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Report on Chain Broadcasting, U. S. Federal Communications Commission, May, 1941, pages 5-8:


    Network broadcasting is almost as old as broadcasting itself. The first network broadcast occurred in January 1923,1 less than 3 years after the establishment of the first broadcasting stations.2
    When broadcasting began, the stations were faced with the problem of deriving sufficient revenue from operations. There was considerable difference of opinion in the industry as to how this problem could be solved. Some believed that the manufacturers and distributors of radio receiving sets and parts should contribute to the cost of operating broadcasting stations as a service to the purchasers of sets and in order to stimulate sales. Others were of the opinion that broadcasting stations should be operated by the Government, or supported by endowment funds contributed by public-spirited citizens.3 The genesis of the sponsored program occurred on August 28, 1922, when the first sale of radio station time for commercial purposes was made by the American Telephone & Telegraph Co.'s station WEAF at New York City.4 The eventual success of the practice of selling radio time to advertisers, and the development of network broadcasting, are the foundation stones of the commercial structure of radio broadcasting today.

A.  THE  A. T. & T.  NETWORK

    Station WEAF was constructed in New York by the American Telephone & Telegraph Co. and was licensed on June 1, 1922. It was operated as a "toll" station, available for hire by those wishing to reach the public by radiotelephony.
    At that time the Telephone Co. claimed the exclusive rights under certain patents and patent-licensing agreements, to sell radio time and operate "toll" stations.5 This right was asserted under a cross-licensing agreement dated July 1, 1920, between the General Electric Co. and the Telephone Co. and an extension agreement of the same date under which RCA and Western Electric were added as parties. The Westinghouse Electric & Manufacturing Co. was brought within the purview of these agreements on June 30, 1921.6 They gave the Telephone Co. and its manufacturing subsidiary, the Western Electric Co., the sole rights to make, lease, and sell commercial radiotelephone transmitting equipment. This provision, the Telephone Co. insisted, gave it the exclusive right to sell time over a "toll" station. The assertion of these rights was a substantial factor in giving it a position of leadership during the early days of broadcasting.7
    The Telephone Co. inaugurated network broadcasting on January 4, 1923, with a program broadcast simultaneous over station WEAF and a Boston station, WNAC, owned by John Shepard III.8 The second network broadcast occurred on June 7, 1923, and involved, in addition to WEAF, stations WGY in Schenectady, KDKA in Pittsburgh, and KYW in Chicago.9 The first continuous network broadcasting occurred during the summer of 1923, when for a period of 3 months station WEAF in New York programmed Col. Edward H. R. Green's station WMAF at South Dartmouth, Mass.10 During the summer of 1923 the Telephone Co., through one of its subsidiary companies, constructed station WCAP in Washington, and thereafter WEAF and WCAP were frequently connected for network broadcasting.11 These two stations became the nucleus of the network built up by the Telephone Co.
    From 1924 to 1926, the Telephone Co.'s network expanded its operations rapidly. Early in 1924, the company produced the first transcontinental network broadcast, utilizing station KPO in San Francisco.12 By the fall of 1924, the Telephone Co. was able to furnish a coast-to-coast network of 23 stations to broadcast a speech by President Coolidge.13 At the end of 1925 there was a total of 26 stations on the regular Telephone Co. network, extending as far west as Kansas City (station KSD).14 The company was selling time to advertisers over a basic network of 13 stations at $2,600 per hour,15 and was deriving gross revenues at the rate of about $750,000 per year from the sale of time.16


Meanwhile, RCA was making a start in network broadcasting. In the spring of 1923, RCA acquired sole control of station WJZ in New York City,17 and later that year it constructed and started to operate station WRC at Washington. The first network broadcast by RCA occurred in December 1923, and involved only WJZ and the General Electric Co.'s station WGY at Schenectady, N. Y. The connection was made with Western Union telegraph wires.18
    Although there was keen rivalry between stations WEAF and WJZ during this period, the vigorous network competition which RCA might otherwise have offered was hampered because of two factors. In the first place, RCA was prevented from reaching numerous outlets and developing its network because of the Telephone Co.'s policy with respect to the use of its telephone lines by others for network purposes.19 The telegraph wires which RCA was thus compelled to use were quite inferior for this purpose. Secondly, RCA was prevented from developing the business aspects of broadcasting and network broadcasting by its inability to sell time to advertisers; for the Telephone Co. claimed, under the cross-licensing agreement of July 1, 1920, the exclusive right to sell time for broadcasting purposes.20 Hence RCA stations made no charge for the use of time.21
    Largely because of these obstacles, the RCA network did not grow as rapidly as the Telephone Co.'s network. Thus, while the Telephone Co. was able, in March 1925, to broadcast President Coolidge's inauguration over a transcontinental network of 22 stations, the RCA network carried it only over WJZ, WBZ, WGY, and WRC.22


    In 1926, the Telephone Co.'s direct participation in the broadcasting business, in which it had pioneered and attained a dominant position, came to an abrupt end. As part of a general readjustment of relations between the Telephone Co. and the so-called "Radio Group" (RCA, Westinghouse, and General Electric), the Telephone Co. withdrew from the broadcasting field, and transferred its properties and interests to the "Radio Group."
    In May, 1926, the Telephone Co. had incorporated a subsidiary corporation, the Broadcasting Co. of America, to which were transferred WEAF and the network operations. On July 1, 1926, a contract was entered into, which became effective November 1, 1926, under which RCA purchased the assets of the Broadcasting Co. of America.23 The purchase price was $1,000,000, and the transaction included WEAF and the entire broadcasting business of the Telephone Co. except the Washington station, WCAP, which was closed.24 As a result of this sale, the way was cleared for the sale of broadcasting time by the "Radio Group." The Telephone Co. also agreed to withdraw from the broadcasting business and covenanted not to compete with RCA in this field for a period of 7 years, under penalty of repaying $800,000 of the $1,000,000 purchase price. The Telephone Co. also agreed to make available its telephone lines to RCA for network purposes, and an understanding was reached that RCA would, use only Telephone Co. lines, unless they were not available.25


    On September 9, 1926, RCA formed a corporation, the National Broadcasting Co., to take over its network broadcasting business, including the properties being purchased from the Telephone Co.26 In October 1926, RCA assigned to NBC its rights to purchase the Broadcasting Co. of America, and in November NBC paid the purchase price of $1,000,000, and took over the operation of WEAF and the old Telephone Co. network.27
    The outstanding capital stock of NBC was owned by RCA, General Electric, and Westinghouse in the ratio of 50, 30, and 20 percent, respectively, from the date of incorporation to May 23, 1930. On that date RCA acquired the NBC stock previously owned by General Electric and Westinghouse.28 Thus NBC became a wholly owned subsidiary of RCA.
    The sale of station WEAF to NBC and the withdrawal of the Telephone Co. from the broadcasting business marked the end of an era. The pioneer stage of network broadcasting was drawing to a close. The Telephone Co. had been well on its way toward financial success in the operation of WEAF as a "toll" station. The technical and social practicability of network broadcasting had been clearly shown as early as March 4, 1925, when the Telephone Co.'s 22-station network carried the inaugural address of President Coolidge to an audience estimated at 18,000,000 listeners.29
    RCA could not fail to assume a dominant position in the field of network broadcasting as a result of its purchase of WEAF and the Telephone Co. network. Following the purchase, the only two networks in the country were under the control of RCA. The purchase has had a lasting effect on the structure of network broadcasting; for NBC's present operation of two networks--the "Red" and the "Blue"--stems from its ownership of both WEAF and WJZ in New York City, and from its acquisition of the Telephone Co.'s network organization in addition to RCA's original network system based on WJZ. For some time after the purchase, RCA had a practical monopoly of network broadcasting, and NBC is still by far the largest network organization.

    1 On January 4, 1923, a special circuit was set up between stations WEAF, New York City, and WNAC, Boston. A program originating at WEAF was then broadcast simultaneously by the two stations. See testimony of O. B. Hanson, NBC vice president and chief engineer, Transcript, p. 694: "Network Broadcasting," by Barrett and others, in Bell Telephone Quarterly, vol. 13, pp. 81-82 (April 1934).
    2 The first broadcast stations licensed for regular operation were WWJ at Detroit on October 13, 1921, and KDKA at Pittsburgh on November 7, 1921. On November 2, 1920, however, station KDKA broadcast, under a special license, the returns of the Harding-Cox election. See statement of M. H. Aylesworth in Hearings on Confirmation of Federal Radio Commissioners, before Senate Committee on Interstate Commerce, 70th Cong., 1st sess., February 4, 1928, p. 233.
    3 See New York Times, May 18, 1924, sec. VIII, p. 3, for collection of opinions.
    4 Hanson, Tr., p. 682.
    5 Hanson, Tr., 688; Radio Broadcast, June 1924, pp. 130-132.
    6 Report of Federal Communications Commission on Investigation of the Telephone Industry in the United States, 76th Cong., 1st sess., H. Doc. No. 340 (1939) (hereinafter cited as F. C. C. Telephone Report), pp. 225-226; Report of Federal Trade Commission on the Radio Industry, 67th Cong., 4th sess. (1923) (hereinafter cited as F. T. C. Radio Report), pp. 47-48.
    7 The standard contract whereby the Telephone Co. sold transmitting equipment expressly provided that the purchaser was not to use the station for profit. Radio Broadcast, June 1924, pp. 130-132. It should be noted, however, that some independent stations operated in spite of the Telephone Co.'s claims. Radio Broadcast, June 1924, pp. 130-132. After April 18, 1924, some independent stations were licensed by the Telephone Co. to engage in "toll" broadcasting. Hanson, Tr. pp. 678 et seq.; F. C. C. Telephone Report, pp. 387-399.
    8 Supra, n. 1.
    9 Hanson, Tr., p. 698. Station WGY was owned by General Electric Co. and stations KDKA and KYW by the Westinghouse Electric & Manufacturing Co.
    10 Id., p. 699.
    11 F. C. C. Telephone Report, p. 388. WCAP discontinued operations in 1926. Infra, n. 24.
    12 Hanson, Tr. p. 717.
    13 New York Times, October 24, 1924, p. 1.
    14 Hanson, Tr., p. 717.
    15 Archer, History of Radio to 1926, p. 361.
    16 Archer, Big Business in Radio, p. 246.
    17 Station WJZ had originally been jointly controlled by Westinghouse and RCA. RCA Annual Report for 1922, p. 20. Its studios were originally located in Newark, but were moved to New York in 1922.
    18 Hanson, Tr., p. 704.
    19 F. C. C. Telephone Report, pp. 389-392; Hanson, Tr., p. 687. The policy which the Telephone Co. In general, this policy was to decline to furnish this service to broadcast stations for network broadcasting and to pick up programs originating outside station studios was designed to protect the broadcasting activities and the patent position of the Telephone Co. In general, this policy was to decline to furnish this service to broadcasting stations which were not licensed under the Telephone Co.'s patents and to limit in various ways wire service supplied to licensed stations. For a discussion of the broadcasting activities of the Telephone Co., see F. C. C. Telephone Report, pp. 387-399.
    20 Supra, p. 5.
    21 Archer, op. cit. supra, n. 15, p. 304.
    22 New York Times, March 5, 1925, p. 5.
    23 F. C. C. Telephone Report, pp. 392-395; Report on Communication Companies, 73d Cong., 2d sess., H. Rept. 1273 (1934) (hereinafter cited as Report on Communication Companies), pt. 3, p. 4074.
    24 WCAP, the Telephone Co.'s station in Washington, had been sharing time with WRC, the RCA station in Washington. Following consummation of the agreement, WCAP discontinued operation and WRC took over its operating time and programs. New York Times, July 28, 1926, p. 33.
    25 F. C. C. Telephone Report, p. 394; Hanson, Tr., p. 855.
    26 Report on Communication Companies, pt. 3, p. 1048.
    27 F. C. C. Telephone Report, p. 393.
    28 Report on Communication Companies, pt. 3, p. 4080.
    29 New York Times, March 5, 1925 p. 5. It was also estimated that about 4,800,000 persons heard the broadcast over the RCA network of four stations, WJZ, WBZ, WRC, and WGY.
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