That function only works with and applies to photo files -- not video, PDF, Word Doc, etc.
Some versions of QuickTime may be able to alter the size. Also iMovies may be able to.
Try using Quick Player (not QT 7 which has Pro Key), and Save As iPhone (cellular). I just tested and found it reduced a 1.57 GB .mov to .3GPP movie of only 4.8 MB. Not sure of the universal compatibility of this format. There is also another iPhone format that you could try, which I did not test.
I don't this requires a Pro Key, but I have all sorts of pro video apps which might do an upgrade I didn't think about.