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Brilliant Digital takes a hit

The company, still smarting from a privacy storm that erupted when its Altnet service first came to light, says its net revenue has fallen 42 percent from the same period last year.

Brilliant Digital Entertainment on Thursday said it collected $375,000 in net revenue for the second quarter, down 42 percent from $652,000 in the comparable second quarter of 2001.

Woodland Hills, Calif.-based Brilliant Digital, whose Altnet peer-to-peer software comes bundled with the popular Kazaa file-swapping client, reported a net loss of about $2 million, or 9 cents per share, compared with a net loss of $1.2 million, or 8 cents per share, for the same period last year.

Brilliant Digital Chief Executive Kevin Bermeister attributed the drop in revenue to initial costs associated with a shift in corporate strategy from 3D animation production to advertising and content distribution services offered through Altnet.

"We believe our focus in these areas offers us significantly higher revenue potential and operating margins compared with animation production," Bermeister said in a statement.

Brilliant Digital has drawn attention as one of a growing class of companies seeking to trade on the popularity of file-swapping programs, which frequently get paid to include third-party software products with downloads. The practice has drawn scrutiny over the nature and disclosure of the bundled products, some of which may include advertising add-ons and illicit programs known as "spyware" that may track consumer behavior.

For its part, Brilliant Digital is still smarting from a privacy storm that erupted when the Altnet service first came to light, although the company denies that it did anything wrong.

In May, Brilliant Digital launched the Altnet service by seeding the Kazaa file-swapping network with advertising links and paid content from a handful of partners, including video game publisher Infogrames and EMI-distributed record label 2KSounds.

Earlier this month, Brilliant said consumers had installed some 2 million copies of its Altnet program.

The plan, which is moving ahead under a deal with Kazaa distributor Sharman Networks, faces enormous hurdles. Among other things, Brilliant Digital is a thinly financed start-up challenging the deep pockets of the entertainment industry, which has brought a crippling lawsuit against Sharman, Brilliant Digital's primary distribution partner.

As of June 30, 2002, the company listed total current assets of $723,000, including $330,000 in cash on hand, and current liabilities of more than $3.8 million, including $480,000 in accounts payable, according to securities filings.

The company's stock was down nearly 6 percent in late Thursday trading at 16 cents a share.