BUENOS AIRES -- Argentina's Pachamama Cine is expanding into production and services and taking on international sales duties to improve slim margins in a competitive distribution market at home.

The distributor plans to hold a script contest to find projects and produce two features a year, says Alejandro De Grazia, who founded the outfit in 2005 and has distributed titles like "Spy Game" and "We Were Soldiers."

He wants to build on a first effort with Diego Rafecas' spiritual search drama "Un Buda" (A Budha), which was released in 2005 and has sold internationally to 10 territories.

Pachamama has put money into two pics it will distribute in Argentina and sell in the Americas.

One is "Medianeras" (Sidewalls), the freshman feature of Gustavo Taretto that expands on his acclaimed short of the same name, a simple, comical, sad and highly identifiable story of urban loneliness. Hernan Musaluppi's Rizoma Films is producing the story of two neighbors who cross paths but never meet, for a 2009 release.

The second, also produced by Rizoma, is the first feature from Victoria Galardi and Martin Carranza called "Amorosa Soledad" (Lovely Loneliness). Starring Ines Efron ("XXY") and Ricardo Darin ("Nine Queens"), it is about a hypochondriac who after getting dumped takes a vow to spend three years on her own. It will come out in April or May of this year.

"The key is to find good stories and the willingness of directors to work with producers," De Grazia said.

Argentine cinema has gained a reputation for strong arthouse productions that go down well at festivals but fail to pack theaters. The country's 92 releases last year fetched 9% of total BO admissions, down from the 11.6% the 74 releases of 2006 took.

To improve sales, "you have to have a good project," he said. "The public wants good stories and good actors. They have to be stories in which things happen. There are many films coming out of Argentina but not many with stories in which things happen."

Pachamama also plans to expand into services for foreign productions, tapping the country's strong talent base and low costs thanks to a government policy of maintaining the currency exchange rate at around 3.15 per dollar.

"All businesses that you add to the distributor help improve returns," which have been in decline on rising advertising and labor costs and high taxes, he said.

With "Black Book" last year, it spent $180,000 on promotion and didn't recover it until the DVD release.

For 2008-09, Pachamama will distrib 24 films including Kiyoshi Kurosawa's terror tale "Retribution," Woody Allen's "Vicky Cristina Barcelona," George Romero's terror flick "Diary of the Dead" and Viggo Mortensen-starrer "Good." It also has picked up Ashton Kutcher and Michelle Pfeiffer-starrer "Personal Effects" as well as "Disco" toplined by Gerard Depardieu.

Pachamama, too, will handle "Matar a todos," a kidnap drama directed by Uruguayan Esteban Schroeder and produced by Argentina's Morocha Films.