Merchants into manufacturers 1923-1927
3.1 The Newsprint Industry In The Twenties
In the early twenties, when the Bowater brothers were considering whether to launch their family business into the manufacture of newsprint, the industry was dominated by newspaper owners.
Indeed,it is almost true to say that no newsprint mill of any consequence was independent of newspaper interests.
In most cases, newsprint mills belonged to newspaper groups but, in one case, a paper business – Inverserk – owned newspapers and other publications.
It is not difficult to see how this high degree of integration arose between the manufacture and use of newsprint. On one hand, newsprint is a specialised product requiring specialised machinery to make it.
The capital investment is heavy and, if newspaper owners are not buying, there is no immediate alternative use for plant or product.
On the other hand, newspaper publishers are entirely dependent on large, uninterrupted supplies of the specialised paper they need and the purchase of it represents a high proportion – estimated in 1938 at 35 to 40 per cent – of their total costs.
The advantage to the mills of a guaranteed market and to the newspapers of a guaranteed supply is evident.
Both can be secured by common ownership. Edward Lloyd set up the first big integrated enterprise of this kind.
His mills became the biggest in Europe and, even after his son, Frank, in 1918 sold the publishing side – United Newspapers – to a Liberal syndicate, the two branches of the business remained closely linked, because United Newspapers contracted to take all their supplies of newsprint from Lloyds’ mills for thirty-one years, from the beginning of 1920 until the end of 1950.
The Harmsworths followed Edward Lloyd’s example on a wider and more varied scale.
About 1905 they became nervous of a paper famine, caused by ‘the rapidly increasing depletion of the forests of the United States, Canada, and Scandinavia’.
Accordingly, the Amalgamated Press and Associated Newspapers acquired about 3,000 square miles of forest in Newfoundland and set up the Anglo-Newfoundland Development Co. with a base at Grand Falls, where hydro-electric power could be generated.
‘The land was a wilderness’, said an Amalgamated Press publicity brochure in 1912, ‘…but to-day it is the home of a flourishing township and of one of the biggest pulp and paper mills in the whole world.’
By then, it was sending 2,400 tons of paper and 2,000 tons of pulp to the United Kingdom every three weeks. The Amalgamated Press required a greater variety of paper than Grand Falls could supply.
‘All grades of paper’, wrote George Sutton to Northcliffe, ‘are used by the A.P. from cheap news to the highest qualities of ordinary, pure sulphites, esparto and colours.
No one mill in the world could make all our requirements and, in 1910, the Harmsworths set up Imperial Paper Mills at Gravesend to do exactly that.
By 1912, Imperial were producing paper for Answers and similar publications at a rate of 300 tons a week and machines were being built to supply finer grades for periodicals such as The London Magazine and Home Chat.
A good deal of the pulp was coming from Grand Falls and in time, perhaps, all of it would.
Plans for expansion were held up by the war. ‘The idea’, said Sutton in 1919, ‘always has been to increase the output to 2,000 tons a week.
The plans are prepared for enlarging the mill and the machines are being made. Of course, during the War, building was held up and also the making of machinery.
Rothermere specialised in this side of the Harmsworth business. ‘We both know’, Sutton remarked to Northcliffe, ‘that it would be hard to find anyone with his knowledge of paper and the paper-making industry.
Those words were written in the heady days of 1919, when the post-war boom was running strong and Rothermere was very busy.
He wanted to develop Grand Falls ‘on a large scale’ and he wanted a salary of £5,000 free of tax for doing it.
His brother jibbed. ‘”Tax free”‘, he said, ‘will begin a bad system in the business.’
However, he could have £7,500 subject to tax. ‘Harold’, said Alfred, ‘is the only person who properly understands Newfoundland.
It was not only Newfoundland, apparently, that Harold understood.
In June 1919 he wrote to Sutton to say that he and Becker (‘the biggest pulp man in this country’) had bought ‘a mill at Greenhithe belonging to the Wallpaper Company.
It is a very modern mill. It was erected at a cost of something over £600,000 and has been purchased at much below cost.’
It was called Ingress Abbey Mill but Rothermere had the name changed to Empire Mills. It needed conversion from wallpaper to newsprint.
‘I am forming a company‘, Rothermere went on, and it occurred to me that, as a fall back in case of fire or any other calamity, the Amalgamated Press would like to have an interest in it.
If you think anything of this, I can [arrange] for A.P. 100,000 7% Preference shares. You might let me know what you think.
I wish to make it quite clear that this is an offer I am not making in the ordinary way of business but simply because of my association with A.P.
Sutton, evidently startled, went to see the mill – ‘it is a magnificent mill‘ – and reported to Northcliffe.
‘Our paper consumption is so important to us that, in view of a calamity at Gravesend at any time, we should accept this‘, he said, referring to the offer of Preference shares, and added: ‘Of course, this in no way interferes with our extensions at Gravesend for the machines are ordered but, between us,then we shall have the two finest sites on the Thames.’
Northcliffe grumbled about the rate of interest and about the size of the investment – ‘£100,000 is a very large sum and a serious responsibility’– but Sutton was insistent.
‘The Greenhithe mill‘, he said, ‘will fill a gap which is not covered by any mill in which we are interested.’
Northcliffe gave way. ‘Go ahead with the paper mills‘,he said, ‘I am glad that we shall be on the Board and that all precautions will be taken. As long as Harold is alive we shall be all right in any case but we are all getting on in years and never know what may happen.‘
Rothermere made one more important move into papermaking in the early twenties.
In 1920 the executors of Albert E. Reed offered Rothermere shares in the Reed business, one of the larger independents, and Rothermere, through Sunday Pictorial Newspapers and Daily Mirror Newspapers, took 52 per cent of the Ordinary shares,apparently under the impression that the holding would be sufficient to give them control, as in most companies it would have been.
He or his advisors failed, until too late, to discover that in Reeds the Preference shareholders had voting rights which could defeat him.
The Berrys, to whom he offered the shares, refused them and Sunday Pictorial/Daily Mirror Newspapers were left for many years with a minority interest in Reed.
With or without control of Reed, the Harmsworths’ position in 1922 looked strong. They had Anglo-Newfoundland across the Atlantic, Imperial at Gravesend, Empire at Greenhithe.
Then in the mid-twenties the Berrys began to advance in newsprint as well as publishing. When Rothermere sold the Amalgamated Press to the Berrys in 1926 Imperial Paper Mills went with it. A much larger acquisition followed.
In May 1927, Frank Lloyd died and, following his wishes, the Lloyd mills at Sittingbourne and Kemsley were offered to Allied Newspapers,the holding company of the Berry group, and the Berrys without hesitation bought them.
They thus came into possession of the largest newsprint plant in the country; a plant which, Sir William Berry told his shareholders, ‘is …larger than any in Canada or the United States’.
Its output of newsprint was over 200,000 tons a year. We are now in a position to survey the state of the British newsprint industry in the early twenties, when the Bowater brothers were reaching the point of deciding to enter it.
Reliable figures of output are hard to come by but it seems clear that the ownership of mills was heavily concentrated and that after the sale of Edward Lloyd the balance of power, in newsprint as in newspapers, swung from Rothermere towards the Berrys.
Apart from these two, no other newspaper owners also owned newsprint mills but, by contrast, the Inveresk Paper Co., reputed to be one of the largest paper-producing groups in the world, owned the Illustrated London News, other well-known illustrated periodicals and the Lancashire Daily Post.
William Harrison, in control of Inveresk, was looking for a way into London newspapers and, in 1928, he found it by the purchase of United newspapers.
British-owned mills independent of newspaper groups were not numerous nor, after the sale of Lloyds to the Berrys, did they include many of the larger producers.
Allied Newspapers, between 1921 and 1933, dealt with Lloyds and at least ten other suppliers, of whom five were in Norwegian, Finnish or Swedish ownership (Table 5), a figure which emphasises the permanent threat to British newsprint makers of Scandinavian competition.
There were also the Canadians. Newsprint production in Canada, insignificant before 1914 by comparison with production in the USA, was growing very rapidly indeed in the early twenties, chiefly to supply the market in the USA where consumption of newsprint rose by 48 per cent between 1919 and 1924.
By that year,Canadian production was almost equal to production in the USA, having grown by 70 per cent since 1919.
As long as demand from the United States kept up, the Canadians paid very little attention to the United Kingdom or other markets.
Their own home market, however, was very small – less than 5 per cent of the United States figure in 1924 – and it was not difficult to surmise what might happen if Unites States demand should ever fail, though in the roaring twenties there is no evidence that anyone ever let such a thought enter his head.
British newspaper owners without mills of their own thus had a choice between newsprint suppliers at home, who might be owned by their competitors, and abroad, meaning chiefly the Scandinavians, or they they might draw on both sources as Allied Newspapers did.
It was a position not without its advantages but the field of choice was narrow, especially if mills owned by competitors were excluded.
Lord Beaverbrook began to be haunted by fears of a hostile price ring closing around him, though perhaps they did not become acute until after the Berrys bought Lloyds in 1927.
Then, being unwilling to see his suppliers in the hands of competitors, he cancelled the contract between the Daily Express and Lloyd which had been running ever since the Express was founded and turned towards the Canadians.
By 1927, as the next section of this chapter will show, the Bowater brothers had committed their firm to newsprint manufacture.
The price of their product – newsprint – was falling, in spite of rising demand, but the price of their main raw material – wood pulp – was falling also and from 1927 onward it fell faster.
The ratio between these prices was obviously of the highest importance to the newsprint manufacturer and until the late thirties it was highly favourable to the manufacturer in the United Kingdom, controlling no timber supplies and buying pulp from those who did.
For the Canadians, producing wood pulp on a huge scale from their won timber,the case was otherwise as soon as demand in the United States began to fall, as it did from 1930 onward, but to that we shall return.