The Master Switch

by Tim Wu

  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 th
ough 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.

  CHAPTER 6

  The Paramount Ideal

  Since 1909, when it had opened boasting “the world’s finest theatre pipe organ,” Tally’s Broadway had become Los Angeles’s leading “first-run” theater, the place to see the latest and best.1 The proprietor, Thomas Tally, was a true forerunner in the film industry, even credited by The New York Times with coining the term “motion picture.” He had also been a stalwart ally of the Independents in their fight against the Trust, faithfully subscribing to W. W. Hodkinson’s “Paramount Program” of thoughtfully selected Independent offerings. But for all Tally’s loyalty, in 1916 a salesman from Paramount visited him with some most unwelcome news.

  Things had changed at Paramount since founder Hodkinson’s expulsion and the firm’s merger with a group of producers. The new management was now offering terms very different from those Tally had known before. Hereafter, if he wanted Paramount’s “star” films, he would be required to buy en bloc—a full year’s worth of films, all from Paramount’s production partners.2 He would, moreover, be obliged to buy the films “blind,” or without preview.

  The agent represented Adolph Zukor, the onetime rebel Independent who that year had taken over Paramount, implementing the star system, whereby recognizable names became the essential asset in film. Among the essential assets he controlled, the greatest was Mary Pickford, the most popular actress of the 1910s and the anchor that made his block sales model feasible. “As long as we have Mary on the Program,” one of Paramount’s salesmen said, “we can wrap everything around her neck.”3 To get Mary, you had to buy the block.

  While the Independents had just recently broken the chokehold of the Trust, Zukor was now showing every sign of wishing to reestablish empire, but with himself as the presiding mogul of American film. In some sense the latter objective was already in hand. Having engineered the takeover of Paramount, merging his Famous Players production studios with Paramount’s distribution might, he was now president of the largest motion picture company in the United States, if not the world. While never public about his ambitions—indeed, he spoke out fre
quently about the “evil” of combinations—his actions left little room for doubt.

  In 1917, Tally and some like-minded theater owners decided to defy Paramount. After a meeting in New York they announced the formation of the “First National Film Exhibition Circuit.” The group comprised twenty-six major exhibitors, from San Francisco, Chicago, Philadelpia, Boston, New York, and other cities. At the meeting was Samuel “Roxy” Rothafel, manager of what was at the time the largest theater in the United States, the Strand on Broadway. First National’s goal was simple: “to find means of repressing Zukor before he could acquire dictatorial power.”4

  The stage was set for another of the great industrial battles over an information medium, by now a familiar sort of contest, though in truth, no two will prove entirely alike when one considers the specific distribution of advantages and blind spots, the array of heroes and villains, or the distinctive consequences for American culture. In this instance, we have on the one side the Independent theater owners—a disparate group numbering in the thousands, not so formidable individually but, for now, holding collectively the preponderance of power in the industry. Their opponents, far fewer, were the new generation of big producers who had supplanted the Trust, including William Fox, Carl Laemmle, and, with his ascension at Paramount, the greatest of them all, Adolph Zukor.

  At stake: not just control of the industry—Would it be open or closed to all but a handful of studios?—but also the character of the medium: Would it continue to be varied and independent, tailored to a variety of sensibilities, or produced at previously unexampled scales and nationalized, so to speak, for a single homogeneous audience?

  AN IDEOLOGICAL CONFLICT

  William W. Hodkinson had had his own strong ideas about the ideal structure of the film industry.5 Readers will remember he’d been the odd man out, the gentile from Utah who became a key ally of the Jewish immigrant insurgent leaders. Having started as a member of the Trust, Hodkinson, with an ornery streak, came to believe strongly that every “layer” of the film industry should remain separate—in other words, that producers should focus exclusively on making films, exhibitors on running theaters, and distributors on bringing the two together. Otherwise, he concluded, the quality of film would suffer: “The history of the business has shown that the most successful pictures have been developed by individual efforts rather than by mass production.”6