Vertical Combination

Last week the U. S. press had the distinction of having the Federal Trade Commission inquire into its affairs in a big way. The Commission summoned Archibald Robertson Graustein, president of International Power & Paper Co., which lately, through its subsidiary. International Paper Co., acquired stock in the Boston Herald and Traveler (TIME, April 22), to tell about his company's interest in and potential control of newspapers.

Archibald Robertson Graustein has always been a prodigious person. Son of a German-born Boston milkman, he graduated from grammar school at 11 and entered the Cambridge Latin School for Boys. As a tribute to his small size his new schoolmates promptly stuffed him into an ash can. At a slightly more advanced age he got through Harvard--in two years, with Phi Beta Kappa, the John Harvard Scholarship and, on his diploma, summa cum laude. A little after that he passed from the Harvard Law School to the prominent Boston law firm of Ropes, Gray, Boyden & Perkins. With a teriffic capacity for work, he was a partner at 25. Now in his early forties, a thickset, rusty-haired gentleman, his capacity for work is undiminished.

Last week he earnestly and almost eagerly testified that his company was financially interested in 13 newspapers scattered from Boston to Chicago and to Tampa, Fla. His story:

Five years ago International Paper Co., more than twice the size of any other manufacturer of newsprint, was selling its paper at $75 per ton and making only a moderate profit. It was evident that the price of newsprint was going down (it is now about $55). Mr. Graustein was made president of International with instructions to save it from disaster. He closed its less efficient plants. Paper plants are usually on waterpower sites. International found itself with much unused waterpower. International added "Power" to its name, bought into the New England Power Association, became a seller of electricity. The paper business was in a bad way. In 1928 the gross income of International was 54% from power, 25% from paper, 21% from miscellaneous sources. The company was not getting its lion's share of what newsprint business there was. In order to sell its output, International decided to invest in newspapers, to "buy a market." A case in point: in 1927 International had supplied one-third of the newsprint for the Herald and Traveler, in 1928 one-sixth. The outlook for 1929 was dubious. By purchasing stock in the two newspapers. International got their whole newsprint order. Mr. Graustein next argued that vertical combinations between newspapers and newsprintmakers were natural and wise. He cited the Chicago Tribune and the New York Times in the U. S., the Rothermere and the Berry papers in England, all of which own paper mills. To be sure, in these cases it is the press that owns the paper company. However, Mr. Graustein was able to cite the case of William Harrison, British paper maker, who owns a chain of newspapers and magazines (TIME, March 25). Conscious nonetheless of the U. S. tradition against any invasion of the freedom of the press or control of it by special interests, Mr. Graustein declared that in no case did his company own a controlling share in any paper. Said he: "I have never met an editor of any of the papers. We have nothing to do and do not want to have anything to do with news and editorial policy. . . . "

A newspaper influenced in its news or editorial policy by the special interests of its owners has, to say the least, an uphill job to be successful, and the International would not be willing to make any investment under any circumstances in any newspaper if it did not feel that the investment in itself was wise and profitable." All told, International holds over $10,000.000 of newspaper securities: Boston Herald and Traveler: 10,248 shares (50%) of the common stock bought for $5,380,200. According to a trust agreement this stock is not voted by International. Brooklyn Daily Eagle: $1,954,000 in notes and 400 shares (40%) of a holding company which controls the Eagle. Albany Knickerbocker Press and Evening News: $450,000 of preferred stock and 3,000 shares of common. Ithaca Journal News: $300,000 in notes. Chicago Journal, Greensboro (N. C.) Record and Tampa (Fla.) Tribune: $1,000,000 of debentures, $600,000 of preferred stock of Bryan Thomason Newspapers Inc., which controls these papers; also 10,000 shares (337%) of the common stock of the Journal itself. Chicago Daily News: $250,000 of preferred and 5,000 shares (1 1/4%) of the common stock.

Spartanburg (S. C.) Herald-Journal, Columbia (S. C.) Record and Augusta (Ga.) Chronicle: $855,000 of notes of the owners, secured by all the stock of these papers. In spite of the earnest Graustein statements about the Graustein press, almost all the rest of the press flayed the Graustein policy. Conservative editors saw it innocent enough but potentially dangerous to press freedom. The yellower sheets saw nothing but machinations of the Power Trust--and undoubtedly hoped to capture circulation from the 13 Graustein papers by painting them black. Said the Hearst press: "The Federal Trade Commission has uncovered the power trust's nationwide practices of buying reporters, editors and news agencies. "We believe that Congress, if it will, can find a way to stop these great interstate monopolies from using their huge financial resources, contributed by the people, to destroy the free press by means that range from secret bribery of newspaper employes to outright purchase of newspapers themselves." Said the New York Times: "The whole foundation of honest journalism is laid on the principle that newspaper ownership should have no interest save in publishing facts and making fair editorial comment on them. Ownership that has a financial interest in the public domain, over which there is steady controversy between private operation and the Government, has never proved effective in the manufacture of a disinterested or reliable newspaper. The fact that such type of ownership is usually concealed as long as possible is another proof that it is often dangerous in its purpose." Said the New York Evening Post: "No matter how much Mr. Graustein may protest, the sound sense of the public will know that it is bad public policy to have an important and constantly increasing group of newspapers under the ownership of a great public utility corporation. The International is hurting the standing of American journalism. It is biting the hand that feeds it."

After each had had his say, the most dramatic contribution to the controversy was yet to come. Owner of four newspapers into which I. P. & P. had bought its way is able Frank Ernest Gannett, publisher of 17 chainpapers, -father of-the Teletypesetter (TIME, Jan. 14). When Mr. Graustein completed his testimony before the Commission, Mr. Gannett called it "in the main, admirable," explained more fully his deals with I. P. & P. Last week, with a sudden and theatrical gesture, he canceled the deals, freed his papers from the menace of the "Power Trust." He wrote Mr. Graustein:

"I am handing you herewith check . . . for $2,781,158.30 . . . to repay in full to date with interest your investment in the securities of the Brooklyn Publishing Corp. [which controls the stock of the Brooklyn Daily Eagle], the Albany Press Co. (The Knickerbocker Press, Albany Evening News) and the Ithaca Journal-News. . . .

"We entered into this relationship in good faith; it was a straightforward, entirely legitimate business transaction, mutually advantageous and desirable, which should not be questioned; but there has been criticism of the policy of your company holding even a minority interest in a newspaper. Without discussing that contention, I feel it is better to remove all possibility of a misinterpretation of the motive which actuated our relationship.

* Last week Publisher Gannett bought the 17th, the Malone (N. Y.) Telegram.