Steve Lustgarten owns Leo Films, a video distribution company based in the Los Feliz area of Los Angeles. In spite of a downturn in video rentals and sales due to cable, pay-per-view TV and the Internet, Lustgarten tries to keep up with the competition and stay ahead of what he calls "the media revolution." He spoke with Jolie Gorchov about how he does it.

I was producing and directing films in the '80s, and I had a couple of films that didn't work out so well, where we didn't see any money. All I had left was the domestic video rights, so to dig myself out of a hole, I started a domestic video distribution company. Those two films, they were the kick-off.

With word of mouth, we picked up a lot of films that fell between the cracks. Other companies couldn't figure out how to market their videos. We handle art house and independent, some Sundance films, and we have meat-and-potatoes horror films and thrillers. We acquire videos from the producers who made the films. Acquisitions can be expensive, but we've structured a lucrative deal where we don't pay a huge advance, but they get a decent back end.

After we acquire them, we package them with the cover art, and we market them to Blockbuster, Hollywood Video and all the other big video retailers. Now we've been doubling our revenues in the last four years. And we've opened up a stronger connection with Blockbuster. They bought 10,000 pieces of our last video, "Killers," a low-budget thriller film made for $100,000. It out-rented some of their studio movies.

The video market turned around three or four years ago and my competition was decimated. Cable, pay-per-view, satellite, and the Internet are all leisure-time alternatives, and perhaps the novelty of video wore off. Now there are only a handful of us surviving.

A lot of companies that were the main video purveyors had such a large overhead, they couldn't react to the decline in sales. We benefited because we were a small company, and in the early '90s we moved from being the 15th to being the fourth or fifth biggest company out there.

One of our biggest challenges is the extreme revolution that media are undergoing right now. Video is on its last legs, and DVD and Webcasting are coming into vogue. As in every business, the Web will revolutionize distribution. So we started movies-online.com, which we're configuring as a marketing system as well as a movie theater on the Web. You can watch a movie on the Web, or watch a trailer for the movie, or you can order a movie for Fed Ex delivery. We call it video-on-demand.

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