By Jennifer Saba (Reuters) - New York Times Co reported higher third-quarter revenue on Thursday after more readers paid for its flagship newspaper and its digital products. The company is relying on customers to open their wallets as advertisers pull back from newspapers. "Circulation is the star performer," said Ed Atornio, an analyst with Benchmark Co. Shares of New York Times Co rose 2 percent to $14.02 in morning trade. Circulation revenue climbed almost 5 percent and accounted for 56 percent of total revenue. Total revenue was up almost 2 percent to $361.7 million but fell short of analysts' average forecast of $417.3 million, according to Thomson Reuters I/B/E/S. Advertising revenue declines moderated at the New York Times newspaper, down 2 percent to $138 million, but a persistent slump clings to the industry. More troubling is the decrease in digital advertising, once touted as an area of growth as print sales wither. In the third quarter, digital advertising fell 3.4 percent while print ad revenue dropped 1.6 percent. The turn in digital ad sales has to do with the rise of advertising exchanges, which puts pressure on prices. "One of the great assumptions that didn't work is that digital advertising is going to grow - and it's not," said Atornio. New York Times Co is not alone in facing these hurdles. The newspaper industry has been plagued with a drain in advertising revenue both in print and digital for several years. Gannett Co, the largest U.S. newspaper chain, reported a 4 percent drop in revenue earlier this month because of weak advertising revenue at its papers. While Gannett is boosting its broadcast holdings to help diversify its revenue stream, New York Time Co has taken the opposite tack. It is down to its flagship newspaper after selling the Boston Globe and its sister paper for $70 million, the last vestiges of a once sprawling media company that included TV stations, magazines and stakes in sports ventures. The company took a charge of $34.3 million in the third quarter to write down the value of the Globe. Excluding the results of its New England newspaper properties, New York Times Co reported a quarterly loss of $5.2 million, or 3 cents per share, compared with a loss of $2.9 million, or 2 cents per share, in the year-ago period. Excluding severance payments and a pension withdrawal expense, the company reported a loss of a penny per share, topping analysts' average forecast of a loss of 4 cents per share. (Reporting by Jennifer Saba in New York; Editing by John Wallace)