• by Erik Sass  @eriksass1, August 17, 2007

Already navigating through troubled financial waters, Ziff Davis Media is now on the rocks. The company missed an interest payment on its $390 million debt. The missed payment, first reported in Folio, could signal the beginning of bankruptcy proceedings for the tech and gaming publisher. Ironically, it comes after one of the company's best quarters in years.

CEO Jason Young expressed confidence that the company won't have to declare legal bankruptcy, pinning his hopes on debt restructuring--but the hiring of bankruptcy specialists Alvarez & Marsal suggests it is a distinct possibility.

Whatever happens, the new financial complication will probably make it more difficult to sell the company's consumer and small business group and the games group. Earlier this month, Ziff sold its Enterprise Group for $150 million.

Over the past six years, the company has been engaged in a tough transition to Web-based publishing and distribution. Although it still publishes a stable of well-known print magazines, many have been reconfigured as adjuncts to primary content distribution via the Internet.

After several years of big losses, Ziff's earnings finally began to rebound in 2006--but this good news may not be enough to save the company from bankruptcy.

In the first quarter of 2007, the most recent data available, Ziff Davis 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.

Within these figures, the consumer and small business group--which includes PC Magazine--saw overall revenues fall 17% to $11.3 million, compared to the same quarter in 2006, 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.