May 27 (Bloomberg) -- U.S. publishers are betting readers will fork over a few more quarters for their newspaper, one of the few ways they can boost revenue as advertisers cut spending.

New York Times Co.’s flagship newspaper will cost $2 at newsstands as of June 1, a 50-cent increase, and subscription prices also will rise. A.H. Belo Corp. said this month it will consider more increases next year after raising the Dallas Morning News 25 cents to $1 in February.

Price increases at the Washington Post and Tampa Tribune also paid off with higher circulation revenue, a rare area of improvement in an industry that posted declines in advertising and readership in the past year. Ad sales have dropped so low that publishers said they are willing to lose some readers to get more money out of the loyal ones.

“Those rate hikes will continue as long as they can keep pushing them through,” Alexia Quadrani, a JPMorgan Chase & Co. analyst in New York, said in an interview. “Circulation is relatively a positive story, but unfortunately it doesn’t do too much to offset the declining advertising.”

In 2007, readers paid 35 cents for the Washington Post, less than half the current newsstand price of 75 cents, and $1 for the New York Times or the Wall Street Journal, which now costs $2.

Raising prices too far may carry unintended consequences, including driving readers to free news Web sites, said Tom Corbett, a media analyst at Morningstar Inc. in Chicago. Most publications have suffered declining readership as consumers seek more news from the Internet or television.

Price Ceiling

“Especially in this environment of consumer retrenchment, if your readership is not well-heeled, highly-educated and very attracted to your unique content, there’s going to be a ceiling to your ability to raise prices,” he said.

Industrywide average daily circulation fell 7.1 percent in the six months through March from a year earlier, according to the Audit Bureau of Circulations. That was almost double the rate of decline in the year-ago period.

As a result of price increases, Times Co.’s circulation revenue gained 1 percent in the first quarter, and accounted for 38 percent of total sales, up from 31 percent in all of 2008.

“Circulation revenues are up, primarily because of higher newsstand and home delivery prices,” Scott Heekin-Canedy, Times Co.’s president and general manager, said in an e-mail. “The recession has made business conditions difficult and advertisers are understandably cautious.”

Washington Post Co.; A.H. Belo; Journal Communications Inc., the publisher of the Milwaukee Journal Sentinel; and Media General Inc., owner of the Tampa Tribune, also posted rising circulation sales, while Americans bought fewer newspapers.

Ad Slump

Times Co. fell 13 cents to $6.59 at 4:04 p.m. in New York Stock Exchange composite trading. The stock has lost 62 percent in the 12 months. A.H. Belo, down 85 percent in the past year, declined 3 cents to $1.21. Washington Post, down 42 percent in the past 12 months, fell $1.43 to $361.34.

Among the top 25 newspapers, only News Corp.’s Wall Street Journal increased its distribution in the period. MediaNews Group Inc.’s Denver Post inherited the Rocky Mountain News subscription rolls after E.W. Scripps Co. halted the print edition of the newspaper in February.

Newspaper ad sales slumped 17 percent last year, according to the Newspaper Association of America. In the first quarter, Times Co., Gannett Co. and McClatchy Co. posted publishing ad revenue declines of at least 27 percent. The severity of the ad slump left few choices other than raising prices even if that meant selling fewer copies, some publishers said.

‘Falloff in Advertising’

“With the falloff in advertising it’s no longer so important to keep the numbers high,” said O. Reid Ashe, chief operating officer of Richmond, Virginia-based Media General. “We’re not doing this with impunity. It costs some sales, but in this kind of business environment it nets out to our benefit.”

Raising prices is a cheap way to get additional revenue because there are few extra costs apart from recalibrating street vending machines, he said.

Alison Engel, chief financial officer of A.H. Belo, said readers who stick with newspapers through price increases tend to be the ones most attractive to advertisers because of their loyalty to the product.

“People will pay for the things that mean something to them regardless,” Engel said in an interview. “What we do is a valuable service that we should be compensated for, not just by the advertiser for reaching consumers, but also by consumers for providing them that convenience.”

Circulation revenue jumped 9 percent at Dallas-based A.H. Belo last quarter, accounting for 25 percent of total sales compared with 19 percent in all of 2008.

‘Out of Recession’

First-quarter circulation sales advanced almost 1 percent at McClatchy, the Sacramento, California-based owner of the Miami Herald, and accounted for 19 percent of the total. They gained 4 percent at Journal Communications, based in Milwaukee.

MediaNews, based in Denver, also increased prices at some of its publications. The closely held company will be careful not to raise prices too much because advertisers that have cut spending will spend on newspapers when the economy recovers, Chief Executive Officer Dean Singleton said in an interview.

“When banks begin advertising again at a higher rate --and airlines and telecom and autos and real estate -- the biggest piece of that revenue will come from print,” he said. “The print product will lead us out of the recession.”

In the meantime, readers will have to pay more.

“Newspapers’ll keep pushing circulation prices until the advertisers yell,” said Edward Atorino, a New York-based analyst with Benchmark Co. “But that’s not on the horizon because everyone’s looking for cost savings.”

To contact the reporter on this story: Greg Bensinger in New York at gbensinger1@bloomberg.net

Last Updated: May 27, 2009 16:12 EDT