TOC | Previous Section: Chapter III | Next Section: Chapter V
Report on Chain Broadcasting, U. S. Federal Communications Commission, May, 1941, pages 26-28:


IV.  THE  MUTUAL  BROADCASTING  SYSTEM

    The Mutual Broadcasting System is organized along lines radically different from those of CBS and NBC. It does not own any stations, but it is owned by several stations. Mutual has no studios, maintains neither an engineering department nor an artists' bureau, and does not itself produce any programs except European news broadcasts. The commercial programs are produced by the originating station or by the sponsor who buys time, and the sustaining programs are selected from among those put on by the stations associated with the network.

A.  FORMATION  OF  MUTUAL

    On September 29, 1934, WGN Inc., Bamberger Broadcasting Service, Inc., Kunsky-Trendle Broadcasting Corporation, and Crosley Radio Corporation, the respective licensees of stations WGN at Chicago, WOR at Newark, N. J., WXYZ at Detroit, and WLW at Cincinnati, entered into an agreement for the purpose of securing contracts with advertisers for network broadcasting of commercial programs over their stations and making arrangements with the Telephone Co. for wire connections between the stations. WGN and WOR were to contract with the Telephone Co. for wire connections between the stations and all four stations agreed to share the expenses thus incurred.
    In a supplementary contract of the same date, WGN and WOR agreed to organize a new corporation for the purpose of contracting with the Telephone Co. for the wire facilities required under the contract between the four stations. Stations WOR and WGN guaranteed the payment of any indebtedness of the new corporation to the Telephone Co. The new corporation provided for in the supplementary contract was the Mutual Broadcasting System, Inc., which was incorporated in Illinois on October 29, 1934, and which entered upon the business of selling time to advertisers over the four-station network and of making arrangements with the Telephone Co. for lines between the stations.
    The capital stock of Mutual consisted of only 10 shares, of which WGN, Inc., and Bamberger Broadcasting Service, Inc., each held 5. WGN, Inc., is a subsidiary of the Tribune Co., which publishes the Chicago Tribune, and the Bamberger Broadcasting Service is a subsidiary of L. Bamberger & Co., which in turn is a subsidiary of R. H. Macy & Co. Ultimate control of the new network, accordingly, lay with the Chicago newspaper and the New York department store.1

    The arrangement among the four stations comprising the Mutual network was carried forward by a new agreement on January 31, 1935, but the network did not expand during that year. Under the new contract, Mutual agreed to pay the four stations their regular card rates for network programs broadcast over their facilities, deducting for itself a commission of 5 percent and such expenses as agency commissions and wire-line charges. Station WXYZ in Detroit left Mutual in September 1935 in order to join NBC, and was replaced by station CKLW, located in Windsor, Ontario, but serving Detroit as well, and owned by the Western Ontario Broadcasting Co., Ltd. On January 31, 1936, the four-station agreement was extended for another year, and Mutual's commission was reduced to 3½ percent.

B.  DEVELOPMENT  OF  THE  MUTUAL  NETWORK

    Prior to 1936, WOR, WGN, WLW, and WXYZ (replaced by CKLW in 1935) were the only stations which regularly carried Mutual programs. During 1936, however, a number of stations were added to the network, including 13 in New England and 10 in California associated with regional networks (Colonial and Don Lee).
    Mutual continued to increase the number of its associated stations throughout 1938, adding a Texas regional network of 23 stations during this period. As of January 17, 1939, shortly prior to the date on which Mutual presented its testimony at the committee hearings, the Mutual network included a total of 107 stations, of which 25 were also associated with NBC and 5 were also associated with CBS, and at the end of 1940 there were 160 outlets.
    The following table shows the growth of Mutual:
 
Date (end of year)Number
of Mutual
outlets1		Approximate percentage
of Mutual outlets to
total number of
licensed stations
1934 
1935 
1936 
1937 
1939 2
1940 3
1940 		  4
 3
 39
 80
 107
 116
 160		  0.7
 0.5
 6.0
 11.6
 14.8
 15.2
 19.3
    1 Station CKLW, Windsor, Ontario, Canada, is not included. See p. 15, n. 48.
    2 Jan. 17.
    3 Feb. 1.

    As the number of stations on the Mutual network increased, the structure of the network grew more complex. During the period in which only four stations were regularly associated with the network each contributed one-fourth of Mutual's expenses and wire-line charges. As more stations were added, three classifications were set up: member stations, participating members, and affiliates. At the time of the committee hearings in February 1939, there were two member stations, WGN and WOR, which held stock control of Mutual. The four participating member organizations were the Colonial Network, the United Broadcasting Co. (licensee of WHKC at Columbus and WCLE and WHK at Cleveland), the Don Lee Network, and the Western Ontario Broadcasting Co., Ltd. The remaining stations associated with Mutual were affiliates.
    All network commercial time sold by Mutual is sold at the card rates of the stations. The two members and four participating members pay Mutual a commission of 3½ percent, and share any network deficit, while the affiliated stations pay a commission of 15 percent. Stations associated with Mutual receive a 2-percent commission from Mutual on the proceeds of network time sold by them. The member stations underwrite all operating deficits and wire-line charges; and the participating members contribute in varying degrees toward the expenses of Mutual and their wire-line connections to Mutual's main line. The affiliated stations do not contribute toward the operating expenses or wire-line charges of Mutual as such, but, in addition to the commission of 15 percent they pay Mutual, in most cases they also pay the cost of the wire-line connection from their station to the Mutual main line.
    Since the presentation of testimony by Mutual at the committee hearings during February 1939, several changes have taken place in its organization, as set forth in its brief of November 11, 1940. In January 1940 Mutual, which at that time was entirely owned by WGN and WOR, issued stock to five additional companies: the Don Lee Broadcasting Co., the Colonial Network, Inc., the Cincinnati Times-Star Co. (licensee of WKRC at Cincinnati), the United Broadcasting Co. and the Western Ontario Broadcasting Co., Ltd.2 Mutual's board of directors was enlarged and an operating board was created for the purpose of giving representation to the nonshareholding affiliates.
    The volume of Mutual's business has increased substantially since its formation, but is still not comparable to that of either NBC or CBS. The following table shows the network time sales (after discounts; before commissions) for each complete year through 1940:
 
1935__________________$1,108,827
1936__________________1,884,615
1937__________________1,650,525
1938__________________2,272,662
1939__________________2,610,969
1940__________________3,600,161

___________________
    1 On January 20, 1936, pursuant to an amendment of Mutual's corporate charter, the Crosley Radio Corporation, licensee of WLW, acquired five newly issued shares of Mutual stock. This ownership continued only until September 26, 1936, when Crosley returned the stock to Mutual.
    2 After this change the total issued capital stock of Mutual consisted of 100 shares which were held as follows: 25, WOR; 25, WGN; 25, Don Lee; 6, Colonial Network; 6, United Broadcasting Co.; 6, Cincinnati Times-Star Co.; 6, Western Ontario Broadcasting Co., Ltd.; 1, Fred Weber (qualifying share).
TOC | Previous Section: Chapter III | Next Section: Chapter V