Despite the continued financial instability plaguing the Internet sector, there are indications that a small Woodland Hills-based Internet content producer may finally be heading toward profitability.

And that’s bringing some life back to the badly pummeled shares of Brilliant Digital Entertainment Inc.

Brilliant’s stock price, trading last week at about $1.75 a share, is slowly creeping up from its 52-week low of 62 cents in December, after closing as high as $14.93 last March. The company went public in November 1996 at $5 a share.

“What we saw last year and early this year was technology companies get hammered on Wall Street,” said Catherine Skelly, an analyst with Gruntal & Co. in New York. “Even those companies that have a better business model got beaten up.”

Skelly said that Brilliant’s solid business plan allows it to earn revenues from the licensing of its software, as well as by selling advertising.

“It’s always better to have multiple revenue streams,” she said. “The advertising market may have contracted, but there is still a need for content. It’s a very effective business model.”

Founded in 1996, Brilliant develops and distributes five-to-10-minute programs for the Internet. Known as Multipath Movies, they include “Xena Warrior Princess” and “Ace Ventura Pet Detective” and are available through the company’s Web site (www.brilliantdigital.com).

The company also distributes its Brilliant Banner software, which is used to create television-like commercials for the Internet, rather than mere banner ads that sit passively at the top of a Web page.

Kevin Bermeister, the company’s president, attributed the decline in the company’s stock price to Brilliant’s concentration on product development rather than on promoting itself to Wall Street.

“This quarter we will begin to produce tangible results that will have investors following our company,” he said. “We have started the momentum where revenues will lead to profits within a 12-month period.”

Brilliant Digital reported a net loss of $4.3 million (29 cents per share) for the third quarter ended Sept. 30, compared to a net loss of $2.8 million (23 cents a share) in the year-earlier period.

Third-quarter revenues increased to $477,000 from $299,000 in the third quarter of 1999. The company expects to release its fourth-quarter and year-end earnings for 2000 in March.

Bermeister said the near doubling of revenues reflects increased Internet advertising and licensing of its proprietary “b3d” animation software, which enables the creation and presentation of interactive streaming 3-D Web programming. The net loss reflects the ongoing investment in research and development, content development and increased tradeshow-related expenses.

“I’m optimistic that the company will turn a profit,” said Lou Mazzucahelli, an analyst with Girard, Clauer, Mattison & Co. in New York. “The company is tuning up its organization and, with a plausible business model, if they get some breaks, it can succeed.”

Last month, Brilliant Digital introduced Brilliant Banner, which it is touting as a rich-media solution to declining ad click-through rates. Rich media uses or combines video, voice, data and other elements, such as animation, over the Internet to create an enhanced user experience. The company hopes this technology will prove to be an alternative to traditional online advertising banners.

The first Brilliant Banner ad campaign has been purchased by Infogrames Inc., an entertainment software company, to support the release of its upcoming game titles. Online ad agencies have also agreed to sell Brilliant Banners to their clients.

John Bowen of FAC/Equities, a division of First Albany Corp., said the rich-media market is projected to grow to $34 billion over the next three years.

“It’s a very clever approach,” said Mazzucahelli. “There are a lot of Web users who are used to seeing banner advertising. The trick is to make these ads more compelling.”

Brilliant Digital spokesman Anthony Newman said the first advertising campaign by Infogrames is scheduled to begin within a couple of weeks.

The company’s Digital Projector software allows Internet users to view three-dimensional animated content, with current offerings including Superman cartoons, rap music videos and advertising.

Mazzucahelli said the company’s online rap music videos have solid profit potential.

“Once the music business sees this stuff, they will find it to be a great way to expose new artists to a large audience,” he said.