Blockbuster or Erol's plus hundreds of things you wouldn't find there," said Jim McCabe, owner of Video Vault, which has stores in Alexandria and Georgetown and a thriving mail-order operation, all specializing in cult, classic and foreign films.

Pricing appears to be less a factor in the competitive balance.

Some independent store owners interviewed said that while their rental rates may be slightly higher than the big chains -- $2.50 for one night at Metro Video, for instance, compared with the same for two nights at Erol's and $3 for three nights at Blockbuster -- that doesn't seem to make a big difference in rental volume.

"We find most people only want them for one day, anyway," Taxin said.

No one really is sure just how many video rental stores there are in the Washington area.

Local Yellow Pages list more than 300, including the 130 or so Erol's and Blockbuster stores.

But that doesn't count record stores and convenience stores that also rent tapes, and it doesn't begin to take into account the thousands of stores -- from Giant Food to K mart -- that sell videos.

Video-rental industry officials say that regardless of whether a store is run by a chain or locally owned, the biggest factor determining its success usually is its location.

"Video is a very local thing," said John Turner, who owns two KW Video stores in Fairfax and Oakton. "You're not going to find people who are going to come from Alexandria to Fairfax to rent a film.

"They're going to go to the nearest local store."