Episode 2: RCA and the Emergence of American Radio Networks

The Story of American media continues.

RCA kept a low profile in its early years, but that did not suggest a lack of activity. At its birth in 1919 the company was granted free use of GE’s patents and became its sole agent for radios and equipment sales in the United States. RCA also acquired all government stations and ship installations formerly owned by American Marconi. This allowed the new company to undercut message charges by British interests that controlled the undersea cable.

The missing piece, however, was RCA’s access to patents outside General Electric’s control. As Owen D. Young later stated, General Electric, Westinghouse, AT& T, and United Fruit “…all had patents but nobody had patents enough to make a system.” The solution was clear: negotiate agreements between the patent holders. The goals were to join all the patents together under the RCA alliance, cut out any residual competition, and centralize radio manufacturing. The effects on broadcasting would reach further than Young could imagine.

The partners readily accepted the compromise. AT&T was sold RCA stock for the rights to its three-electron audion, a powerful receiver developed by De Forest for AT&T in 1912. Westinghouse contributed the “super heterodyne” circuit, invented by the young American inventor Edwin Armstrong in 1920, a device that radically amplified signals and suppressed interference. United Fruit contributed the rights to “crystal detectors” and long range antennae. Both were added to the consortium’s pool of nearly 2000 patents in 1921.

Dominating the production of receivers, transmitters, and components for radio sets further solidified the structure of the American radio manufacturing. As a result, the growing demand for radio sets reaped steady profits. By 1922 RCA sold 100,000 radios with sales of $11 million. A year later, production reached 300,000. In 1924 RCA sold 600,000 radio sets, and sales increased to $50 million. Each technology and the attendant patents gave RCA an insurmountable advantage in commercial long-distance communications and radio set production for the next two decades.

RCA’s business model, however, remained focused on radios, component production, and sales. The partners were apparently less interested in what was being broadcast. RCA remained equally oblivious to thousands of amateur radio enthusiasts and their transmitting equipment, and the growing number of amateur stations operating across the country, most of which were using RCA parts. There were also thousands more people listening, waiting for new broadcasts. The mass market for radio was about to explode.

The Birth of Radio Broadcasting

One of the amateurs was Frank Conrad, a Westinghouse engineer. Conrad had been a wireless telegrapher before the war, and returned to amateur work in his off hours. Because he had access to parts and equipment through Westinghouse, Conrad experimented by broadcasting music, and was able to set up his own station, 8XK, in Pittsburgh. By May 1920 a local newspaper was featuring reports of the concerts in its columns. In September that year, a department store displayed an ad describing Conrad’s radio concerts and pictures of radio sets it had for sale.

Conrad’s supervisor, Harry P. Davis, a Westinghouse Vice President, saw the advertisement and began to understand the significance. The amateurs were not only technically literate, but represented the first wave of what Davis described as a “limitless” market for radio sets that could be built with Westinghouse vacuum tubes. At Davis’s urging, Westinghouse approved the building of a more powerful station on company property. In October, 1920, two weeks after the company’s application for a license, the Department of Commerce issued call letters to the nation’s first “commercial” radio station: KDKA – Pittsburgh.

Westinghouse’s experiment in broadcasting intensified the “boom” that fueled the sales of radio equipment and parts manufactured by the RCA consortium. By 1924 the new industry reported combined sales of $358 million. It also began a wave of radio station construction by General Electric, AT&T, RCA, and Westinghouse across the country.

None of the RCA partners, however, could decide how to support the stations. The concept of advertising still only involved selling radios. Equally significant, all of the stations played their own music and made announcements independently. None shared programs, nor were any of the radio stations physically connected.

AT&T, a partner not involved in radio, came up with a lucrative but “dangerous” solution. Like the other companies, AT&T operated radio stations on the promise of selling more RCA radio tubes and sets in which it had an interest. As station costs increased, the company moved to exploit its key asset, a network of telephone lines that linked every major city in the country. In 1922 AT&T introduced a new revenue model called “toll broadcasting” at WEAF, its radio station in New York City. The “toll” referred to fees paid by companies for colorful descriptions of products and services to radio audiences. Soon these “commercials” involved well-known celebrities, and sometimes music, singing and comedy routines.

When RCA’s New York stations, WJZ and WJY, tried to adopt the “toll”, AT&T sued, claiming that under the consortium’s cross-licensing agreement RCA was prohibited from selling advertising time over AT&T’s telephone network. AT&T then declared itself the sole proprietor of “toll broadcasting”, and threatened to withhold use of its short and long-distance lines from RCA and the other partners if they did not drop toll broadcasting. As if to emphasize its position, in 1923 AT&T established a second radio station in Washington, D.C. and developed a special cable that linked it to the New York station, the first attempt at “networking” in the country.

RCA, General Electric and Westinghouse immediately protested to the White House, and asked for the appointment of an arbitrator. To bolster their case, the companies pointed out that in addition to AT&T’s audacious claim on “toll broadcasting”, Western Electric, a telephone company subsidiary, was preparing to bring a new radio receiver to the market, a violation of the manufacturing agreement signed earlier by AT&T. As radio set sales reached $50 million in 1924, the RCA group saw a direct threat to its core business.

Meanwhile, the Federal Trade Commission submitted a report to Congress charging AT&T, RCA, General Electric, Westinghouse and United Fruit with trade restraint, and (surprise!) of forming a monopoly to manufacture, sell and distribute radio equipment. This action created a second, more public round of scrutiny that was followed closely in the press through the beginning of hearings in October 1925.

In defiance of its partners, AT&T further developed its practice of selling commercial time. Stations that attempted to adopt the “toll” model without approval were sued in federal court with a demand to pay AT&T license fees for use of its telephone cables. A few stations actually paid fees of up to $3000 per year. Under criticism by the press, AT&T later offered its licensed radio stations free programming, and shared compensation from an expanding revenue pool.

In typical fashion, a backroom deal was struck to resolve the dispute between AT&T and the other RCA partners. Realizing that a public airing of their differences would only aid the FTC’s probe, the partners in 1926 agreed to a new broadcasting alignment. AT&T, fearing a loss of its commanding position in the telephone market, pledged to stay out of radio manufacturing, and granted the radio partners access to its lines and commercial advertising for a share of the revenue.

However, at the urging of David Sarnoff, RCA’s commercial manager, Owen D. Young, presented a further proposal. All the radio stations, including those owned by AT&T, RCA, G.E., and Westinghouse, would be placed into a new broadcasting company. This would require AT&T and the other partners to divest their stations, a side of the business with which they had always been uncomfortable, and in the process create a new division of labor. In August 1926, RCA coined the new company’s name: the National Broadcasting Company, or simply “NBC”. Incorporated on September 9, 1926, the new broadcasting giant immediately inherited the first national radio network, becoming the most dominant station owner in the country. David Sarnoff was named NBC’s first president.

The final days of the RCA alliance also began to unravel in 1926. Despite the findings of the Federal Trade Commission, the Navy and the Department of Commerce continued to oversee broadcasting, including activities of the RCA group. Soon a minor incident provided the spark. When a new competitor, Zenith Radio, was sued by the Commerce Department for using Canadian frequencies, the courts upheld Zenith’s challenge and voided the government’s authority to regulate the medium. Into this vacuum, the Department of Justice proposed a new bill to Congress establishing the Federal Radio Commission (FRC), to provide government oversight of radio for one year. Signed into law by Calvin Coolidge on February 23 under the Federal Radio Act of 1927, the commission was given few instructions, no engineering staff, and continued to rely on the Navy for support. The first FRC commissioners were equally unprepared. One resigned on October 8th. Another member died that same day. The commission’s chairman died in November.

Despite these setbacks, the commission’s charter was renewed in 1928, and made permanent in 1929. Following an inconclusive series of international radio conferences called by Herbert Hoover in the early 1930’s, the FRC was succeeded by the Federal Communications Commission in 1934. An investigation by the Department of Justice of the RCA group in November 1932 led to a settlement of the FTC charges and a formal dissolution of the partnership. By then the structure of broadcasting had been established. The early decisions by the federal government and the deals struck with RCA and its partners would have effects for years to come. Writing about this period, radio historian Susan J. Douglas observed,

"Radio technology was now embedded in interlocking corporate grids, and RCA became a civilian version of the military monopoly that had controlled radio during the war. …The results were improved radio components, a trend toward consolidation and centralization of the industry, and a (legitimization) in the press of monopolistic control."

The Birth of Radio Programming

Even as the RCA alliance was crumbling a new dynasty was being born. The advantages enjoyed by NBC through the civilian radio monopoly in the late 20’s gave the new network virtually an unlimited supply of capital to invest in radio stations. As the new revenue poured in, however, there were few incentives to be innovative in other areas, such as programming. This situation encouraged a new competitor.

Radio’s programming era may well have began when Arthur Judson, a well-known artist manager and theatrical agent, approached RCA’s David Sarnoff with a proposal to supply additional acts and other radio programs for the company’s stations. Sarnoff seemed uninterested, then stalled, delaying his decision, then rejected Judson’s proposal with little explanation. Outraged at what he interpreted as Sarnoff’s arrogance, Judson joined promoter George Coats to form United Independent Broadcaster in 1926. In April 1927 they merged with the Columbia Phonograph Record Company to create a competing network of 22 radio stations.

When funding for the new network began to run out, Judson and Coats sold the company to Jerome Louchheim, a subway contractor, and Isaac and Leon Levy, two wealthy brothers from Philadelphia. The new owners renamed the network, the Columbia Broadcasting System, or “CBS”. When capital continued to be problematic, the new partners turned to one of their advertising sponsors, the Congress Cigar Company, to buy the stations. William S. Paley, a 26 year-old advertising executive at the company, and the proverbial “cigar maker’s son”, was soon promoted by his father to president, based on William's success with a radio campaign a year earlier.

Paley’s reign at CBS from 1927 through the age of television in the 1980's is well documented. His radio years were notable for the uncanny ability to package and promote stars like Bing Crosby, Kate Smith, and Burns & Allen to a mass audience, and to pay for them and new radio stations with the proceeds from mass advertising. CBS did this by recognizing that radio listeners were no longer simply awed by the technology: they wanted to be entertained and comforted. In contrast to NBC’s slate of classical concerts and “serious” commentary, CBS provided musical comedy and lighter programs that ushered in the “Golden Age of Radio”, and had a special appeal to audiences in the depths of the depression in the 1930’s. CBS was one of the few companies to thrive in this environment. In the process, Paley’s strategy not only set the standards for radio entertainment, but also influenced how much radio artists could earn and the cost to produce their shows.

Paley’s company broke new ground in another important way. Unlike NBC's focus on radio stations and RCA's interest in manufacturing and selling radio parts, CBS concentrated on amassing creative talent. By doing so, CBS succeeded in integrated radio content production into the fabric of its own smaller network operations. As a result, CBS radio stars were often signed to long term contracts, becoming part of the first vertically integrated media company to include sound technicians and the apparatus that produced their shows, and broadcast engineers who sent radio programs out to CBS owned stations across the country. As this model proved successful, it was eventually adopted by NBC, and mirrored the strategies of film companies, which dominated movie production and neighborhood theaters under its own “Studio System”. Each version were attempts to control creative content and network distribution, which became standard business practices of media companies through the rest of the 20th century.

Only the advent of World War II and the emergence of television in the 1940’s could disrupt this system.

Next time: The Transition from Radio to Television

Copyright © 2007 R.E. Xavier