The Master Switch: The Rise and Fall of Information Empires - Tim Wu (2010)

Part I. The Rise

Chapter 5. Centralize All Radio Activities

It is inconceivable,” said Herbert Hoover, secretary of commerce, at the first national radio conference in 1922, “that we should allow so great a possibility for service, for news, for entertainment, for education, and for vital commercial purposes to be drowned in advertising chatter.”1 Hoover’s remarks reflected the accepted wisdom of the times: that advertising on radio was unacceptable. That is to say, they reflected what radio broadcasting was in the early 1920s: a decentralized industry founded on a rather idealized notion of an emergent technology, the technological utopia of its time.

Hoover would convene several more such meetings in Washington, D.C., to create a form of self-rule for the broadcast industry. He believed not in law, command, or controls, but rather in what he called “voluntarism.”2 That ideal inescapably implied meetings to build consensus on shared norms in a friendly environment.

According to a report of the first conference, all agreed that “direct advertising in radio broadcasting service [should] be absolutely prohibited.” J. C. McQuiston, the head of publicity for radio manufacturer Westinghouse, spoke for many when he wrote that advertising “would ruin the radio business, for nobody would stand for it.”3

“Advertising by Radio Cannot Be Done; It Would Ruin the Radio Business, for Nobody Would Stand for It.”

Yet despite Hoover, and the idealism of radio’s dreamers, other forces had designs of their own on the future of the medium. Listeners who were tuned in to New York’s WEAF at about 5:15 p.m. on Monday, August 28, 1922, heard this:

Let me enjoin upon you as you value your health and your hopes and your home happiness, get away from the solid masses of brick, where the meager opening admitting a slant of sunlight is mockingly called a light shaft, and where children grow up starved for a run over a patch of grass and the sight of a tree.4

This, the world’s first major radio advertisement, was a promotion for a housing development named Hawthorne Court. In format rather like what we’d now call an infomercial, the spot urged listeners to leave Manhattan for the leafy comforts of Queens. It was also the opening shot in what would become the battle to redefine radio and ultimately to make it a closed medium.

WEAF was the flagship station for AT&T, the telephone monopolist. More than Hoover or any other individual or entity, AT&T, it turns out, would define American broadcasting and entertainment in its inception. Indeed, while NBC sometimes calls itself “America’s First Network,” Bell actually got there first; by 1924, its National Broadcasting System (NBS) comprised sixteen stations reaching 65 percent of the American homes with radios.5 To a degree few understand, the mighty broadcast networks, CBS, ABC, and NBC, that would dominate American domestic life in the twentieth century were all ideological descendants of the Bell system.

AT&T had a unique advantage in early radio broadcasting: monopoly ownership of the nation’s only practical means of moving sound around the nation, namely, its long distance network. The network built for carrying telephone traffic was perfectly suited to carrying radio programs as well.* As an unanticipated dividend of Vail’s adroitness, AT&T was the only company in a position to form an entity the world had never seen before: a broadcast network. The value of a network, as opposed to a mere station, is in the power to harness economies of scale. Even in the early 1920s, producing one show for sixteen stations meant that AT&T could pool the revenues from sixteen different audiences to create a single, higher quality product. The network is what made possible the production of broadcast news and entertainment as we would recognize it. The NBS network also made it possible for American presidents, beginning with Calvin Coolidge, to give speeches reaching the entire nation at the same time, the form of political address that would reach its apotheosis with Roosevelt’s “fireside chats.”

But we are getting ahead of ourselves. The development of AT&T’s network, the National Broadcasting System, immeasurably important as it was, was preceded by another Bell first: advertising. Advertising is a force with few peers in the cultural history of the twentieth century, but its significance in the 1920s was to create a new and more sustainable business model for a radio station. Selling radio sets—the old revenue model—was a good if limited business, for ultimately few households would need more than one radio every few years. But advertising revenues could expand indefinitely—or so it seemed then.

Advertising, in time, proved almost a license to print money, and the effects on broadcasting of the revenue model it introduced can scarcely be overstated. It gave AT&T, and later the rest of the industry, an irresistible incentive not just to broadcast more but to control and centralize the medium. To see why, compare the older model: When revenues came from the sale of radio sets, it was desirable to have as many people broadcasting as possible—nonprofits, churches, and other noncommercial entities. The more broadcasters, the more inducement for the consumer to buy a radio, and the more income for the industry. But once advertisements were introduced, radio became a zero-sum game for the attention of listeners. Each station wanted the largest possible audience listening to its programming and its advertisements. In this way advertising made rivals of onetime friends, commercial and nonprofit radio.

At first AT&T denied any interest in advertising, simply describing its place in the radio business in terms that had saved its telephone hegemony: “common carrier” of the airwaves. As the firm prepared to operate WEAF at 660 AM, it issued an announcement: “Anyone desiring to use these facilities for radio broadcasting should make arrangements with Mr. Drake, general commercial manager.”6 As with the telephone network, for a fee anyone could get on the AT&T radio network and broadcast as they liked. In some sense, the common carriage concept provided cover and plausible deniability of any change in modus operandi: AT&T wasn’t advertising—its customers were.

Such caution, too, informed the types of advertising AT&T initially allowed. It barred any mentions of price, or other possibly jarring details such as the color of a package or the location of a store. In consequence, ridiculous as it may sound, many of the first advertisements took a form more educational than commercial. Gillette’s first radio ad, for example, was a lecture on the history of beards.7 In time, NBS would also develop the idea of sponsored programs and acts, among the first the A&P Gypsies and the Eveready Hour.8 And so it was NBS that originated “entertainment that sells,” and NBS that pioneered radio programming aimed at turning citizens into consumers—the basic formula that has dominated American radio and television for more than eight decades.

Within a few years, the rest of the radio industry was feverishly trying to imitate AT&T’s model—no surprise, considering how obvious and overwhelming its advantages were. Advertising and sponsorship gave radio stations a sustainable financial base—real money to pay speakers and musicians, who had formerly worked for free, with all the limitations on quality that that arrangement implies. But there was only so much the competition could accomplish without AT&T’s long distance network.

When a utopian, open medium such as radio had been begins to close up, sinister forces may seem to be at work. There is sometimes truth to that impression, an extreme instance being the Third Reich’s creation of a centralized broadcast system for propaganda. But just as often, the closing is driven by a hunger for quality and scale—the desire to improve, even perfect the medium and realize its full potential, which is limited by openness, for all its virtues. It was the Eveready Hour that led the way toward broadcast fare of higher quality and polish.9

Let there be no doubt that AT&T had a typically clear idea of what the structure of the radio industry should be. The company saw no reason not to apply Vail’s winning ideals again, envisioning a vibrant, high-minded radio monopoly to go with its telephone monopoly. As A. H. Griswold, an AT&T executive, disclosed in a speech in 1923 with all the can-do hubris of that corporate culture:

We have been very careful, up to the present time, not to state to the public in any way, through the press or in any of our talks, the idea that the Bell System desires to monopolize broadcasting; but the fact remains that it is a telephone job, that we are telephone people, that we can do it better than anybody else, and it seems to me that the clear, logical conclusion that must be reached is that, sooner or later, in one form or another, we have got to do the job.10

To close the loop entirely, AT&T set about designing its own radio sets, presenting President Coolidge with one of its handsomer models.11 In a final stroke, such as to this day inspires heated debate over network neutrality, AT&T’s new radios were engineered to receive only AT&T broadcast frequencies—and, not surprisingly, only AT&T programming.*

RADIO RESISTANCE

By the mid-1920s it seemed likely, if not certain, that AT&T would dominate the radio industry. The firm held the all-important long lines, and its president, Walter Gifford, was aggressive and, in the mold of his predecessors, fond of conquest. The only thing standing in his way was a company that the U.S. government had already sanctioned to monopolize radio, just as AT&T had been granted a warrant to rule telephony. And so the clash that was shaping up for the future of broadcasting would be, if not quite one of fellow titans, substantially different from the war Bell had earlier waged against its Lilliputian rivals in telephony.

We first encountered the Radio Corporation of America ringside at a boxing match in 1921, but this strange creature needs a better introduction via a few historic analogues. Structurally the RCA was rather like the BBC, a national champion; but unlike the British company, it was neither established nor sustained with public duties. Rather, in 1919, the RCA was formed mainly in response to the navy’s insistence that all vital radio technologies be held by an American firm, in the interests of national security.12 And so RCA was fashioned out of the existing American Marconi Company to pool and exploit the rights to use more than two thousand patents owned by General Electric, United Fruit, Westinghouse, and AT&T. In consideration for the licenses, General Electric was made majority owner of RCA, but AT&T and Westinghouse also had substantial stakes. Hence one of the odder features of the contest for broadcasting: AT&T was in a battle with its own property.

RCA’s general in the battle with AT&T was David Sarnoff, a genius of industrial combat also present at that boxing broadcast in 1921, who shall play a recurring role in this drama.13 Sarnoff was in midcareer, a rising star within RCA, when he was suddenly presented with a chance to take on AT&T and become the defining mogul of American broadcasting. The metaphor has been used before, but Sarnoff loved to imagine himself David confronting Goliath. For his part, AT&T’s Gifford at first refused outright to negotiate with Sarnoff, whom he is said to have declared an “abrasive Jew.”14

While AT&T was a phone company first and foremost, it was also the larger and more aggressive of the two champions, and it seemed to hold a decisive advantage: ownership of the network, the nation’s only quality long distance lines. Against AT&T, RCA would face some of the same problems of access and interconnection that had doomed the telephone Independents in the 1910s.

Let us pause to imagine what things might look like if Sarnoff had not been able to find a way to achieve what seemed impossible and AT&T had won the battle for radio. Imagine that nearly every radio station and every radio set in America was AT&T’s, along with every telephone and wire. The power the phone company would have had over American culture and communications is beyond comparison in the annals of democracy, comparable in structure only to what the fascist and Communist regimes in Europe were creating.

But back to the story. Sarnoff needed a network to compete with AT&T, but there was no obvious way to get one. Despite its common carrier pledges, Bell denied any rival radio station access to its wires. According to one Sarnoff biographer, a Bell executive told him, “Transmission by wire is ours. Stay out of it.”15 RCA did experiment with leasing parts of the (lower quality) telegraph network to carry programming, but the result was “a loud buzz.”

And so Sarnoff conceived a tactical shift. As mentioned earlier, AT&T was prohibited from manufacturing radio sets: it had signed an agreement with RCA that said it has “no license … to make, lease or sell wireless telephone receiving apparatus except as a part of or for direct use in connection with transmitting apparatus made by it.”16

On the arguable ambiguity of that bit of legalese Sarnoff decided to stake his company’s future. Under the terms of the agreement, he brought a secret binding arbitration proceeding against AT&T, contending that its new radio sets violated the conditions of RCA’s license pool.17 He was either lucky or a more astute reader of contractual language than other executives, for after hearings, the arbitrator found not only that AT&T was violating the patent agreement by manufacturing radio sets, but that its broadcasting activities were illegal as well.

Unfortunately for AT&T, the arbitrator’s ruling coincided with their losing another crucial suit over the patent for the vacuum tube, without which they could no longer manufacture radio receivers or transmitting equipment. Topping off these woes, at about the same time, the Federal Trade Commission, a new agency created to enforce the antitrust laws, launched an investigation into the radio industry.

Obviously, AT&T had a lot to lose from another brush with any antitrust enforcers. Nonetheless, unwilling to concede defeat, the firm struck back with a report claiming violations of the statute on the part of RCA. The absurdity was lost on no one: AT&T, the state-sanctioned telephone monopoly, was accusing another state-created monopoly, RCA, of being an illegal trust, with the transparent aim of blocking RCA from entering a market RCA had been created—with the express cooperation of AT&T—to exploit!.

This was not Adam Smith’s vision of competition, nor even Schumpeter’s, but rather American industrial policy gone amok. And all of this maneuvering that could have so altered American communications and culture transpired behind the scrim of corporate confidentiality, not to be made public until scholarly investigation decades later.

Despite its initial bravado, sometime in 1926, AT&T would lose its belly for the radio fight. The reasons have never been fully elucidated, but it is clear that by this time the opponents were caught in something of a “prisoner’s dilemma.” One or the other side could have tried to gain the upper hand by going public with its charges, inviting the possibility of a long and costly federal lawsuit. Or they could strike some kind of deal in secret. They chose the latter option. The two firms decided to work together on a new national broadcasting service, based on Bell’s NBS. AT&T would sell its network and stations to RCA, preserving its long distance networking, while RCA took care of everything else. Though the settlement was in both firms’ interests, there is no question but that AT&T had blinked and that the deal was a major victory for Sarnoff, who, just as Bell had done in scaring off Western Union in the 1870s, used the law to prevent AT&T from dominating radio completely.

So while radio was supposedly developing in the United States without direct government intervention, contrary to the British model, in fact it was a case of two government-sponsored champions dueling over the same industrial prize in a decidedly unbloody bout. For in the end, AT&T’s National Broadcasting System never died, but simply morphed a bit. Walter Gifford and David Sarnoff, finally on speaking terms, relaunched the entity under an almost imperceptibly different new name:

ANNOUNCING THE NATIONAL BROADCASTING COMPANY, INC.… The purpose of that company will be to provide the best programs available for broadcasting in the United States.… The Radio Corporation of America is not in any sense seeking a monopoly of the air.… It is seeking, however, to provide machinery which will insure a national distribution of national programs, and a wider distribution of programs of the highest quality.18

NBC had been born, and with it a new ideal of American broadcasting.

A NEW AMERICAN MODEL

“Commercialism is the heart of the broadcasting industry in the United States,” wrote Henry Lafount, a commissioner of the Federal Radio Commission, in 1931.19 By the 1930s, times had indeed changed in American radio. What was once a wide-open medium, mostly the province of amateur hobbyists, was now poised to become big business, dominated by a Radio Trust; what was once an unregulated technology would now come under the strict command and control of a federal agency.

The rise of the AT&T/NBC model led directly to this transformation. Through most of the 1920s, the regulation of American radio had been light, with Hoover’s vision of voluntary virtue resting on the hope that goodwill made formal rules unnecessary. With networking and advertising the new keys to financial viability, however, the larger broadcasters and manufacturers of radio sets had no use for government evenhandedness. They wanted, rather, a government policy that would aggressively favor commercial broadcasting. It may seem surprising to regard Hoover as a naïve idealist, but in this context that’s what he was. The companies that had, while small and dependent on the sale of radio sets, been perfectly happy with Hoover’s rule now launched an attack on his authority. In 1926, Eugene McDonald, president of both the National Association of Broadcasters and Zenith Corporation, accused the president of “one-man control of radio” and called Hoover a “supreme czar.” Deliberately flouting Hoover’s rules, McDonald began using frequencies reserved for Canadians, provoking a potential fight with the British Empire. Hoover had no choice but to order him to stop, but McDonald sued to challenge Hoover’s right to do so, and a federal district court found that Hoover, all along, had lacked any authority to assign radio frequencies.20

It was in the wake of Hoover’s defeat that, in 1927, Congress saw the need to create the Federal Radio Commission, a congressional agency of enormous importance in our broader narrative, as the only body dedicated to the problems of communications in the United States. Unfortunately, the FRC was tainted from the beginning, its policy closely wedded to the interests of NBC and the navy. Congress’s prime concern in forming it seems to have been denying Hoover, already a promising aspirant to the presidency, too much power over broadcasting; hence the creation of an independent commission, as opposed to authority in the Commerce Department.21 They might equally have sought to set up a commission with a public service mandate like the BBC’s, or even one to preserve the diversity of radio broadcasting. But they did neither, instituting instead only a new bureaucracy widely seen as captured ab initio.22

After a period of difficulty finding staff, the FRC, founded to favor “general” broadcasting, almost immediately set about jackbooting its way where Hoover had trod so lightly. Hoover had pictured himself a careful gardener, trying to cultivate commercial, educational, and other nonprofit radio stations on the same dial; the FRC saw its mission as more to plow up the radio dial, making way for a bigger and better radio of the future. In effecting its program of clearing the airwaves, the agency relied on a new distinction between so-called general public service stations and propaganda stations. These were, in effect, synonyms for “large” and “small” respectively, but it was apparently easier to assault the underdog if one could label him a propagandist, even though the term’s present pejorative sense would not take hold until used to describe communications in Nazi Germany. In any case, by whatever name, the FRC favored the large, networked stations affiliated with NBC (and later CBS). Because the large operators had superior equipment, and fuller and more varied schedules, the FRC could claim not implausibly that they better served the public.23

As the commission would soon announce, “There is not room in the broadcast band for every school of thought, religious, political, social, and economic, each to have its separate broadcasting station, its mouthpiece in the ether.”24 So declared the commission in the course of shutting down a well-known station in Kansas famous for its medical quackery.

What is immediately striking about this pronouncement is how much it reads like a calculated antithesis of the First Amendment. Less visceral analysis reveals it to be based on a false technological premise. It is true that interference was a problem. Without any order to the radio dial, no station could be heard. But the FRC had a real choice of whether to back more low-power stations, or fewer high-power stations. There was, in fact, room on the broadcast band for every school of thought, if broadcast rights were confined to localities and lower-wattage transmitters. It was simply a matter of how one envisioned dividing up the ether.

The FRC’s views closely aligned with those of RCA, NBC, and the rest of the industry, which now depended not on more radio stations, but on huge audiences for just a few stations. Government’s mission had become to free up frequencies to make room for stations that could reach huge areas, or the whole nation at once—so called “clear channels.” With its General Order No. 32, the FRC demanded that 164 smaller stations show cause why they ought not to be abolished.25 The commission went further with General Order No. 40, which reset the entire radio dial, shuttering or reducing hundreds of small stations to create forty nationwide clear channels, and cramming the remaining six hundred channels into fifty leftover frequencies. Following No. 40, writes Robert McChesney, “U.S. broadcasting rapidly crystallized as a system dominated by two nationwide chains supported by commercial advertising.” Commissioner Lafount described it as the “structure or very foundation” of American broadcasting, and indeed it was.26

And yet there was much to be said in defense of the new. The networks of the 1930s can be credited with creating a broad listenership for quality programming, such as the famous radio serials of the period. Reflecting the AT&T ideal of enlightened monopoly, perhaps, the networks also carried some sense of public service, with every station in theory a trustee of the public airwaves. So in addition to the entertainment designed to sell products, the networks broadcast “sustaining programs,” money-losers run in the public interest. From this concept grew their news departments, also unprofitable but serving the public good.

By the mid-1930s, it was clear that the Cycle had turned with respect to radio, and the medium was completely transformed. The days of the freewheeling American dial were over. In fact, so it was around the world, as virtually every nation began to regulate radio, abandoning the decentralized way of the early American experiment, in many cases without ever having passed through it.

The most striking example, of course, were the Germans, who moved directly to the centralized radio model in the 1920s and by the 1930s had installed radio broadcasting as the centerpiece of the Nazi state’s propaganda campaigns. Joseph Goebbels, Hitler’s propaganda minister, saw the radio as a central instrument in achieving volksgemeinschaft, the unified national community. “A government that has determined to bring a nation together,” as he put it, “has not only the right, but the duty, to subordinate all aspects of the nation to its goals, or at least ensure that they are supportive.” For Goebbels, industrial structure was a critical part of making this happen. “Above all,” wrote Goebbels, “it is necessary to clearly centralize all radio activities.”27

The fate of open radio gives credence to the inevitability of the Cycle, yet we can also see how much of what happened was a matter of choice. There were some attractive features of early American radio worth preserving, and they could have been preserved given less heavy-handed support of the new paradigm. But the defenders of those virtues, Hoover and a few senators, lacked the political clout to prevent a wholesale flip from an open to a closed system. The American government ended up failing to affirm a considered vision of what broadcasting should be, only following and accommodating the evolution of business models. Once the industry had concluded that its profits could be maximized if more people listened to fewer stations, the government, acting as if the business of America were only business, did the industry’s bidding, showing only the most feeble awareness of its consequences for the American ideal of free expression.

As the years went by, the founders of the commercial system would begin to credit themselves, and not the amateurs, for the creation of American radio. Sarnoff, as head of RCA and the founder of NBC, made himself the defining mogul of American radio. He began spinning vainglorious tales for reporters and historians that he had been first to envision radio broadcasting in 1914, that the Dempsey bout broadcast had been his idea, and that he had pioneered the national broadcasting network. The amateur hobbyists and inventors like Lee De Forest—even AT&T, for that matter—were brushed out of the official portrait, as Sarnoff proceeded like the ancient Chinese emperors who rewrote history as soon as they came to power, to prove they had had Heaven’s mandate all along.28

* The national telegraph wire network was also still in existence, but it was of poor quality; efforts to use it to carry radio transmission were a failure.

* Actually, the motivations for the exclusivity were complex. One reason, obviously, was to favor AT&T’s stations. But AT&T had also joined a radio patent pool in the 1910s that arguably prohibited it from manufacturing radio sets; the fixed frequencies were seen as grounds for an exception to this prohibition.