• by Erik Sass  @eriksass1, May 15, 2007

Ziff Davis Holdings, the company that owns publisher Ziff Davis Media, continued its turnaround in the first quarter of 2007.

The company saw a 15% increase in earnings to $3.1 million. Earnings increased despite a total revenue decline of 12%, or $4.3 million, as the company wrapped up a period when it shed a number of unprofitable print publications. This is the fourth quarter in which revenue fell, but profitability increased.

Although the technology and gaming-focused publisher is far smaller than big consumer mag heavyweights, its early transition to mixed print and digital operations--driven by its tech-savvy readership--may provide a glimpse at the future of the magazine business overall.

The company's three divisions posted individual results as part of the first-quarter statement. The consumer and small business group, which includes PC Magazine, saw overall revenues fall 17% to $11.3 million compared to last quarter, due to print ad contraction. Digital revenues rose 20%. Its enterprise group saw print ad revenue fall 15% as digital revenue grew 30%, for an overall 5% decline to $16 million. The gaming group's total revenue declined 17% to $5.4 million, despite 28% growth in digital properties.

The curious phenomenon of falling revenues paired with increasing earnings may be indicative of a general trend--magazine companies which move aggressively to online-centered business models are likely to be smaller, but also more profitable, after the transition. The economic advantages of Web distribution were clear in the latest Ziff Davis results--with digital costs remaining essentially flat, despite the double-digit increases in revenue. The contraction of the company's print operations also yielded cost savings of about $5.4 million across all three groups, including printing and distribution costs.

Ziff Davis is emerging from a years-long decline that was in some ways a harbinger of the digital disruption now affecting consumer magazines. The company was one of the first to feel the effects of the rise of the Internet, as computer shoppers, gamers and small-business I.T. officers turned away from print to the Internet, which offers more options for product comparison and research. Thus, from revenues of $535 million in 1999, the company fell to just $181 million in 2006.

In late 2004, the company began aggressively pruning its print publications, eventually axing XBN, GMR, Sync, ExtremeTech and most recently the Official U.S. PlayStation Magazine. Meanwhile, it invested heavily in the development of its online properties, including gaming destinations EGM, 1UP.com, and GameVideos.com, Web Buyers Guide and eWeek. Ziff has also expanded its event-marketing operations with the launch of Business 4Site and DigitalLife in 2003, and the PC Magazine and eWeek tech events and the Virtual Security Trade Show in 2004.

The company's improved performance in recent quarters may foreshadow a sale, possibly involving the breakup and piecemeal sale of various properties, according to an article posted on the Folio magazine Web site May 1. The company's owner, Willis Stein & Partners, paid $780 million for Ziff Davis in 2000, just as its precipitate decline was about to begin. It's now seeking to recoup some of this investment. Possible buyers include competing tech-market publishers and private-equity firms.