With UK arthouse distributors bemoaning the tough market, it seems an odd time for a new player to enter the game.

But Nick Crossley and Jono Stevens are keeping an open mind as they launch Diffusion Pictures. As Stevens says: "More people are watching films than ever. (The theatrical market) is a little tough but it's not impenetrable." But Crossley adds: "You have to love film if you're doing what we do."

Crossley is a veteran of film finance outfit Ingenious Media and distributor Redbus (now Lionsgate UK), while Stevens worked in advertising at JWT, has made short films and was the assistant producer on planned UK thriller Rat King (as yet unmade after financing fell through).

They are hopeful for the changes made possible by digital exhibition. Stevens says: "I don't think the traditional models will work. That's normal in any industry. With the climate in flux, there could be more opportunities for independent distributors."

Still, Crossley and Stevens are realistic about the challenges of UK distribution, such as sales agents wanting premium prices for UK deals and consolidation in exhibition. "There's a danger in saying, 'That's the attractive niche we're going to fill', because in six months niches change," Crossley explains.

While they are starting with theatrical and DVD distribution (five to 10 theatrical releases per year), Crossley says Diffusion also plans to cross into production - aiming to raise $1.95m (£1m) for a production fund. "We might start in stages, investing in or pre-buying projects," Crossley says.

Diffusion's first acquisitions are Andrew Bujalski's low-budget twentysomething tales Funny Ha Ha and Mutual Appreciation, both critical hits in the US. Diffusion acquired both films from the film-maker's company Goodbye Cruel Releasing and launched Funny Ha Ha on March 15 at London's ICA, with Mutual Appreciation to follow on May 4 on five prints.

They have a June release planned for their third acquisition, Joachim Trier's Reprise, Norway's Oscar submission, which was sold by Nordisk.

The duo say they are open to a variety of genres, although they point out their first three acquisitions are films about "twentysomethings deciding what to do in the world". Diffusion will also tackle bigger films: "If a project comes along and it's a bit bigger, we can find a way to do that," Stevens says. Crossley adds that economies of scale can mean "it's more economic to do a 10-print release than a three-print release".

Diffusion may also venture into music, art, clubs and cinemas. Stevens points to the music industry, where consumers trust the tastes of a certain record label. He says: "We want to be a trusted filter."