Wall Street rewarded The New York Times Co. with a 10 percent stock price increase Thursday after a second-quarter earnings report with several significant bits of good news:

  • For a second consecutive quarter, increases in circulation revenue more than made up for ad revenue losses.
  • Circulation revenue is pulling even with ad revenue for the company as a whole; at The New York Times itself, circulation revenue exceeds that from ads.
  • New York Times digital subscriptions passed the 500,000 mark, achieving 12 percent growth since March. Skeptics like me thought it might take a whole year to reach that.
  • And the company forecasts better ad revenue and profitability for the second half of the year as it moves past sharp traffic and revenue losses at its About.com subsidiary.

All that progress is real, but the company's figures mask a fast-shifting mix within its circulation base.

The increase in the number of digital subscriptions was measured from the previous quarter -- not the norm in the industry, but maybe justified given its fast growth and the intense investor and public interest in the Times' paywall.

But circulation revenue was compared to the second quarter of 2011. This time a year ago, three months after introducing the paywall, digital subs stood at 281,000, Chairman and acting CEO Arthur Sulzberger said Thursday.

So apples to apples, the number of digital subscribers rose roughly 80 percent in a year, but that yielded just an 11 percent gain in circulation revenue for the Times and the International Herald Tribune.

Why the discrepancy? Some theories:

First, part of it is simple math. Even at 500,000-plus, digital subscriptions are only about half the Times's average daily print circulation. So two-thirds of the base is not growing nearly as quickly.

Print isn't the culprit. The overall circulation revenue figure, of course, includes print. The company said that the Times has lost some circulation (6 percent daily, 2 percent Sunday year-to-year), but that it's been mostly covered by price increases, most recently in the single-copy price of the daily paper. So that would be close to a wash, year-to-year.

Discounted subscriptions are driving the gains. I wonder how many of those digital subscriptions have been secured at deeply discounted, introductory rates and whether they now account for a larger share than they did a year ago.

The company's financials do not indicate this, and Times spokeswoman Eileen Murphy declined to be more specific when I posed the question directly.

Denise Warren, chief ad officer and general manager of nytimes.com, did say in an earnings conference call that the gain in digital subs was boosted by three separate marketing initiatives during the quarter, and that more of the same is planned for the balance of the year.

Print subscribers are cutting back. Since print subscribers get digital access free, another possibility is that a substantial number of them are stepping down from daily subscriptions to Sunday-only. A subscriber would save several hundred dollars with such a switch; that would be a net circulation revenue loss to the company.

The company is making less money off new subscribers than it did from old ones who are dropping off. The cheapest digital subscription costs less than a third of a daily print one. And subs or single-copy sales on Kindle and other tablet devices cost considerably less than print. So it's possible that new subscribers are choosing digital as some print subscribers drop away.

Warren also said that retention rates for digital subscriptions are excellent, though that doesn't really quantify the extent of churn.

With all those variables in play, the company deserves the plaudits it is getting for keeping circulation revenues net positive. I'm still baffled, though, as to whether that trajectory can be maintained and at what cost.

Speaking of bafflement...

What's behind the drop in digital ad revenue?

Murphy attributed the small year-to-year loss in digital advertising revenues to soft demand in national display and real estate classified — not to any loss in traffic for nytimes.com.  Page views and time-on-site have remained steady, Murphy said, contrary to warnings from paywall critics that they would fall sharply.

During the earnings call, Times Co. executives said that advertising results remain volatile: down 6 percent year-to-year in April, 1 to 2 percent in May, 12 percent in June. (Gannett had reported the same pattern and roughly the same percentages earlier this month.) July will be down, but not nearly as much as June, they said.

Sulzberger said that the Times Chinese-language digital edition, launched in late June, is off to a strong start. He said that the company is in the planning stage for a number of other niche digital offerings.

Skill in managing that sort of digital growth, he said, is part of the expertise he is looking for in a new CEO, a search he expects to complete in the next several months. The Times' Amy Chozick was more definitive, citing an unnamed company source who said a successor could be named by September.

For now, the Times Co. is outperforming the pack, especially considering that it has no broadcast earnings, which is a big help in a political and Olympics year at companies whose newspapers are not doing so well.