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Spyglass benefits from CDA defeat

Last month marked the first full quarter to end since the downfall of the Communications Decency Act, and at least one company is reaping the benefits of the ruling.

    Last month marked the first full quarter to end since the downfall of the Communications Decency Act, and today at least one company is reaping the benefits of the ruling.

    Spyglass (SPYG) today reported revenue of $3.2 million, 50 percent below the fourth quarter of last year, when the company reported $6.6 million in revenue. However, since the CDA was overruled, revenue is up 40 percent from the third quarter's results of $2.2 million, and the company says it has no doubt the downfall of the CDA has been a catalyst for business.

    Spyglass said its improvement over the previous quarter is just the beginning of a turnaround fueled by the CDA, and by the company's expansion into the device market as well. The CDA opened up new markets for Spyglass' filtering software, SurfWatch, and also seems to have encouraged more people to get online in more ways, for example, via Internet devices like phones, set-top boxes, and networked computers.

    The company's net loss for the quarter was $4.7 million, or 38 cents per share, beating analyst expectations of a loss of 42 cents a share, according to First Call. During the same quarter a year ago, Spyglass reported a net profit of $1 million, or 8 cents a share.

    During trading, the company's stock lost 3/4 from yesterday's close of 11.

    More losses are on the way as the company continues expanding its business and investing in research and development. Spyglass said it will continue to invest in its overall operations, specifically in product development and international operations, in order to take advantage of the market opportunities. The company said it also will consider acquisitions.

    Spyglass's continued focus on the Web-enabled device market may continue downward pressure on revenue and net income during fiscal 1998. Spyglass said it needs to give up near-term return to profitability to focus on long-term potential.

    But the near-term potential continues to be associated with the CDA, said Michael Sears, general manager of SurfWatch Software, a division of Spyglass, noting that the ruling defeating the act has expanded the filter business into more schools and homes, and into some new areas as well.

    "The next biggest opportunity [for filtering software] is in the corporate space," said Sears, explaining that many parents who were concerned about what their children were viewing online subsequently started thinking about employees and a productive work environment. "[Corporate] managers are also parents, and the CDA brought a lot of buzz to the issue [of who should be in control of content at work]." he said.

    Spyglass said more businesses are installing filtering software in an attempt to limit employees' access to non-work related sites. Some businesses also see the filters as ways to protect themselves from sexual harassment lawsuits by prohibiting employees from accessing adult-oriented sites from the workplace.

    Spyglass said last year it began shifting its focus from building Web browsers and started investing in Internet devices. The company now builds the software that goes inside Internet devices in order to make them Web-enabled, and said this quarter represents a real validation that the strategy is starting to work.

    "The CDA made the masses aware of the opportunity of the Internet, but the [Supreme] Court put responsibility back into the control of the listener or viewer, not the speaker," Sears said. "So there can be free speech on the Internet, but it is the obligation of the user or listener to protect themselves."