September 9, 2019 • 41 mins
Normally, the US government swoops in to bust up monopolies. But after World War I, it did the opposite. How did RCA come to be?
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Episode Transcript
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Speaker 1 (00:04):
Welcome to Business on the Brink, a production from I
Heart Radio and How Stuff Works, zipping through the air
at the speed of light. Radio broadcasts were on the
verge of changing communications forever, but even in the early days,
there was some static in the signal as the United
States government worried about who controls the transmissions. A concern
(00:28):
over national security led to an effective monopoly that tuned
into what listeners wanted to hear. This is our CIA
on Business on the Brink. Here, everybody, I'm Jonathan Strickland
(00:49):
and I'm Aerial Casting and welcome to Business on the Brink.
And today we're gonna talk about our ci A. This
was a listener request Ashley wrote in to ask us
to cover our CIA, and it's really interesting one. I've
talked about our SEA before in another podcast, and uh,
it's partly I think interesting because unlike any other company
we've covered so far on this show, this was one
(01:12):
that started off as monopoly. Not just a monopoly, but
a government sanctioned monopoly. It was the government's idea. But
in order to understand how we got to that point,
like why did this exist, we have to look at
a little bit of background first. Of all our ci
A is an initialism. Okay, So if it's an initialism,
(01:32):
what is it? Stanford Jonathan Radio Corporation of America, which
will come into play later when they change their name
to a point where it becomes funny to me. But
I mean, I think corporations now not going to say
they're funny. It gets it gets funny or trust me.
But technically they celebrated turning one hundred years old in
two thousand nineteen, which is the year that we are
(01:54):
recording this episode. Well, that sounds like a pretty great
accomplishment to me. It would be if it was still
a company, but it hasn't been since nine kind of
like United Artists, kind of like United Artists. Yeah, well,
we'll talk more about the ultimate fate of our CIA
in the next episode. Oh I guess I should say
(02:15):
that too. Spoiler alert. This is going to be a
two part episode because we wanted to talk one about
our Cier's meteoric rise, helped in no small part by
the fact that it was the only game in town.
But we want to talk about how it established itself
and moreover, how the leader of our ci A really
established our Cia as a power player. In not just
(02:39):
radio and radio equipment business, but business in general. And
then the second episode we'll talk about what done went wrong?
Don't don't done? So, uh, this is where we get
into the history and how the United States created our CIA,
or at least allowed our CIA to be created. All right,
(03:01):
So I guess what happened were they did they create
the very first radio? No? No, So here's what happens.
You've got the the discovery of radio, right, which is
outside the parameters of this show. So I'm not going
to go total geek on you and talk about thank you, Jonathan,
but I could thank you Jonavan. So if you're not good,
(03:23):
I will do it. Okay, um, I will be good.
All right. So radio is discovered, people start figuring out
applications for radio. They start using it to be a
wireless communications tool where they could transmit Morse code over
radio waves. Previously Morse code was transmitted over wires. So
that's that's primarily what radio was being used for in
(03:45):
the early nineteen hundreds around the world. It was being
used as communication, and no one was using it to
broadcast audio apart from the Morse code clicks and whips,
which barely counts as audio. Yes, yeah, once in a
while people would experiment with it, but it was not
a thing yet. So we didn't even have pirate radio
at this point. No, no, you just had lips as
(04:08):
people were sending messages across across the vast distances. Now,
there was a company that was a big, big player
in this radio communication space called Marconi, named after one
of the uh disputed inventors of radio. You know who
the other big disputed inventor of radio was, right, Tesla. Yes.
(04:30):
Also I want to say uh because Jonathan did most
of the research on this episode. When I first read it,
I thought it'd said the Macaroni Company, and it may
have in a couple of places, because sometimes I make
typos and I don't correct them. Look, I was just
hungry and a little confused. So okay, So so yeah, Marconi,
the Marconi Companies created and it owns a bunch of
(04:53):
radio transmission stations in the United States. And again this
is really just for sending messages like tele rams. So
here's the issue. The Marconi Company was a British owned company,
it was not an American owned company, and at first
no one had a problem with that, but then a
little thing started to happen in the late nineteen tens era,
(05:19):
and that little thing was called at the time the
Great War. In retrospect, we call it first First World War. Yeah,
world War One, I guess it's also also called that.
So World War one breaks out in Europe, and this
is where the United States government starts to get a
little nervous because you have a vital communications network within
(05:45):
the borders of the United States, but it is owned
and operated by a foreign company, but an ally even so,
and so there was a lot of fear that communications
could be compromised, that it could result in spies spying
on American intelligence that's passing through, if it's if it's
(06:08):
passing through a foreign owned companies system, there was no
way of knowing that the official communications through the US
government we're going to be safe. So did they just
cut us off from all other radio communications. No, they
kind of went even more crazy paranoid than that, So
(06:30):
I shouldn't say crazy paranoid, It was definitely ruthless. So
first you have the United States Navy saying that you
know what we're gonna do. We're gonna have um, We're
going to enforce an executive order that President Woodrow Wilson signed,
and that that order was giving the Navy authority to
censor communications that were passing through the Marconi network. So,
(06:56):
as you can imagine, if you're a communications company, sensors
is not something you want to have happen, you know,
you don't obviously it would cast doubt on your ability
to fulfill your promise to your customers. So the Marconi
company says, this don't sound right, so they challenged it. Alright,
(07:16):
So yeah, yeah, you're thinking, like, well that you gotta
take some steps to protect your business. This can't be
this can't be legal. The Navy ended up responding in
a very reasonable way by shutting down all US operations
of Marconi in nineteen fifteen for about three months. That
(07:40):
it's kind of like my very narrow definition of reasonable.
It's like my threat that I would go into talking
about the invention of radio. It's it's sort of, you know,
the definitely the stick, not the carrot. And they decided
that it was too risky to trust that Marconi would
obey the executive order. The the the authority of that
(08:03):
the Navy supposedly had to censor them, so they took
all the assets, the North American assets, the towers in
the stations, yes, all the all the equipment being used
to transmit communications. The government said, this is no longer yours.
So this is a case where the U. S Government
effectively rested the corporate assets of another of a foreign
(08:26):
owned you know, business, away from that business. I okay,
so what does that even accomplish? Okay, Well, for one thing,
fled the US military had its own communication system. I mean,
because the Marconi didn't have it any I'm pretty sure
they were already more coding each other, right, yeah, but
now they could do it wirelessly. It was so cool. Uh.
(08:50):
And also more importantly, from a national security standpoint, I mean,
I would argue that this was definitely a crazy case
of overreach, but this also meant from a national security standpoint,
which is it's hard to argue it did make the
country more secure against foreign spies, you know, from espionage,
(09:12):
from from uh sabotage of communications networks. I mean, I
guess it's better to be over cautious than not cautious
enough during a time of war, but it is it's
tough because you think about that. If we heard a
story today about the United States government taking over. Let's
say that it's a a social network that was owned
(09:33):
by a company that existed outside the United States, and
it's at a point where we're seeing a lot of
chatter on social networks, uh, that the government might say, well,
we're gonna shut either shut down access to this or
we're going to somehow rest control of facilities in the
United States that belonged to this company. That would there
(09:56):
would be a riot, there would be all right, but
I mean eventually the war is over, yes, and then
we can just return it. No. No, they decided that
what that would be better if an American company owned
it rather than a foreign company, Like, well, we could
make an arrangement to return this to the formerly rightful
(10:17):
owners of the equipment. But if this should happen again,
we'll just have to take it back. Why don't we
just create an all American organization to oversee it. Oh man,
poor Marconi, Well, poor Tesla. But that's a different story
for everybody. Yeah, So the decision was made that there
(10:39):
needed to be an American company or organization to oversee
these various broadcast stations and other assets. So they consulted,
consulted with a group of companies that together formed a
partnership that would create this organization. And those companies were
(11:00):
huge still are huge names all all radio companies, right well,
all sorts of companies that were somewhat uh connected to
the radio industry and that they would make the stuff
that radios would either like the either radio would play
on or transmit through. So they had a vested interest. Obviously.
These are companies that were making either products or services
(11:22):
that the radio industry would depend upon. So it's almost
like saying uh to Coca Cola, like let's say, alright,
Coca Cola, you make soft drinks, We're gonna make you
in charge of all distribution of soft drinks throughout the
United States. And Coca Cola says that's great. All right.
So I know one of the companies because it came
into play in our CBS episode, and that's Westinghouse. Yep.
(11:46):
Westinghouse was one Western Electric, General Electric, A T and T.
And the United Fruit Company. One of these things is
not like the other. You need your energy to morse
code people. Okay, so fruit, it's full of energy. Here's
(12:08):
the thing about the United Fruit Company. That story is crazy.
We'll have to do an episode about United Fruit Company
at some point because you've heard you've probably have you
ever heard the phrase like a banana republic? Okay, I
bought some of their clothes. Now I've heard the phrase
to But have you also heard of things like banana wars? Okay?
(12:31):
So if you start looking into those things and you
look at the conflict and the controversy of American businesses
in tropical regions and how they destabilized entire regions in
order to do business, United Fruit Trade Company or the
United Fruit Company rather comes up a lot in those
(12:53):
But for the importance of this episode, they also owned
and operated their own radio and telegraph company. So that's
why they were brought in on this as well, and
why this company that would otherwise seem like an outlier
was an important part. Okay. So all these companies come
together and they form our c A. Yep, they do that,
(13:14):
and by nineteen nineteen r c A is a thing.
General Electric would be the primary owner of this organization,
not the soul owner, but I had like a majority
share essentially, and uh. In order to avoid having any
problems with each other, they all agreed they would cross
(13:35):
license their individual patents to this company. So that way,
no one partner in the in the in the group
would say, oh, no, you can't use this particular technology
unless you pay us X amount of money and then
we'll let you do it. Seems reasonable. Yeah, So this
way no one could hold out on anyone else. That
(13:56):
was the premise anyway. Uh. And they then had to
figure out who was going to be the leader obviously, right, okay.
Neither of those First of all, neither of them, neither
of them were considered fit to be to own a
company or to run a company in America at that time.
So no, they turned to someone else who also would
(14:19):
have seemed unlikely if you had just had a cursory
look at his history. And that was a man named
David so Close. I'm sorry, I've had very little sleepy guys. Yeah,
is it extra fun? Yeah? I made me look to
make sure I didn't end up writing Smernof. Okay, please don't, please,
please don't okay, okay, So Sarnof. He he becomes the
(14:42):
general manager. And the reason he was general manager not
president is that our c A was not really an
independent company yet. It was this kind of group concern.
So it's a weird it. It occupied a weird space
in the in the spectrum that we look at for
corporate rations, because it was it was a partnership, it
(15:02):
was an organization. It was sort of a company. I
mean that corporation was in its name, but Sarnov was
considered a general manager because it was operating under the
auspices of these larger, shadowy partners in the background. So
Sarnov was interesting because he was originally born in Russia,
not in the United States. His family did immigrate to
(15:24):
the States when he was just a boy, though, so
it wasn't like he had grown up and then and
then immigrated to the United States. He wasn't living in
Russia when he took over the company. That would defeat
the purpose of keeping he would have said, hey, what's up, really, guys,
or actually the really it would have been the British
company owners of the Marconi Company, saying, excuse me, Chap,
(15:47):
what in fact is up? I do to quite understand
what's going on. But Saranov had been a kind of
in the business since he was a child. As a teenager,
he worked as a message your boy for a telegraph company.
He then worked his way up to becoming an actual
telegraph operator, and he worked for the American Marconi Company,
(16:08):
the same one that the United States had arrested all
its assets from. So I mean it feels to me
like that's not succession planning, but still a very wise move.
He's already familiar well, and he had proven himself to
be incredibly ambitious and innovative. He had quickly risen through
(16:29):
the ranks over at the American Marconi Company. So he
was really like a good candidate, like he he knew
his stuff, and he seemed like the kind of guy
who was gonna just push this this business to greater heights.
And in fact, that's exactly what he would do. Well,
(16:49):
and you have this note here that he even picked
up a distress signal from the Titanic. Well that's what
he said. Yeah, he claimed that in nineteen twelve he
was one of the radio operators who picked up the
Titanics distress signals. There were other reports that disputed that
and said what he actually picked up was a response
to the Titanics distress call, so he picked up one
(17:11):
of the rescue ships responses. So he however, would relay
the story as being him him like he sat he
sat at his at his telegraph office for like twenty
six hours straight or whatever. This is a side track, though,
Let's let's get back to his partner. So the two
(17:35):
two businesses that he was really focusing on early on
were essentially wireless communications. So again it's still telegraphs and
which would mean building out more towers and stations to
build out more of an infrastructure for that communications system.
In the United States, and through its partners, it was
(17:57):
selling industrial radio equipment, so we're talking about like against
stuff for the transmission and reception of radio waves on
a major scale. It's not like radio sets that you
would buy and take home and tune in, but rather
these were again the component parts for a communication system.
And it's important to say that because at this point
(18:20):
our cier is not making stuff for the general consumer.
But one of the interesting things about technology is that
when a new technology starts to blossom, regular ordinary schmos
like it. Yeah, they want to, they want to learn
how it works, they wanna they get interested, they're fascinated
by it. And as it turns out, building a radio
(18:44):
it requires a little bit of knowledge, but not a
whole lot in materials and so you started seeing people
building their own radios, and you saw the rise of
a new species, the amateur radio operator, A right tech guy.
We're gonna we're gonna talk about that, but first we're
gonna take a quick break. Al right, So tell us
(19:10):
more about this amateur radio bloom. Well, it had had
a bit of a delay on it because during World
War One the United States said no, no, no, because
they wanted the air waves clear for official communications. But
once that was over, the band lifted on October one,
nineteen uh and now the general public was starting to
(19:32):
get interested, at least the hobbyists in the general public
are starting to get interested in radios. And then on
top of that, you had Westinghouse, one of the partners
behind our CIA, that wanted to make radio sets for
the general public. But here's the problem. How do you
convince somebody to go out and buy a radio set?
You give them a free puppy with it. Oh, that's
(19:54):
one way, but I mean, like you asked me the question, John, Okay,
Well that's how we would get you to buy radio set.
But for the general public, the problem was that why
are you going to listen to? Right, there's nothing there's
nothing to listen to. Beeps and boops are not Dots
and dashes are not very entertaining. So it meant that
Westinghouse said, well, what we need to do is create
(20:16):
a station that would broadcast something that a radio set
could pick up and play. And this is where you're
talking about actually broadcasting speech and music real you know,
audio to these stations now radio sets now to be clear,
on an experimental level, this has already been done. It
wasn't like Westinghouse was inventing the radio set, but no
(20:39):
one had done it on beyond a hobbyist level, or
beyond a couple of sort of almost like PR stunts.
But I mean he set up an actual radio station.
In nineteen twenty, they created they got the license to
operate the first UH radio broadcast station. This was where
it was all new. The United States is having to
(21:00):
come up with a way to license this stuff because
no one had done it before. The radio station was
k d k A in Pittsburgh, Pennsylvania. Yeah, yeah, and UH.
It went live on November two, nineteen twenty, and Sara
and r C were not part of this yet, but
(21:20):
Sarna had already proposed in his earlier work at the
Marconi company something called he was calling it a radio
music box, which was essentially a radio set. So this
was much, very much in line with things that he
had been thinking about for years. So he thought, let's
create more demand for radio sets. He arranged for the
(21:43):
radio broadcast of a sporting event, which was the boxing
match between Jack Dempsey. It was a world famous boxing
champion and he was going up against George Carpentier, who
was a French boxer who had a reputation for knocking
out British boxing champions. Also Dempsey, and this one, oddly enough,
(22:03):
was considered the villain, even though he was American and
this was a fight that was going to happen on
America soil. He was considered to be the villain of
this boxing match. You know often we think about in
terms in that way, and it was because he did
not fight in World War One but Carpentier did. Interesting, yeah, uh,
Dempsey would win by knockout in the fourth round, right,
(22:26):
so bad guy wins, all right. Anyway, our c A
would then, uh try to leverage this to sell more
radio sets, and it started to work. So then you
started to see entrepreneurs across the United States established their
own radio stations. And this was early on, so radio
(22:48):
stations were largely independent. They were, you know, just it
was a regional thing. They had a wide range of
transmission power, so in some cases you might only transmit
a few miles, other it might be a full region.
So that means that you didn't have to listen to
a lot of commercials on your radio, right well, especially
early on, you didn't because it was such a new idea,
(23:08):
but eventually got to the point where it was sponsored content.
So you would have a company say all right, well,
we will offer to pay for the production of this
radio content if in turn, you'll say our name every
X number of minutes. Uh. And then eventually you would
actually get to radio advertising, so radio commercials would start
(23:30):
to become a thing by and then by there were
more than six radio stations in the United States, so
it took off. So our CIA is doing business like
gangbusters because again they're selling the actual transmission components, so
they're doing really well. And then their various partners are
(23:51):
selling a lot of the the radio sets. So everyone's happy.
Gat No, we got whole much more to talk about.
But then starn off is thinking all right, well, what
if we create a network of radio stations, so not
just these independent stations that are everywhere. What if we
(24:14):
we create a network so that we can make content
in a centralized location and then broadcast that out too
different stations in this network, and then you can have
the same radio content going out to listeners across an
entire cboard or even across the entire United States. It
sounds like a good improvement in the process. Yes, it
(24:37):
also would cause headaches for our c a later, but
they decided, all right, we're gonna make a network. We're
going to actually create two networks, but they're going to
be lumped under the same designation. That designation was the
National Broadcasting Company started off as the radio network, not
(24:59):
a TV network. And uh, it's interesting because there were
two parallel independent networks under NBC. They were called Red
and Blue rooster cheeth. Yes, it was like roost teeth.
Now they were largely similar, but over time they would
(25:22):
have slightly different programming. Really, it was just a way
of organizing the networks. They had different kind of central
radio stations as their HQ, but you had two separate ones.
You had the Blue network the Red Network, but they
were both in BC, so they were both identified as NBC.
One of the other interesting things we can actually i'll
(25:43):
talk about it now for right now, because here's the
crazy thing about NBC. You can argue the NBC was
the creation of all three of the classic major United
States networks. So you know we've got the four now.
You would argue you have NBC, ABC, CBS, and Fox.
(26:03):
Take Fox out because for a long time it was
just ABC, NBC and CBS. Again we covered that in
our CBS episode. So NBC, uh was very picky about
what programming it would carry. And you had this talent
agent named Arthur Judson, and he was frustrated because the
(26:25):
talent he represented he wanted to get them on NBC,
but NBC wasn't picking them up. So he thought, well, fine,
I'll go make my own radio network, and he did.
He created one. It was called United Independent Broadcasters and
he founded that but uh, it didn't go over well.
He wasn't able to really get good financing for it.
(26:48):
It was losing money, and so then a wealthy dude
named william S. Paley comes along and he ends up
buying the United Independent Broadcasters reworks at Re names it
and calls it the Columbia Broadcasting System or CBS. So
the reason CBS existed in the beginning was because there
(27:11):
was this group of talent that couldn't get work at NBC.
So if NBC had hired them, CBS maybe never would
have exist existed, which is kind of interesting. But if
you want to hear about that, listen to our CBS episode. Yes,
back back to our c A nine. They got majority
share in the Victor Talking Machine company made Victrola's and gramophones.
(27:33):
So if you I'm sure you've seen the logo of
the dog cocking its head looking at the phonographs vitrola, Yeah,
which you know, I know is the r c A. Yeah,
it's because it was the Victor Talking Machine logo. Then
our c A acquired them, and then they used that
logo for some of our particularly for our CIA records,
(27:56):
but for some of their their divisions. So yeah, that logo,
by the way, is specifically called his Master's Voice, and
the dog's name is Nipper, so called because he would
nip the backs of legs of people who came to
visit his master. Um. Yeah, funny little story. So this
would be the moment when our ci A would actually
(28:16):
get into consumer electronics. This rise of radio. Our CIA
was again looking at just doing the industrial stuff. Yeah,
I mean they were like toying with the idea. Yeah,
and their partners were selling consumer electronics, so like Westinghouse
was doing it, but our c A itself had not
been doing it up to this point. But now they
(28:38):
had bought a company that was making consumer electronics, so
they start selling. But this puts some in competition with Columbia, right, Yes,
it did, and it would get pretty ugly. So Columbia
now is in competition with them on two different fronts.
There's the consumer electronics front in the sense of that
(28:58):
the gramophone and Victrolas and things like that, as well
as the music that was being sold for those things.
That was one level of competition. The other being that
now our CIA is operating or is the parent company
of NBC, and NBC is competing against CBS. Columbia had
been part of CBS UM. So yeah, this would be
(29:23):
the beginning of a fierce competition between our CIA and Columbia.
But we'll tell you guys about that right after this break. Alright,
we're gonna get into some ugly stuff. Because Sarnoff is
a sort of take no prisoners kind of guy. He
(29:44):
seems like it very very driven. Driven is a good
word for it. So big year for our ci A.
For one thing, our c A would buy a chain
of movie theaters called the Keith Albi or Fheum chain
of Theaters, and also acquired the film booking Offices of America.
Then it took those two things and collided them in
(30:05):
a weird way, squishing them together to create a new thing,
something that Ariel and I know a lot about, but
that's a different show, and merged them into a new
company called Radio keith Or Pictures better known as r
k O Pictures. Anyone who's a big fan of Rocky
Horror Picture Show, like Jonathan Yep, they're very familiar with
(30:26):
r KO because there it's referenced a lot in that
particular movie. Al Right, So why did they why did
they get into the theater business? This is this is
another one of these. So you remember how Westinghouse needed
to have something to play on radios in order for
people to go buy radio sets. Very similar, our CIA
(30:47):
had come up with a way to pair audio with
images in film okay, So they needed a place to
present that audio exactly. They needed to have theaters that
would run the equipment that would show these films, because
otherwise they were having to come into competition with established
(31:08):
film companies that were also trying to market their own
audio to film UH technologies. So this was a race
to establish the standard. I've been to a lot of movies.
It seems like our c A is the standard. It is.
It eventually became that. So it ended up working. Our
CIA was able to establish that its methodology would become
(31:32):
the basis for the standard of UH film audio. And
I won't go into how it works super technical, but
it was you know, just imagine that you have all
these different companies that are all trying to become the standard.
They're all competing. It's very frustrating, right if you're if
you own an independent movie theater, you might have to
(31:55):
operate several different types of projectors in order to be
a to show any given film because it could have
been shot using a different standard or a different approach.
By standardizing it, then movie theater operators were saying, oh good,
now I know no matter who I get a movie from,
I can show it in my theater because it will
work on the same piece of equipment. So it's very important.
(32:18):
And our CIA of course wanted to be the company
to do that because you can make bookoo's a buckos
by licensing out that technology. Yeah, I worked out really well.
We're not done, by the way. Yeah. So this was
also when Sarnoff became interested in studying something that had
not yet fully come into being, and that would be
(32:40):
electronic television. There had been mechanical television's I won't go
into that either, but it is weird, and there weren't
a whole lot of them. Not a lot of people
own a mechanical television, um, but the electronic television seemed
to be pretty promising. So Sarnoff met with a Westinghouse
engineer and remember Westinghouse was one of the partners, and
(33:03):
this was a guy named Vladimir Zwarakin. Have you ever
heard about the inventor of TV? I I have a
little bit. Again, we talked about there was like CBS
made a TV, Narcier made a TV and then they
had some fights over it. Yeah, that's going to be
a part of this conversation. Yea. So so that's what
(33:24):
I know about the invention of TV. So if you
ask the average like tech savvy, health history buff person,
who the inventor of TV is, they typically say Filo Farnsworth,
And that's that's fair. Filow Farnsworth did a lot to
create electronic TV. Vladimir's Warkin was also working on the
(33:45):
same concept at the same time, and the two of
them were both kind of rushing to develop this, like
Edison and Tesla or mar Marconi and Tesla for anyone
else in Tesla and and and in this case, Farnsworth
would be the Tesla of that that he was sort
(34:06):
of given a raw end of the deal because Sarnoff
ends up bringing Zorekin over to our c A. So
Zorekin leaves Westinghouse, joins our c A r c A
creates a whole R and D division that Zorekin gets
to use as his personal laboratory. And they also decide
(34:26):
that in order to squelch Farnsworth so that he can't
he can't stand his competition, they're gonna fi file a
whole bunch of lawsuits against Farnsworth, intellectual property lawsuits. Farnsworth
fully believed and ended up being right, that his claims
(34:47):
were valid that he was not violating their intellectual property.
They were in fact violating his intellectual property. But here's
the thing about those I P lawsuits. They drag on
for a very long time. So Farnsworth was kind of
a broken man by the end of it. But it
seems it seems like um an unwise battle to be
(35:10):
having because this is around the time of the Great Depression,
right yep, that's having well. But and Great Depression was
hitting a lot of business is really hard. But there
were certain businesses that were actually doing fairly well. Movie
theater businesses were doing all right. And so it was
radio because people wanted an escape, so they were pouring
(35:30):
a lot of money into R and D for television,
in fact, a crazy amount. It was like fifty million dollars, yeah,
over over the course of more than a decade. But
still and they were still doing quite well with radio.
President Roosevelt b f Dr. Franklin Roosevelt. Uh. Yeah. He
was using radio to connect with citizens who were enduring
(35:53):
economic hardships. It was creating sort of a national identity
using radio. So people didn't have a whole money to spare,
but those who were saving up would often save up
to get something like a radio set would help them
get entertainment, they would get news, so it was still
a booming business. Okay, but how we're consumer electrics doing?
(36:14):
How were the TVs doing, because that's what they were
fighting over. Well, they didn't really do much of anything
at all at first, because um coming out with a
brand new technology that's expensive at a time when people
are enduring severe economic hardship turns out not the best
time to launch a new product. Okay, So what did
our c A do in the interim? They focused on
(36:36):
the radio stuff as much as they could, but they
weren't able to really move some of their other products.
They came out with a new type of record player
that would play records that get this, thirty three and
a third revolutions per minute. Okay, they used to play
him at seventy eight revolution. That doesn't seem very good.
(36:58):
Going into this would also require a technical description, but anyway,
are the important The interesting thing to me is that
our CIA tried to come out with a thirty three
and a third RPM record. It did not do well
because they tried to launch it in the Great Depression.
Nobody could afford a new radio or new record player essentially,
so they didn't go anywhere, and for a long time,
(37:19):
the thirty three and a third uh version of records
was just off the table. But so I was another
failure on our CIA's part. They weren't making any headway
with TV yet. Uh, they were not doing well with
the phonograph. They were still doing well with radio. But well,
we'll wrap this episode up because we're already running along
(37:41):
and we have to get into the decline of our
CIA in our next one. But we're getting up to
ninety two, so still great depression era. But the US
federal government now was starting to get a little a
little worried about our c A because our ci A
was so dominant in its industry. I mean, they were
(38:02):
made up of a bunch of really big companies and
they were like incredibly powerful. The government said, you know what,
you're essentially a monopoly, and the r c A is like, uh, yeah,
you made us, And the government said no, no, no,
that was like a couple of administrations ago. So technically
we didn't make you, and so we'd kind of like
(38:23):
you to break up now. And uh, our ci A
did not break up, but the partnership that formed our Cier.
What they did was they sold their their stake in
our c A to our cia itself. So our ci A,
the entity buys up its own shares, so kind of
like a spinoff, kind of like yeah, spinning it off
(38:45):
so that it becomes its own independent company, and our
ci A would become the r c A Corporation, which
is why I think it's funny, because it's the Radio
Corporation of America Corporation. Just in case you didn't get
it the first time, Uh I see here, David Sarnoff
became the president. Yes, at that point, so now he
(39:07):
goes from general manager to president of our ci because
our ci A now is its own independent company, and
he would continue to lead our ci A. And that
will become very important in our next episode. And if
you've listened to a lot of business on the Brink,
you probably are already anticipating where this is gonna go,
which is where we tell stories about how changes in
(39:28):
leadership can have a big impact on a company. Yes,
but in the meantime, if this has inspired you to
ask us to talk about a different company, you can
email us. Where can they do that, Jonathan? That could
be at feedback at the Brink podcast dot show. Also
you can go to the Brink podcast dot show and
look up all kinds of information about Jonathan and me
(39:51):
our past episodes, uh, anything like that. Yep, and uh
we promise that in future episodes Ariel will talk a
lot more than I will. Just in this particular one,
I went bonkers because I was like, I've got so
many notes on this well, and it's so like there's
so much technical information, and you are like a technical maven.
(40:11):
I just didn't want to get too bogged down in
any of the technical details. And that's that's you know,
It's it's tough because when you're talking about a company
like r c A, it's it's business history is deeply
tied to the technology it was creating. But yes, in
our next episode, we'll find out how this this company
that started as Monopoly got spun off and was still
(40:33):
a very dominant player in the space and would continue
to be so, largely because of David Sarnoff. We're going
to see how that company could go to a point
where I would say that since nine it doesn't even
really exist anymore. All right, I look forward to that.
All right, see you guys next time, I'm Jonathan Strickland
and I'm Aerial Castan. Business on the Brink is a
(40:55):
production of I Heart Radio and How Stuff Works. For
more podcasts for my heart Radio, visit the I heart
Radio app, Apple Podcasts, or wherever you listen to your
favorite shows.
Welcome to Business on the Brink, a production from I
Heart Radio and How Stuff Works, zipping through the air
at the speed of light. Radio broadcasts were on the
verge of changing communications forever, but even in the early days,
there was some static in the signal as the United
States government worried about who controls the transmissions. A concern
(00:28):
over national security led to an effective monopoly that tuned
into what listeners wanted to hear. This is our CIA
on Business on the Brink. Here, everybody, I'm Jonathan Strickland
(00:49):
and I'm Aerial Casting and welcome to Business on the Brink.
And today we're gonna talk about our ci A. This
was a listener request Ashley wrote in to ask us
to cover our CIA, and it's really interesting one. I've
talked about our SEA before in another podcast, and uh,
it's partly I think interesting because unlike any other company
we've covered so far on this show, this was one
(01:12):
that started off as monopoly. Not just a monopoly, but
a government sanctioned monopoly. It was the government's idea. But
in order to understand how we got to that point,
like why did this exist, we have to look at
a little bit of background first. Of all our ci
A is an initialism. Okay, So if it's an initialism,
(01:32):
what is it? Stanford Jonathan Radio Corporation of America, which
will come into play later when they change their name
to a point where it becomes funny to me. But
I mean, I think corporations now not going to say
they're funny. It gets it gets funny or trust me.
But technically they celebrated turning one hundred years old in
two thousand nineteen, which is the year that we are
(01:54):
recording this episode. Well, that sounds like a pretty great
accomplishment to me. It would be if it was still
a company, but it hasn't been since nine kind of
like United Artists, kind of like United Artists. Yeah, well,
we'll talk more about the ultimate fate of our CIA
in the next episode. Oh I guess I should say
(02:15):
that too. Spoiler alert. This is going to be a
two part episode because we wanted to talk one about
our Cier's meteoric rise, helped in no small part by
the fact that it was the only game in town.
But we want to talk about how it established itself
and moreover, how the leader of our ci A really
established our Cia as a power player. In not just
(02:39):
radio and radio equipment business, but business in general. And
then the second episode we'll talk about what done went wrong?
Don't don't done? So, uh, this is where we get
into the history and how the United States created our CIA,
or at least allowed our CIA to be created. All right,
(03:01):
So I guess what happened were they did they create
the very first radio? No? No, So here's what happens.
You've got the the discovery of radio, right, which is
outside the parameters of this show. So I'm not going
to go total geek on you and talk about thank you, Jonathan,
but I could thank you Jonavan. So if you're not good,
(03:23):
I will do it. Okay, um, I will be good.
All right. So radio is discovered, people start figuring out
applications for radio. They start using it to be a
wireless communications tool where they could transmit Morse code over
radio waves. Previously Morse code was transmitted over wires. So
that's that's primarily what radio was being used for in
(03:45):
the early nineteen hundreds around the world. It was being
used as communication, and no one was using it to
broadcast audio apart from the Morse code clicks and whips,
which barely counts as audio. Yes, yeah, once in a
while people would experiment with it, but it was not
a thing yet. So we didn't even have pirate radio
at this point. No, no, you just had lips as
(04:08):
people were sending messages across across the vast distances. Now,
there was a company that was a big, big player
in this radio communication space called Marconi, named after one
of the uh disputed inventors of radio. You know who
the other big disputed inventor of radio was, right, Tesla. Yes.
(04:30):
Also I want to say uh because Jonathan did most
of the research on this episode. When I first read it,
I thought it'd said the Macaroni Company, and it may
have in a couple of places, because sometimes I make
typos and I don't correct them. Look, I was just
hungry and a little confused. So okay, So so yeah, Marconi,
the Marconi Companies created and it owns a bunch of
(04:53):
radio transmission stations in the United States. And again this
is really just for sending messages like tele rams. So
here's the issue. The Marconi Company was a British owned company,
it was not an American owned company, and at first
no one had a problem with that, but then a
little thing started to happen in the late nineteen tens era,
(05:19):
and that little thing was called at the time the
Great War. In retrospect, we call it first First World War. Yeah,
world War One, I guess it's also also called that.
So World War one breaks out in Europe, and this
is where the United States government starts to get a
little nervous because you have a vital communications network within
(05:45):
the borders of the United States, but it is owned
and operated by a foreign company, but an ally even so,
and so there was a lot of fear that communications
could be compromised, that it could result in spies spying
on American intelligence that's passing through, if it's if it's
(06:08):
passing through a foreign owned companies system, there was no
way of knowing that the official communications through the US
government we're going to be safe. So did they just
cut us off from all other radio communications. No, they
kind of went even more crazy paranoid than that, So
(06:30):
I shouldn't say crazy paranoid, It was definitely ruthless. So
first you have the United States Navy saying that you
know what we're gonna do. We're gonna have um, We're
going to enforce an executive order that President Woodrow Wilson signed,
and that that order was giving the Navy authority to
censor communications that were passing through the Marconi network. So,
(06:56):
as you can imagine, if you're a communications company, sensors
is not something you want to have happen, you know,
you don't obviously it would cast doubt on your ability
to fulfill your promise to your customers. So the Marconi
company says, this don't sound right, so they challenged it. Alright,
(07:16):
So yeah, yeah, you're thinking, like, well that you gotta
take some steps to protect your business. This can't be
this can't be legal. The Navy ended up responding in
a very reasonable way by shutting down all US operations
of Marconi in nineteen fifteen for about three months. That
(07:40):
it's kind of like my very narrow definition of reasonable.
It's like my threat that I would go into talking
about the invention of radio. It's it's sort of, you know,
the definitely the stick, not the carrot. And they decided
that it was too risky to trust that Marconi would
obey the executive order. The the the authority of that
(08:03):
the Navy supposedly had to censor them, so they took
all the assets, the North American assets, the towers in
the stations, yes, all the all the equipment being used
to transmit communications. The government said, this is no longer yours.
So this is a case where the U. S Government
effectively rested the corporate assets of another of a foreign
(08:26):
owned you know, business, away from that business. I okay,
so what does that even accomplish? Okay, Well, for one thing,
fled the US military had its own communication system. I mean,
because the Marconi didn't have it any I'm pretty sure
they were already more coding each other, right, yeah, but
now they could do it wirelessly. It was so cool. Uh.
(08:50):
And also more importantly, from a national security standpoint, I mean,
I would argue that this was definitely a crazy case
of overreach, but this also meant from a national security standpoint,
which is it's hard to argue it did make the
country more secure against foreign spies, you know, from espionage,
(09:12):
from from uh sabotage of communications networks. I mean, I
guess it's better to be over cautious than not cautious
enough during a time of war, but it is it's
tough because you think about that. If we heard a
story today about the United States government taking over. Let's
say that it's a a social network that was owned
(09:33):
by a company that existed outside the United States, and
it's at a point where we're seeing a lot of
chatter on social networks, uh, that the government might say, well,
we're gonna shut either shut down access to this or
we're going to somehow rest control of facilities in the
United States that belonged to this company. That would there
(09:56):
would be a riot, there would be all right, but
I mean eventually the war is over, yes, and then
we can just return it. No. No, they decided that
what that would be better if an American company owned
it rather than a foreign company, Like, well, we could
make an arrangement to return this to the formerly rightful
(10:17):
owners of the equipment. But if this should happen again,
we'll just have to take it back. Why don't we
just create an all American organization to oversee it. Oh man,
poor Marconi, Well, poor Tesla. But that's a different story
for everybody. Yeah, So the decision was made that there
(10:39):
needed to be an American company or organization to oversee
these various broadcast stations and other assets. So they consulted,
consulted with a group of companies that together formed a
partnership that would create this organization. And those companies were
(11:00):
huge still are huge names all all radio companies, right well,
all sorts of companies that were somewhat uh connected to
the radio industry and that they would make the stuff
that radios would either like the either radio would play
on or transmit through. So they had a vested interest. Obviously.
These are companies that were making either products or services
(11:22):
that the radio industry would depend upon. So it's almost
like saying uh to Coca Cola, like let's say, alright,
Coca Cola, you make soft drinks, We're gonna make you
in charge of all distribution of soft drinks throughout the
United States. And Coca Cola says that's great. All right.
So I know one of the companies because it came
into play in our CBS episode, and that's Westinghouse. Yep.
(11:46):
Westinghouse was one Western Electric, General Electric, A T and T.
And the United Fruit Company. One of these things is
not like the other. You need your energy to morse
code people. Okay, so fruit, it's full of energy. Here's
(12:08):
the thing about the United Fruit Company. That story is crazy.
We'll have to do an episode about United Fruit Company
at some point because you've heard you've probably have you
ever heard the phrase like a banana republic? Okay, I
bought some of their clothes. Now I've heard the phrase
to But have you also heard of things like banana wars? Okay?
(12:31):
So if you start looking into those things and you
look at the conflict and the controversy of American businesses
in tropical regions and how they destabilized entire regions in
order to do business, United Fruit Trade Company or the
United Fruit Company rather comes up a lot in those
(12:53):
But for the importance of this episode, they also owned
and operated their own radio and telegraph company. So that's
why they were brought in on this as well, and
why this company that would otherwise seem like an outlier
was an important part. Okay. So all these companies come
together and they form our c A. Yep, they do that,
(13:14):
and by nineteen nineteen r c A is a thing.
General Electric would be the primary owner of this organization,
not the soul owner, but I had like a majority
share essentially, and uh. In order to avoid having any
problems with each other, they all agreed they would cross
(13:35):
license their individual patents to this company. So that way,
no one partner in the in the in the group
would say, oh, no, you can't use this particular technology
unless you pay us X amount of money and then
we'll let you do it. Seems reasonable. Yeah, So this
way no one could hold out on anyone else. That
(13:56):
was the premise anyway. Uh. And they then had to
figure out who was going to be the leader obviously, right, okay.
Neither of those First of all, neither of them, neither
of them were considered fit to be to own a
company or to run a company in America at that time.
So no, they turned to someone else who also would
(14:19):
have seemed unlikely if you had just had a cursory
look at his history. And that was a man named
David so Close. I'm sorry, I've had very little sleepy guys. Yeah,
is it extra fun? Yeah? I made me look to
make sure I didn't end up writing Smernof. Okay, please don't, please,
please don't okay, okay, So Sarnof. He he becomes the
(14:42):
general manager. And the reason he was general manager not
president is that our c A was not really an
independent company yet. It was this kind of group concern.
So it's a weird it. It occupied a weird space
in the in the spectrum that we look at for
corporate rations, because it was it was a partnership, it
(15:02):
was an organization. It was sort of a company. I
mean that corporation was in its name, but Sarnov was
considered a general manager because it was operating under the
auspices of these larger, shadowy partners in the background. So
Sarnov was interesting because he was originally born in Russia,
not in the United States. His family did immigrate to
(15:24):
the States when he was just a boy, though, so
it wasn't like he had grown up and then and
then immigrated to the United States. He wasn't living in
Russia when he took over the company. That would defeat
the purpose of keeping he would have said, hey, what's up, really, guys,
or actually the really it would have been the British
company owners of the Marconi Company, saying, excuse me, Chap,
(15:47):
what in fact is up? I do to quite understand
what's going on. But Saranov had been a kind of
in the business since he was a child. As a teenager,
he worked as a message your boy for a telegraph company.
He then worked his way up to becoming an actual
telegraph operator, and he worked for the American Marconi Company,
(16:08):
the same one that the United States had arrested all
its assets from. So I mean it feels to me
like that's not succession planning, but still a very wise move.
He's already familiar well, and he had proven himself to
be incredibly ambitious and innovative. He had quickly risen through
(16:29):
the ranks over at the American Marconi Company. So he
was really like a good candidate, like he he knew
his stuff, and he seemed like the kind of guy
who was gonna just push this this business to greater heights.
And in fact, that's exactly what he would do. Well,
(16:49):
and you have this note here that he even picked
up a distress signal from the Titanic. Well that's what
he said. Yeah, he claimed that in nineteen twelve he
was one of the radio operators who picked up the
Titanics distress signals. There were other reports that disputed that
and said what he actually picked up was a response
to the Titanics distress call, so he picked up one
(17:11):
of the rescue ships responses. So he however, would relay
the story as being him him like he sat he
sat at his at his telegraph office for like twenty
six hours straight or whatever. This is a side track, though,
Let's let's get back to his partner. So the two
(17:35):
two businesses that he was really focusing on early on
were essentially wireless communications. So again it's still telegraphs and
which would mean building out more towers and stations to
build out more of an infrastructure for that communications system.
In the United States, and through its partners, it was
(17:57):
selling industrial radio equipment, so we're talking about like against
stuff for the transmission and reception of radio waves on
a major scale. It's not like radio sets that you
would buy and take home and tune in, but rather
these were again the component parts for a communication system.
And it's important to say that because at this point
(18:20):
our cier is not making stuff for the general consumer.
But one of the interesting things about technology is that
when a new technology starts to blossom, regular ordinary schmos
like it. Yeah, they want to, they want to learn
how it works, they wanna they get interested, they're fascinated
by it. And as it turns out, building a radio
(18:44):
it requires a little bit of knowledge, but not a
whole lot in materials and so you started seeing people
building their own radios, and you saw the rise of
a new species, the amateur radio operator, A right tech guy.
We're gonna we're gonna talk about that, but first we're
gonna take a quick break. Al right, So tell us
(19:10):
more about this amateur radio bloom. Well, it had had
a bit of a delay on it because during World
War One the United States said no, no, no, because
they wanted the air waves clear for official communications. But
once that was over, the band lifted on October one,
nineteen uh and now the general public was starting to
(19:32):
get interested, at least the hobbyists in the general public
are starting to get interested in radios. And then on
top of that, you had Westinghouse, one of the partners
behind our CIA, that wanted to make radio sets for
the general public. But here's the problem. How do you
convince somebody to go out and buy a radio set?
You give them a free puppy with it. Oh, that's
(19:54):
one way, but I mean, like you asked me the question, John, Okay,
Well that's how we would get you to buy radio set.
But for the general public, the problem was that why
are you going to listen to? Right, there's nothing there's
nothing to listen to. Beeps and boops are not Dots
and dashes are not very entertaining. So it meant that
Westinghouse said, well, what we need to do is create
(20:16):
a station that would broadcast something that a radio set
could pick up and play. And this is where you're
talking about actually broadcasting speech and music real you know,
audio to these stations now radio sets now to be clear,
on an experimental level, this has already been done. It
wasn't like Westinghouse was inventing the radio set, but no
(20:39):
one had done it on beyond a hobbyist level, or
beyond a couple of sort of almost like PR stunts.
But I mean he set up an actual radio station.
In nineteen twenty, they created they got the license to
operate the first UH radio broadcast station. This was where
it was all new. The United States is having to
(21:00):
come up with a way to license this stuff because
no one had done it before. The radio station was
k d k A in Pittsburgh, Pennsylvania. Yeah, yeah, and UH.
It went live on November two, nineteen twenty, and Sara
and r C were not part of this yet, but
(21:20):
Sarna had already proposed in his earlier work at the
Marconi company something called he was calling it a radio
music box, which was essentially a radio set. So this
was much, very much in line with things that he
had been thinking about for years. So he thought, let's
create more demand for radio sets. He arranged for the
(21:43):
radio broadcast of a sporting event, which was the boxing
match between Jack Dempsey. It was a world famous boxing
champion and he was going up against George Carpentier, who
was a French boxer who had a reputation for knocking
out British boxing champions. Also Dempsey, and this one, oddly enough,
(22:03):
was considered the villain, even though he was American and
this was a fight that was going to happen on
America soil. He was considered to be the villain of
this boxing match. You know often we think about in
terms in that way, and it was because he did
not fight in World War One but Carpentier did. Interesting, yeah, uh,
Dempsey would win by knockout in the fourth round, right,
(22:26):
so bad guy wins, all right. Anyway, our c A
would then, uh try to leverage this to sell more
radio sets, and it started to work. So then you
started to see entrepreneurs across the United States established their
own radio stations. And this was early on, so radio
(22:48):
stations were largely independent. They were, you know, just it
was a regional thing. They had a wide range of
transmission power, so in some cases you might only transmit
a few miles, other it might be a full region.
So that means that you didn't have to listen to
a lot of commercials on your radio, right well, especially
early on, you didn't because it was such a new idea,
(23:08):
but eventually got to the point where it was sponsored content.
So you would have a company say all right, well,
we will offer to pay for the production of this
radio content if in turn, you'll say our name every
X number of minutes. Uh. And then eventually you would
actually get to radio advertising, so radio commercials would start
(23:30):
to become a thing by and then by there were
more than six radio stations in the United States, so
it took off. So our CIA is doing business like
gangbusters because again they're selling the actual transmission components, so
they're doing really well. And then their various partners are
(23:51):
selling a lot of the the radio sets. So everyone's happy.
Gat No, we got whole much more to talk about.
But then starn off is thinking all right, well, what
if we create a network of radio stations, so not
just these independent stations that are everywhere. What if we
(24:14):
we create a network so that we can make content
in a centralized location and then broadcast that out too
different stations in this network, and then you can have
the same radio content going out to listeners across an
entire cboard or even across the entire United States. It
sounds like a good improvement in the process. Yes, it
(24:37):
also would cause headaches for our c a later, but
they decided, all right, we're gonna make a network. We're
going to actually create two networks, but they're going to
be lumped under the same designation. That designation was the
National Broadcasting Company started off as the radio network, not
(24:59):
a TV network. And uh, it's interesting because there were
two parallel independent networks under NBC. They were called Red
and Blue rooster cheeth. Yes, it was like roost teeth.
Now they were largely similar, but over time they would
(25:22):
have slightly different programming. Really, it was just a way
of organizing the networks. They had different kind of central
radio stations as their HQ, but you had two separate ones.
You had the Blue network the Red Network, but they
were both in BC, so they were both identified as NBC.
One of the other interesting things we can actually i'll
(25:43):
talk about it now for right now, because here's the
crazy thing about NBC. You can argue the NBC was
the creation of all three of the classic major United
States networks. So you know we've got the four now.
You would argue you have NBC, ABC, CBS, and Fox.
(26:03):
Take Fox out because for a long time it was
just ABC, NBC and CBS. Again we covered that in
our CBS episode. So NBC, uh was very picky about
what programming it would carry. And you had this talent
agent named Arthur Judson, and he was frustrated because the
(26:25):
talent he represented he wanted to get them on NBC,
but NBC wasn't picking them up. So he thought, well, fine,
I'll go make my own radio network, and he did.
He created one. It was called United Independent Broadcasters and
he founded that but uh, it didn't go over well.
He wasn't able to really get good financing for it.
(26:48):
It was losing money, and so then a wealthy dude
named william S. Paley comes along and he ends up
buying the United Independent Broadcasters reworks at Re names it
and calls it the Columbia Broadcasting System or CBS. So
the reason CBS existed in the beginning was because there
(27:11):
was this group of talent that couldn't get work at NBC.
So if NBC had hired them, CBS maybe never would
have exist existed, which is kind of interesting. But if
you want to hear about that, listen to our CBS episode. Yes,
back back to our c A nine. They got majority
share in the Victor Talking Machine company made Victrola's and gramophones.
(27:33):
So if you I'm sure you've seen the logo of
the dog cocking its head looking at the phonographs vitrola, Yeah,
which you know, I know is the r c A. Yeah,
it's because it was the Victor Talking Machine logo. Then
our c A acquired them, and then they used that
logo for some of our particularly for our CIA records,
(27:56):
but for some of their their divisions. So yeah, that logo,
by the way, is specifically called his Master's Voice, and
the dog's name is Nipper, so called because he would
nip the backs of legs of people who came to
visit his master. Um. Yeah, funny little story. So this
would be the moment when our ci A would actually
(28:16):
get into consumer electronics. This rise of radio. Our CIA
was again looking at just doing the industrial stuff. Yeah,
I mean they were like toying with the idea. Yeah,
and their partners were selling consumer electronics, so like Westinghouse
was doing it, but our c A itself had not
been doing it up to this point. But now they
(28:38):
had bought a company that was making consumer electronics, so
they start selling. But this puts some in competition with Columbia, right, Yes,
it did, and it would get pretty ugly. So Columbia
now is in competition with them on two different fronts.
There's the consumer electronics front in the sense of that
(28:58):
the gramophone and Victrolas and things like that, as well
as the music that was being sold for those things.
That was one level of competition. The other being that
now our CIA is operating or is the parent company
of NBC, and NBC is competing against CBS. Columbia had
been part of CBS UM. So yeah, this would be
(29:23):
the beginning of a fierce competition between our CIA and Columbia.
But we'll tell you guys about that right after this break. Alright,
we're gonna get into some ugly stuff. Because Sarnoff is
a sort of take no prisoners kind of guy. He
(29:44):
seems like it very very driven. Driven is a good
word for it. So big year for our ci A.
For one thing, our c A would buy a chain
of movie theaters called the Keith Albi or Fheum chain
of Theaters, and also acquired the film booking Offices of America.
Then it took those two things and collided them in
(30:05):
a weird way, squishing them together to create a new thing,
something that Ariel and I know a lot about, but
that's a different show, and merged them into a new
company called Radio keith Or Pictures better known as r
k O Pictures. Anyone who's a big fan of Rocky
Horror Picture Show, like Jonathan Yep, they're very familiar with
(30:26):
r KO because there it's referenced a lot in that
particular movie. Al Right, So why did they why did
they get into the theater business? This is this is
another one of these. So you remember how Westinghouse needed
to have something to play on radios in order for
people to go buy radio sets. Very similar, our CIA
(30:47):
had come up with a way to pair audio with
images in film okay, So they needed a place to
present that audio exactly. They needed to have theaters that
would run the equipment that would show these films, because
otherwise they were having to come into competition with established
(31:08):
film companies that were also trying to market their own
audio to film UH technologies. So this was a race
to establish the standard. I've been to a lot of movies.
It seems like our c A is the standard. It is.
It eventually became that. So it ended up working. Our
CIA was able to establish that its methodology would become
(31:32):
the basis for the standard of UH film audio. And
I won't go into how it works super technical, but
it was you know, just imagine that you have all
these different companies that are all trying to become the standard.
They're all competing. It's very frustrating, right if you're if
you own an independent movie theater, you might have to
(31:55):
operate several different types of projectors in order to be
a to show any given film because it could have
been shot using a different standard or a different approach.
By standardizing it, then movie theater operators were saying, oh good,
now I know no matter who I get a movie from,
I can show it in my theater because it will
work on the same piece of equipment. So it's very important.
(32:18):
And our CIA of course wanted to be the company
to do that because you can make bookoo's a buckos
by licensing out that technology. Yeah, I worked out really well.
We're not done, by the way. Yeah. So this was
also when Sarnoff became interested in studying something that had
not yet fully come into being, and that would be
(32:40):
electronic television. There had been mechanical television's I won't go
into that either, but it is weird, and there weren't
a whole lot of them. Not a lot of people
own a mechanical television, um, but the electronic television seemed
to be pretty promising. So Sarnoff met with a Westinghouse
engineer and remember Westinghouse was one of the partners, and
(33:03):
this was a guy named Vladimir Zwarakin. Have you ever
heard about the inventor of TV? I I have a
little bit. Again, we talked about there was like CBS
made a TV, Narcier made a TV and then they
had some fights over it. Yeah, that's going to be
a part of this conversation. Yea. So so that's what
(33:24):
I know about the invention of TV. So if you
ask the average like tech savvy, health history buff person,
who the inventor of TV is, they typically say Filo Farnsworth,
And that's that's fair. Filow Farnsworth did a lot to
create electronic TV. Vladimir's Warkin was also working on the
(33:45):
same concept at the same time, and the two of
them were both kind of rushing to develop this, like
Edison and Tesla or mar Marconi and Tesla for anyone
else in Tesla and and and in this case, Farnsworth
would be the Tesla of that that he was sort
(34:06):
of given a raw end of the deal because Sarnoff
ends up bringing Zorekin over to our c A. So
Zorekin leaves Westinghouse, joins our c A r c A
creates a whole R and D division that Zorekin gets
to use as his personal laboratory. And they also decide
(34:26):
that in order to squelch Farnsworth so that he can't
he can't stand his competition, they're gonna fi file a
whole bunch of lawsuits against Farnsworth, intellectual property lawsuits. Farnsworth
fully believed and ended up being right, that his claims
(34:47):
were valid that he was not violating their intellectual property.
They were in fact violating his intellectual property. But here's
the thing about those I P lawsuits. They drag on
for a very long time. So Farnsworth was kind of
a broken man by the end of it. But it
seems it seems like um an unwise battle to be
(35:10):
having because this is around the time of the Great Depression,
right yep, that's having well. But and Great Depression was
hitting a lot of business is really hard. But there
were certain businesses that were actually doing fairly well. Movie
theater businesses were doing all right. And so it was
radio because people wanted an escape, so they were pouring
(35:30):
a lot of money into R and D for television,
in fact, a crazy amount. It was like fifty million dollars, yeah,
over over the course of more than a decade. But
still and they were still doing quite well with radio.
President Roosevelt b f Dr. Franklin Roosevelt. Uh. Yeah. He
was using radio to connect with citizens who were enduring
(35:53):
economic hardships. It was creating sort of a national identity
using radio. So people didn't have a whole money to spare,
but those who were saving up would often save up
to get something like a radio set would help them
get entertainment, they would get news, so it was still
a booming business. Okay, but how we're consumer electrics doing?
(36:14):
How were the TVs doing, because that's what they were
fighting over. Well, they didn't really do much of anything
at all at first, because um coming out with a
brand new technology that's expensive at a time when people
are enduring severe economic hardship turns out not the best
time to launch a new product. Okay, So what did
our c A do in the interim? They focused on
(36:36):
the radio stuff as much as they could, but they
weren't able to really move some of their other products.
They came out with a new type of record player
that would play records that get this, thirty three and
a third revolutions per minute. Okay, they used to play
him at seventy eight revolution. That doesn't seem very good.
(36:58):
Going into this would also require a technical description, but anyway,
are the important The interesting thing to me is that
our CIA tried to come out with a thirty three
and a third RPM record. It did not do well
because they tried to launch it in the Great Depression.
Nobody could afford a new radio or new record player essentially,
so they didn't go anywhere, and for a long time,
(37:19):
the thirty three and a third uh version of records
was just off the table. But so I was another
failure on our CIA's part. They weren't making any headway
with TV yet. Uh, they were not doing well with
the phonograph. They were still doing well with radio. But well,
we'll wrap this episode up because we're already running along
(37:41):
and we have to get into the decline of our
CIA in our next one. But we're getting up to
ninety two, so still great depression era. But the US
federal government now was starting to get a little a
little worried about our c A because our ci A
was so dominant in its industry. I mean, they were
(38:02):
made up of a bunch of really big companies and
they were like incredibly powerful. The government said, you know what,
you're essentially a monopoly, and the r c A is like, uh, yeah,
you made us, And the government said no, no, no,
that was like a couple of administrations ago. So technically
we didn't make you, and so we'd kind of like
(38:23):
you to break up now. And uh, our ci A
did not break up, but the partnership that formed our Cier.
What they did was they sold their their stake in
our c A to our cia itself. So our ci A,
the entity buys up its own shares, so kind of
like a spinoff, kind of like yeah, spinning it off
(38:45):
so that it becomes its own independent company, and our
ci A would become the r c A Corporation, which
is why I think it's funny, because it's the Radio
Corporation of America Corporation. Just in case you didn't get
it the first time, Uh I see here, David Sarnoff
became the president. Yes, at that point, so now he
(39:07):
goes from general manager to president of our ci because
our ci A now is its own independent company, and
he would continue to lead our ci A. And that
will become very important in our next episode. And if
you've listened to a lot of business on the Brink,
you probably are already anticipating where this is gonna go,
which is where we tell stories about how changes in
(39:28):
leadership can have a big impact on a company. Yes,
but in the meantime, if this has inspired you to
ask us to talk about a different company, you can
email us. Where can they do that, Jonathan? That could
be at feedback at the Brink podcast dot show. Also
you can go to the Brink podcast dot show and
look up all kinds of information about Jonathan and me
(39:51):
our past episodes, uh, anything like that. Yep, and uh
we promise that in future episodes Ariel will talk a
lot more than I will. Just in this particular one,
I went bonkers because I was like, I've got so
many notes on this well, and it's so like there's
so much technical information, and you are like a technical maven.
(40:11):
I just didn't want to get too bogged down in
any of the technical details. And that's that's you know,
It's it's tough because when you're talking about a company
like r c A, it's it's business history is deeply
tied to the technology it was creating. But yes, in
our next episode, we'll find out how this this company
that started as Monopoly got spun off and was still
(40:33):
a very dominant player in the space and would continue
to be so, largely because of David Sarnoff. We're going
to see how that company could go to a point
where I would say that since nine it doesn't even
really exist anymore. All right, I look forward to that.
All right, see you guys next time, I'm Jonathan Strickland
and I'm Aerial Castan. Business on the Brink is a
(40:55):
production of I Heart Radio and How Stuff Works. For
more podcasts for my heart Radio, visit the I heart
Radio app, Apple Podcasts, or wherever you listen to your
favorite shows.
Business on the Brink News
Hosts And Creators
Jonathan Strickland
Ariel Kristen Kasten
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