For newspaper stocks, 2012 was a surprisingly good year

Total revenues are not yet headed in the right direction, but investors still liked what they saw in the newspaper industry last year and bid up share prices accordingly.

Six of eight publicly traded companies showed gains for 2012; four of those were up 30 percent or more. The two companies that lost ground — Washington Post and A.H. Belo — were down just 3.1 percent and 2.1 percent, respectively.

Lee showed the biggest percentage gain, up 62.9 percent, followed by McClatchy (36.8 percent), E.W. Scripps (35 percent) and Gannett (34.7 percent).

If you bought a bundle of newspaper stocks at the beginning of last year and sold Monday, you would likely have pocketed a 25 percent gain.

There is an element of paradox to these results. The industry continues to struggle with the basic problem of finding new sources of revenue to make up for continuing declines in print advertising. Print advertising was off by more than $1.1 billion through three quarters, compared to digital ad gains of just $58 million. Circulation and other revenue gains would improve that comparison but still not come close to making up the difference.

So what did investors like about the companies? Here are eight positives:

1. Digital pay plans, combined with aggressive print price increases, are generating new circulation revenues. More than 400 of 1,350 daily papers now have implemented or plan some version of a digital paywall.
2. On an operating basis, the great majority of papers are profitable. Only a handful have closed or reduced print frequency.
3. While some of the companies struggle to make interest payments, pay down debt and fund pension obligations, these and other legacy costs became less threatening in the course of the year.
4. Companies are showing good results from their investments in digital companies like CareerBuilder. Many have also launched promising digital/social marketing agencies for local businesses.
5. Those companies with local TV operations (Gannett, Scripps, Washington Post, Journal Communications) had even better-than-expected revenue and profit gains in a banner year for political advertising.
6. Sunday insert advertising, despite potential future shifts to mobile, held up well as newspapers have also been successful in stabilizing or improving Sunday circulation.
7. An improving economy should boost continuing problem categories like real estate.
8. 2012 was a positive year for the broader market with the S & P 500 up 13 percent.

Gannett was an especially strong case in point, benefiting both from results in its broadcast division and a strong portfolio of digital businesses. The company is putting digital pay plans at all 80 of its community newspapers and so far has met promises of revenue growth.

The New York Times Co., by contrast, has had even more dramatic success with its digital subscription plans. But it missed earnings targets in the third quarter and has no cushion of broadcast business to buoy results.  Its shares were up just over 10 percent for the year.

To put the good news in perspective, stock prices are still way down from their peaks in the mid 2000s. But this is a far better performance than 2011, in which all eight of the companies experienced declines.

Share prices are essentially a measure of what investors think will happen financially in the near-term — the next three to five years. So it is fair to say the industry’s prospects are considerably brighter entering 2013 than they were a year ago.