When video giant Blockbuster Entertainment Corp. acquired Erol's Inc. last month, the Blockbuster franchisees in the Washington area saw it as another logical step in their effort to take over the local videotape rental market.

They were not overly surprised nor were they overly elated. While the transaction will do away with Blockbuster's only major competitor, the franchisees here have begun to see their stores sap business from the smaller, less glitzy Erol's outlets, which will not survive under that name.

Still, it makes for a nice holiday season.

"Our employees are all very excited," said Steven Quamme, president of Washington-based Atlantic Entertainment Corp., whose franchise area covers the District and Montgomery County south of the Capital Beltway.

The franchisees said the closing of Springfield-based Erol's will increase their business, as some loyal Erol's customers will continue going there until the stores are gone or converted to Blockbuster stores. The closing of Erol's also will create a pool of trained workers.

Blockbuster, based in Fort Lauderdale, Fla., will begin working with the franchisees to decide which Erol's stores will be closed or converted to franchisee-owned Blockbuster stores after the acquisition becomes final. Of the 108 Erol's stores in this area, probably few will become Blockbusters. A date for the completion of the deal has not been announced.

"They don't fit the mold," said Charles Wyse, executive vice president of UI Video Stores Inc. of Denver, which owns Blockbuster franchise stores in Prince George's, Anne Arundel and Howard counties. "They tend to be in the 2,000- to 3,000-square-feet range, which is about half the size of our stores."

Almost everywhere UI Video Stores has a Blockbuster, there is an Erol's within a mile, Wyse said, and those stores likely will be closed.

"But there are {a few} ... where we haven't found the right real estate," Wyse said. "In certain areas it's hard to find 6,000 square feet of good retail space."

And in a business where convenience is everything, location is the first consideration.

"People want to rent videos, and they're excited about it, but on the other hand, they have to bring it back," said J. Leonard Cyphers, president of Cox Home Video of Atlanta, which owns Blockbuster franchises on the the East Coast, including Baltimore County and Norfolk. The local franchisees are grateful to Erol's, and the chain's founder Erol Onaran, for paving the way for Blockbuster's success.

"Without {Onaran}, I don't think we could have done so well," said Barry Zale, president of Capitol Entertainment Inc. of Dallas, which has 20 stores in Northern Virginia and north of the Capital Beltway in Montgomery County.

Zale's family used to own Zale Corp., one of the largest jewelry retailers in the nation until it was sold to a joint venture of Canadian and Austrian firms in a hostile takeover in 1986.

"Erol's educated the consumer on ... what home entertainment and video rental was all about," Zale said. "Washington has one of the highest VCR penetrations in the country."

Although they have local investors, UI Video, Cox Video and Capitol Entertainment all are out-of-town companies. Only Atlantic Entertainment is based in the Washington area.

None of the four has been in the video business for more than three years. They all said they jumped into the industry because they saw it as a great business opportunity. In that sense, the Erol's takeover doesn't really surprise or exhilarate any of the local franchisees.

Quamme was a lawyer in Washington until two years ago, when he set up a Blockbuster partnership with six other investors, including President Bush's son Marvin.

"It's been a lot of work -- I was obviously not in the retail business before this," Quamme said. "But we came to the market thinking that Blockbuster would do very well with or without Erol's."