Video sequel: Ardustry Home Entertainment uses vestiges of troubled firm to stake its place in competitive film distribution industry.

Cheryl A. Freeman loves a challenge. So when it came to entering the competitive video distribution market with a startup firm last year, Freeman jumped right in.

"I saw it as a chance to do things differently and do it better than anyone else," Freeman said.

After just one year in business, Ardustry Home Entertainment is showing its competitive mettle.

The company is on track to post $6 million to $10 million in revenue, depending on the success of its upcoming releases, Freeman says.

"We're very optimistic about the rest of the year because of all the releases we have scheduled," she said.

The company has already released 14 films this year and expects to release a total of 20 films in 2003.

As a video distributor, Ardustry distributes independent films where budgets range from $500,000 to $2 million. The company's customers are other distributors who have deals with retail chains and independent, mom-and-pop video stores.

In recent months, the company has also begun distributing to large retailers such as Wal-Mart and Costco.

"We're small, but we're growing so we can't really deal with a lot of retailers because it would not be cost effective," Freeman said.

Former CFO 

A 15-year industry veteran, Freeman was chief financial officer for Unapix Entertainment, another video distributor when the company began experiencing financial difficulty. After a four-year battle, the company filed for bankruptcy in 2000.

"So the company's biggest creditor, G.E. Capital asked me to stay until it was acquired and they acquired it and asked me to be chief executive of the new company," she said.

When Ardustry began operations last September, Freeman hired back a handful of the employees from Unapix, including several seasoned sales executives that, she said, were instrumental in the launch.

"That first month we were operating, I think we made $5,000 and it was hard getting customers to accept us," she said.

As a brand new company, many customers were reluctant to take a chance on Ardustry, a name formed by combining art and industry.

But by recruiting salespeople like Jerry Smallwood and Mary Flynn, who have more than 30 years experience in video sales, the company was able to garner important deals with several distributors and retailers.

"We're small, but that makes us more efficient and able to do things that our competitors can't," Freeman said.

A hands-on approach

Freeman herself takes a hands-on approach to marketing, getting involved in everything from making the box covers and posters to selecting the additional footage that's included in DVD versions of the films.

For the children's film "Angels in Training," for instance, the company has "added a CD-ROM with interactive animated stories that explore nature.

The company has also had some success re-releasing titles by updating the packaging and adding new features.

"One of the things we do that no one else is doing is add extra things like a CD-ROM or a music CD," Freeman said.

But perhaps most important are the company's efforts to reduce costs, such as its policy of not paying producers advances like competitors do.

"We don't pay advances," Freeman said. "If you put out $200,000 in an advance and then you pay out $100,000 to $150,000 in marketing and distribution, that's capital walking out the door before one penny comes in."

Despite initial opposition by some producers to the no-advance policy, most of them eventually came around thanks to the company's ability to offer them better exposure in larger retail chains than other distributors provide.

"We're able to place them and place them quickly in WalMart and a lot of stores all over the country," she said. Thanks largely to the reputation of its management, the company has gained a loyal core of producers.

"That's because we pay royalties when they're due and not a lot of distributors can say that," Freeman said. Dennis Fallon, producer of "Dead Silence," now being distributed by Ardustry, said he's impressed by the company's business plan.

"I've had bad experiences with other distributors and even had to pull a film back because they were taking in money and not reporting it, but here everything is very professional and they work with you," he said.

Launching a video magazine

Ardustry's biggest effort to date is a new direct-to-video monthly video magazine called dubbed "Sex, Y&Z" due out this fall with monthly installments thereafter.

The show is produced by Zalman King, known for Showtime's series "Red Shoes Diaries," and features music videos, extreme sports segments and scantily-clad models.

"I'm very confident that it will do well for us," said King who is also preparing two other direct-to-video magazine shows.

Freeman carefully selects the films the company releases, culling down the choices to a very small numbers.

She said she bases her selections on sales expectations, not on her own personal preferences.

It's not unusual for Freeman to write long 20-page reports on a film's projected sales.

"Some people don't like them, but you have to be honest and realistic about how a film is going to do. You can't kid yourself about that," she said.

In addition to the producers who approach the company with their films, Ardustry is also drawing from an existing library of 200 films and 4,000 hours of episodic television inherited from Unapix.

Besides local video stores, many of the films can also end up broadcast on HBO, Showtime or other premium cable channels. But that market has been in decline the last few years because a glut of product has hit the market.

Spotlight

Ardustry Home Entertainment

Year Founded: 2002

Employees in 2002:10

Employees in 2003:20

Revenue in 2002: $1 million

Revenue in 2003 (projected): $6 million to $10 million

Goal: To provide cost-effective film distribution to independent filmmakers.

Driving Force: Growing demand for low-cost entertainment.