TOC | Previous Section: Chapter I | Next Section: Chapter III
Report on Chain Broadcasting, U. S. Federal Communications Commission, May, 1941, pages 9-20:


II.  THE  RADIO  CORPORATION  OF  AMERICA  AND  THE  NATIONAL  BROADCASTING  COMPANY

    In examining the history and structure of the largest national network organization--NBC--it is essential to bear in mind that it is a wholly owned subsidiary of the Radio Corporation of America. NBC is but a branch--though an important branch--of a vast corporate enterprise which straddles the fields of communications, radio-equipment manufacturing, and entertainment. The position of NBC in the field of broadcasting cannot be fully understood nor properly evaluated without some grasp of the history and activities of RCA.

A.  HISTORY  AND  ACTIVITIES  OF  RCA

    The Radio Corporation of America was incorporated in Delaware on October 17, 1919,1 a full year before the dawn of radio broadcasting. At that time the business of wireless was primarily point-to-point and ship-to-shore communication for the transmission of messages, and the determination of location and direction by means of the radio compass. Substantially all commercial wireless communication in the United States was then carried on by the Marconi "Wireless Telegraph Co. of America (American Marconi Co.) which was controlled by Marconi's Wireless Telegraph Co.. Ltd. (British Marconi Co.).2 A number of American-controlled companies, however, were carrying on research in the radio field, manufacturing radio apparatus, and holding important radio patents. Among these were the General Electric Co., the Westinghouse Electric and Manufacturing Co., and the Western Electric Co., the manufacturing subsidiary of the American Telephone & Telegraph Co.3
    The patent situation had become an obstacle to the development of radio, for each manufacturer needed patented devices controlled by others. Since there was no general cross-licensing of patents among the manufacturers, each company was vulnerable to patent infringement suits. The taking over of all wireless stations by the Government after the declaration of war in April 1917 radically altered the patent situation. Under its war-time control the Government was able to combine the patents and scientific resources of all electrical manufacturers. Thus manufacturers producing apparatus for the Government could use the patents and inventions of others indiscriminately without remuneration to the owners of patents, whose only redress was the filing of claims for damages against the United States in the Court of Claims. As a result of combining various patented inventions, new devices were developed out of which came practical radiotelephone transmitters satisfactory for war-time purposes.4 This intermingling of patents worked well as long as the industry was on a war-time basis under Government control, and while claims for patent infringement were being subordinated to the urgent necessity of developing and maintaining an efficient communications system. But it was anticipated that much confusion in the patent field would result upon the return of the wireless stations to their owners.5 The creation of RCA was related both to the patent tangle, and to a desire that American radio-communications should not be under foreign control. In the spring of 1919, the General Electric Co. had been negotiating for the sale to the British Marconi interests of exclusive rights in the Alexanderson alternator, a patented device which at that time was considered of critical importance in long-distance radio transmission. Rear Admiral W. H. G. Bullard, then Director of Naval Communications, opposed the transfer of this device to foreign control. Instead of selling these rights, General Electric evolved a comprehensive plan under which the British stock interest in the American Marconi Co. would be purchased, and a new corporation formed which would take over the business of the American Marconi Co., and use and license others to use the patents held by General Electric, the American Marconi Co., and other companies. In pursuance of this plan, RCA was formed; in November 1919 it absorbed the American Marconi Co. and entered into a cross-licensing agreement with the General Electric Co., which acquired a large block of RCA stock.6 When Federal operation of radio stations terminated, RCA embarked upon the activities which were to make it the leading American radio-communications company. In 1920 and 1921 additional cross-licensing agreements were concluded which involved, in addition to General Electric and RCA, the Telephone Co. (including its manufacturing subsidiary, the Western Electric Co.) and Westinghouse.7 As a result of these agreements: (1) General Electric and Westinghouse obtained the exclusive right to manufacture radio receiving sets; (2) RCA obtained the exclusive right to sell radio receiving sets, which were to be purchased by RCA from General Electric and Westinghouse in the proportion of 60 and 40 percent; (3) the Telephone Co. was granted the exclusive right to make, lease, and sell broadcasting transmitters.8
    In connection with all these agreements, General Electric. Westinghouse, and the Telephone Co. obtained substantial stock interests in RCA.9 The Telephone Co. had disposed of its RCA stock by January 18, 1923, but Westinghouse and the General Electric Co. did not divest themselves of their interest in R. C. A. until after 1932, when a consent decree was entered as a result of an antitrust action brought by the Department of Justice.10

1.  Communications  activities  of  RCA

    As may be seen from the foregoing account, RCA was formed before the days of broadcasting, primarily for the purpose of carrying on communications activities. Its operations during the first 2 years of its existence may be summarized as follows: Supplying radio apparatus to ships; maintaining radio communication between ships and from ship to shore; furnishing transoceanic point-to-point radio communication service; and selling the parts used by amateurs and experimenters in assembling radio sets.11
    During 1921, RCA's gross income from its transoceanic communications activity amounted to $2,138,626.12 The volume of this business thereafter increased, but rather conservatively. In 1929 RCA formed a subsidiary corporation--R. C. A. Communications, Inc.--to carry on its international and domestic point-to-point radio communications business. From 1929 to 1932 the revenues of this subsidiary averaged about $4,250,000 per year.13
    At the end of 1927, RCA's marine radio business was also turned over to a new wholly owned subsidiary, the Radiomarine Corporation of America. Radiomarine took over ship-to-shore and ship-to-ship communication, the installation of radio apparatus on shipboard, and the operation of coastal stations that communicate with ships.14

2.  RCA's  radio  manufacturing  and  selling  activities

    As set forth above, under the 1920 cross-licensing agreements RCA became the sole sales agent for radio receiving sets manufactured by General Electric and Westinghouse.15 The development of broadcasting caused the demand for these sets to grow by leaps and bounds. During 1921, RCA's gross sales were only $1,468,920, or about two-thirds as much as its total revenues from transoceanic communication. The next year the gross sales had increased, to $11,280,489, or nearly four times that year's total revenues from trans-oceanic communication.16 By 1924, gross sales totaled about $50,000,000.17 In September 1926, RCA announced that it was the largest distributor of radio receiving sets in the world.18 Thereafter RCA granted licenses to a number of radio set manufacturers,19 but continued as one of the outstanding sellers of receiving sets.
    In 1930 RCA spread into the manufacturing of receiving sets. In that year RCA acquired the right to manufacture as well as sell radio receivers, by virtue of an agreement between RCA, General Electric, and Westinghouse.20 It occupies a leading position in that field today.
    In connection with the sale of station WEAF and the Telephone Co. network to RCA in 1926, a new cross-licensing agreement was executed whereby the Telephone Co. granted to the Radio Group the nonexclusive right to manufacture, lease, and sell broadcast transmitting equipment, thus relinquishing its claim to the exclusive right with respect to such equipment which it had asserted under the 1920 agreement.21 Within the Radio Group, RCA's early role with respect to broadcast transmitting equipment was that of sales agent. Under the new agreements entered into pursuant to the 1932 consent decree, RCA acquired the right to manufacture as well as sell such apparatus.22 Since that time RCA has been a leading manufacturer in this field.
    RCA is also prominent in other phases of radio manufacturing and selling. Until the expiration of an important patent in November 1922, RCA controlled the manufacture, sale, and use of all forms of radio tubes, and it has retained a substantial portion of the business since that time.23
    For about the first decade of its corporate existence RCA carried on substantially all its manufacturing and selling activities under its own name. On December 26, 1929, RCA Radiotron Co., Inc. was incorporated by RCA to engage in the manufacture and sale of radio tubes.24
    At the same time RCA Victor Co., Inc. was incorporated by RCA to take over the assets and business of the Victor Talking Machine Co. with respect to phonographs and records, and the manufacturing and sales rights of RCA with respect to radio apparatus.25 On January 1, 1932, RCA transferred its investment in RCA Photophone, Inc., to RCA Victor Co., Inc.26 In January 1935 RCA Radiotron Co., Inc., and RCA Victor Co., Inc., were merged into a new company called RCA Manufacturing Co., Inc.,27 which has become the manufacturing subsidiary of the RCA system. In addition to radio receiving sets, transmitters, and tubes, phonographs and records, RCA Manufacturing Co. now makes transcriptions, sound equipment for both motion-picture studios and theaters, and public-address systems, as well as motion picture and radio equipment for amateurs, electron microscopes, electronic pianos, television transmitters and receivers, radio compasses, communications equipment, and a variety of other products.

3 . RCA's  interest  in  the  motion-picture  industry

    In the fall of 1927, RCA acquired a foothold in the motion-picture industry by the purchase of blocks of stock in Film Booking Office (FBO), which operated studios for the production of motion pictures.28 In April 1928 RCA Photophone, Inc., was organized by the Radio Group to develop apparatus for synchronizing motion pictures with sound,29 and it entered into competition with Electrical Research Products, Inc., a subsidiary of Western Electric, which had already occupied a large segment of this field.30
    On October 25, 1928, Radio-Keith-Orpheum Corporation (RKO) was formed by a merger of FBO and Keith-Albee-Orpheum Corporation (KAO), a company operating vaudeville and motion-picture theaters, and stock in RKO was issued in exchange for outstanding shares of KAO and FBO.31 There were two classes of RKO stock, having equal voting rights: Class A with 3,500,000 shares authorized and 1,212,992 issued, and class B with 500,000 shares authorized and issued. All of the class B stock was issued to RCA. RCA Photophone, Inc., then granted to RKO and its subsidiaries engaged in the production of motion pictures a non-exclusive license for the use of its sound-recording equipment.32
    RKO also obtained direct and indirect interests in approximately 150 companies engaged primarily in operating theaters in cities through the United States and Canada and in producing motion pictures and distributing them throughout the world.33 The theaters in which RKO had an interest also furnished a market for the sound-reproducing equipment manufactured by RCA Photophone, Inc.34
    In 1930 RCA held approximately 25 percent, and in 1932 approximately 61 percent, of the outstanding stock of RKO.35 In 1935 RCA sold one-half of its holdings in RKO to the Atlas Corporation for $5,000,000 cash and gave an option on the remainder at $6,000,000, which was to remain in effect until December 31, 1937.36 In 1936 this option was extended to June 30, 1938, because of the reorganization of RKO.37 In 1939 the president of RCA testified that the option had not been exercised and had lapsed, and that at that time RCA held between 12 and 15 percent of the stock of RK0.38

4.  RCA's  phonograph  and  recording  business

    The interrelation of the phonograph and the radio was early recognized by RCA. In 1924 RCA entered into a contract with Brunswick-Balke-Collender Co. for the sale of radio apparatus for use in connection with combination radio-phonograph instruments,39 and the following year a similar contract was made by RCA with Victor Talking Machine Co.40 Both contracts provided that the recording artists of the phonograph companies were to broadcast over the facilities of the RCA stations.
    On March 15, 1929. RCA acquired a majority, and within about 2 months 96 percent, of the capital stock of Victor Talking Machine Co. In 1928 Victor's assets had been $68,312,482; its gross sales, $52,064,419, and its net income $7,324,019.41 RCA Victor Co., Inc., was incorporated by RCA on December 26, 1929, and took over the assets and the manufacturing and sales activities of the Victor Talking Machine Co., as well as the manufacturing and sales rights of RCA with respect to radio apparatus.42
    As part of the transaction whereby RCA acquired stock in Victor Talking Machine Co., it also acquired the 50-percent stock interest in Gramophone Co., Ltd., of Great Britain, previously held by Victor. Gramophone Co., Ltd., had exclusive rights to manufacture and distribute Victor products in Great Britain and other foreign markets.43 During 1931 Gramophone Co., Ltd., merged writh Columbia Graphaphone Co., Ltd., to form Electric & Musical Industries, Ltd.44 RCA's interest in this newly formed company was 29.2 percent of the "ordinary" stock and 0.02 percent of the preferred stock.45 In 1935 RCA sold its holdings in Electric & Musical Industries, Ltd., to British interests for $10,225,917.46

B.  THE  NATIONAL  BROADCASTING  CO.

    The early history of RCA's broadcasting activities has been set forth, in the preceding chapter. These activities were, after 1926, concentrated by RCA in its subsidiary, NBC, which took over WEAF and the old Telephone Co. network. Thereafter, NBC, pursuant to its understanding with the Telephone Co., discontinued the use of telegraph lines and used Telephone Co. long lines exclusively for connections Between stations.47 On the business side, NBC continued to sell time to advertisers, a policy which had been inaugurated by the Telephone Co. at station WEAF, and since that time about 90 percent of its total revenues has come from that source.

1.  Increase  in  number  of  NBC  outlets

    On November 1, 1926, there were 19 stations regularly on the NBC network. The number has steadily increased since that time. By January 1, 1928, there were 48 outlets. On December 23, 1928, the first permanent transcontinental network was instituted by NBC, composed of 56 permanent network stations. There were 154 outlet stations as of September 1, 1938, and as of December 31, 1940, the number had increased to 214. The following chart shows the increase in the number of NBC outlets:48
 
[Figures prior to Nov. 1, 1926, are for the Telephone Co. network]
Date (end of year) Number
of NBC
outlets		 Approximate
percentage of
NBC outlets
to total num-
ber of licensed
stations		   Date (end of year) Number
of NBC
outlets		 Approximate
percentage of
NBC outlets
to total num-
ber of licensed
stations
1923 
1924 
1925 
1926 1
1927 
1928 
1929 
1930 
1931 
1932 		  2
 7
 15
 19
 48
 56
 69
 72
 83
 85		  0.3
 1.3
 2.6
 2.6
 6.9
 8.3
 11.2
 11.9
 13.8
 14.2		 1933 
1934 
1935 
1936 
1937 
1938 2
1940 3
1940 
1941 3		  85
 86
 87
 103
 138
 161
 178
 214
 221		  14.6
 14.7
 14.1
 15.9
 20.0
 22.3
 23.3
 25.8
 26.4
    1 Nov. 1.
    2 Nov. 30.
    3 Feb. 1.

    Since the time of its organization, NBC has operated two networks, the Red and the Blue. In many cases they use the same facilities and stations. As of September 1, 1938, when there were 154 NBC outlets, 23 composed the basic Red network and 24 composed the basic Blue network. Supplementing these basic networks were 107 stations, of which one was available only to the basic Red network, six were available only to the basic Blue network, and the remainder available to either.

2.  Stations  owned  or  controlled  by  NBC

    NBC acquired station WEAF by purchase from the Telephone Co. in 1926, and WEAF became the key station of NBC's Red network. Prior to 1926, RCA had constructed and was operating station WJZ in New York and WRC in Washington. NBC's other network, the Blue, was based on WJZ, although title to WJZ and WRC was not formally transferred from RCA to NBC until 1930. Since 1926 NBC has purchased or leased, and has become the licensee of, 7 other stations located in important radio markets. The 10 stations of which NBC is now the licensee, all but one of which (WENR) operate with unlimited time, are shown in the following table:
 
Station Location Power Date of ac-
quisition
  
WEAF 
WJZ 
WRC 
WMAL 
WTAM 
WMAQ 
WENR 
KOA 
KPO 
KGO 		   
New York 
New York 
Washington 
Washington 
Cleveland 
Chicago 
Chicago 
Denver 
San Francisco 
San Francisco 		   Watts    
 50,000
 50,000
 5,000
 5,000
 50,000
 50,000
 50,000
 50,000
 50,000
 7,500		   
 1926
1 1922
1 1923
 1933
 1930
 1931
 1931
 1930
 1932
 1930
    1 Date of acquisition by RCA; title transferred to NBC in 1930.

    At the time of the committee hearings five other stations were "programmed" by NBC under management contracts with the licensees. These stations were WGY, licensed to the General Electric Co. at Schenectady, N. Y., and four Westinghouse stations--KDKA at Pittsburgh, KYW at Philadelphia, WBZ at Boston, and WBZA at Springfield, Mass. All of these stations except WBZA 49 were licensed to operate with 50,000 watts.
    The contracts under which NBC obtained the right to program these stations were made in November 1932, at the time of the consent decree 50 under which the General Electric Co. and Westinghouse agreed to dispose of their stock holdings in RCA. The contracts transferred to NBC control over the operations of the stations, insofar as the listening public was concerned, and raised serious questions under section 12 of the Radio Act of 1927 (sec. 310 (b) of the Communications Act of 1934), since the Commission's consent to a transfer of the licenses was not applied for nor obtained. Accordingly, in January 1940, the applications for renewal of the licenses of these stations were designated for hearing.51 Shortly thereafter the management contracts were rescinded, and the five stations entered into contracts of affiliation with NBC.52

3.  Increase  in  business  and  income  of  NBC

    Except for the first 14 months of its existence, NBC has earned substantial profits every year. Both the volume of business and the profit have increased materially and with great regularity since that 14-month period. The following table, based upon exhibits at the committee hearings and the records of the Commission, presents a summary of the annual time sales and profit of NBC through 1940:
 
Year Time sales
(after dis-
counts; before
agency com-
missions)		 Net income
for the year
(before Fed-
eral income
tax)		   Year Time sales
(after dis-
counts; before
agency com-
missions)		 Net income
for the year
(before Fed-
eral income
tax)
November 1926- 
    December 1927 
1928 
1929 
1930 
1931 
1932 
1933 		   
 $3,384,519
 7,256,179
 11,353,120
 15,701,331
 20,455,210
 20,915,979
 18,005,369		   
1 $464,385
 427,239
 798,160
 2,167,471
 2,663,220
 1,163,310
 594,151		 1934 
1935 
1936 
1937 
1938 
1939 
1940 		   $23,535,130
 26,679,834
 30,148,753
 33,690,246
 35,611,145
 37,747,543
 41,883,341		   $2,436,302
 3,656,907
 4,266,669
 4,429,386
 4,137,503
 4,103,909
 5,834,772
    1 Deficit.


4.  NBC  artists'  bureau  and  concert  service

    Within a few months after it commenced operations in 1926, NBC organized an artists' service as a department of the company for the purpose of managing concert artists, actors, announcers, writers, and other talent. In 1931 NBC acquired a 50-percent interest in Civic Concert Service, Inc., which was engaged in the business of organizing and managing concert courses throughout the country, and in 1935 NBC acquired the remaining 50 percent. In 1928 the business of the NBC artists' service amounted to slightly over $1,000,000, while in 1937 the gross talent bookings came to $6,032,274, which included the gross receipts of the Civic Concert Service Inc., amounting to $306,099. On November 1, 1938, the NBC artists' service had more than 350 artists under management contract. Civic Concert Service, Inc., had membership concert courses in 57 cities when NBC acquired an interest in the company in 1931; by 1938 the list of cities served by Civic Concert had grown to 77.
    As agent for artists, NBC is under a fiduciary duty to procure the best terms possible for the artists. As employer of artists, NBC is interested in securing the best terms possible from the artists. NBC's dual role necessarily prevents arm's-length bargaining and constitutes a serious conflict of interest. Moreover, this dual capacity gives NBC an unfair advantage over independent artists' representatives who do not themselves control employment opportunities or have direct access to the radio audience. Many of these independent artists' representatives have complained to the Commission of NBC's unfair control over the supply of talent and have filed briefs in this proceeding. This problem will receive the continuing attention of the Commission and may warrant further inquiry.

5.  Transcription  business  of  NBC

    NBC entered the transcription business in 1934, but did not get under way commercially in this field until about a year later. It has since engaged in the three principal phases of that business. The first is a library service, called the Thesaurus, a collection of transcribed musical selections leased or licensed to individual stations. This enables the station to produce programs by merely adding its own announcements. The second is the so-called custom-built transcription service, consisting of full programs produced by NBC or by sponsors or advertising agencies. Such transcriptions are delivered as a complete package at a unit price to radio stations and to commercial sponsors. The third is the "simultaneous wire line recording," or recording of a program while it is being broadcast, usually for the purpose of a later rebroadcast.
    In its transcription business, NBC cooperates with RCA Manufacturing Co., its affiliate, also owned by RCA. NBC arranges the programming and sells the transcriptions, while RCA Manufacturing makes the recordings. It is estimated that the total transcription business carried on in the United States in 1938 amounted to something less than $5,000,000, of which NBC-RCA accounted for $1,300,000.
    Prior to April 1, 1941, NBC refused to permit any transcription company other than its associate, RCA Manufacturing Co., to make a "simultaneous wire line recording" of an NBC network commercial program. Even when the sponsor who was paying the entire expense, the agency in charge of producing the program, and an independent transcription company had come to an agreement for the transcription of an NBC network program, NBC refused to permit the independent company to come upon the premises for the purpose of making the transcription in accordance with the agreement. Independent transcription companies appeared in this proceeding and complained of this unfair competition. However, in March 1941, following the committee report and the oral argument, NBC publicly announced a change in its policy;53 after April 1 the prohibition against the transcription of NBC network programs by independent companies would be removed and the advertiser allowed the transcription company of its choice.

C.  SUMMARY  OF  RCA'S  SCOPE  OF  OPERATIONS

    RCA was originally founded to utilize wireless techniques for the transmission of messages; today it bestrides whole industries, dwarfing its competitors in each. Every new step has not only increased RCA's power in fields already occupied, but has enhanced its competitive advantage in occupying fields more and more remote from its beginnings.
    Thus, for example, RCA's control of thousands of patents, and its experience with and ownership of prebroadcasting wireless transmitters, as well as its support from General Electric and Westinghouse, gave it a running start in the infant radio-broadcasting industry. Later, RCA's position as the leading distributor of radio receivers enabled it to enter the business of selling radio-phonograph combinations in cooperation first with Brunswick and then with Victor, and subsequently to acquire Victor, the leading phonograph and phonograph record manufacturer. This step-by-step invasion of the phonograph business, in turn, gave RCA entering wedges into the transcription and talent supply businesses; RCA-Victor artists broadcast over NBC and made RCA transcriptions, while NBC artists recorded for RCA-Victor. The result was to give RCA and its subsidiaries a marked competitive advantage over other broadcasting companies, other radio manufacturers, and other phonograph and phonograph-record companies. RCA's entry into the motion-picture field, first through RCA Photophone and then through RKO, was also a step-by-step process, and similarly buttressed RCA's competitive position in other spheres. Today, with its patents, managed artists, manufacturing plants, distribution facilities, personnel, experience, and financial strength, RCA has a tremendous competitive advantage in occupying such newly opening fields as frequency modulation (FM) broadcasting and television--an advantage which may, indeed, discourage newcomers in fields where RCA has become or seeks to become dominant.
    A glance at RCA's last annual report 54 is convincing of the multifarious and pervasive character of its operations:
    RCA's international radio-communication service is now "world-wide" and "globe circling," with direct circuits to 43 countries. Despite the suspension of service to half a dozen German-occupied countries, the volume of traffic handled in 1940 was "the greatest in RCA history." In addition, RCA's domestic radio-telegraph service "links 12 key cities in the United States."
    The use of the international radio circuits is not restricted to message traffic. Newspapers receive many of their radiophotos from abroad through RCA. Foreign programs, particularly news, are transmitted over RCA circuits for broadcasting on domestic networks.
    In the field of marine communication, RCA has "maintained its leadership," furnishing some 2,200 ships with radio equipment, and operating coastal and lake port stations.
    RCA's manufacturing subsidiaries operate factories in New Jersey, Indiana, and California, and also in Canada and South America. The products include many types of radio and phonograph sets, radio tubes, broadcasting transmitters and studio equipment, Victor and Bluebird phonograph records, transcriptions for broadcasting, sound equipment for motion picture studios and theaters, and public address systems, to say nothing of motion picture and radio equipment for amateurs, electron microscopes, electronic pianos, television equipment, communications equipment, and so on. Manufacturing is now the largest single phase of RCA's business.
    RCA is active in technical education, and through RCA Institutes, Inc., conducts schools in New York and Chicago which offer "training in all branches of radio." Its laboratories and research organizations are extensive.
    NBC's position in broadcasting is comparable to the situation of the parent company in the broader field. There are four national networks; NBC owns two of them. Approximately one-quarter of all stations in the country, utilizing nearly half of the total night-time power, are NBC affiliates. In the newer fields of international broadcasting, frequency modulation, television, and facsimile, NBC may be expected to play a major part.
    The larger enterprises carried on by RCA do not blind its management to the smaller ventures which offer profitable opportunities. If broadcasters need transcriptions, NBC makes them. If broadcasters need talent, NBC will not only hire them, but is also glad to manage the artists and act as their agent in the concert as well as the radio field. Lately, with other members of the industry, it has embarked upon a venture in musical copyrights (through Broadcast Music, Inc.--BMI).
    It is significant that these numerous and, for the most part, critically important activities require a capital investment which, in other fields of enterprise, would not be regarded as staggering. The assets of RCA barely exceed $100,000,000; many a railroad, utility, bank, insurance company, or industrial establishment of relatively secondary importance has assets double or treble this amount. This tends to make RCA comparatively independent of the money market.
    RCA, like many other giant enterprises today, is a "management corporation." It has nearly 250,000 stockholders. No one owns as much as half of 1 percent of its stock. In such circumstances, stockholder control is practically nonexistent. RCA's funded debt is small, so there is no substantial creditor influence on the management. As a result, the management is essentially self-perpetuating, and the responsibility of the executives and directors is largely intramural.
    In short, RCA occupies a premier position in fields which are profoundly determinative of our way of life. Its diverse activities give it a peculiarly advantageous position in competition with enterprises less widely based. Its policies are determined by a management subject to little restraint other than self-imposed. Whether this ramified and powerful enterprise with its consistent tendency to grow and to expand into new fields at the expense of smaller independent concerns is desirable, is not to be decided here. We have thought it proper, however, to call the attention of Congress and the public to the broader problems raised by this concentration of powver in the hands of a single group.

___________________
    1 Report on Communication Companies, pt. 3, p. 4114.
    2 Id., pp. 990-991; F. T. C. Radio Report, p. 12.
    3 F. T. C. Radio Report, pp. 2, 13-18.
    4 As early as 1915, the Government, in conjunction with the Telephone Co., had carried on experiments in the field of radiotelephony. During that year, messages were sent from the naval station at Arlington, Va., and from Washington to such distant points as San Francisco, Honolulu, and Paris. In 1916, radiotelephony was used in transmitting messages to a naval destroyer 550 miles at sea, to airplanes in night, and to submarine chasers. A climactic event in the history of radiotelephony occurred in 1919 when the Secretary of the Navy in Washington conversed bv this method with the President of the United States, 1,000 miles at sea. "Rise of the Wireless Telephone," Current History, May 1920, pp. 265-269; "Wireless Telephony," by N. H. Slaughter, Annual Report of Smithsonian Institution, 1919, pp. 180-182; "Radio Telephony," by E. H. Colpitts, in Journal of the Society of Automotive Engineers, September 1919, pp. 215, 216; Report of Director of Naval Communications in Report of the Secretary of the Navy, Miscellaneous Reports (1916), pp. 146-147; see also New York Times, 0ctober 23, 1914, p. 9; January 27, 1915, p. 1; September 30, 1915, p. 1; October 1, 1915, pp. 1, 3; November 6, 1915, p. 4; May 7, 1916, sec. I, p. 6; May 8, 1916, p. 11.
    5 Ibid.; see also Archer, History of Radio to 1926, pp. 137-141, 188.
    6 F. T. C. Radio Report, pp. 15-22, 39-43; statement of O. F. Schuette in Hearings on H. R. 8825, 70th Cong., 1st sess., before House Committee on Merchant Marine and Fisheries (1928), pp. 277-278.
    7 Supra, pp. 5-6; F. T. C. Radio Report, pp. 44-49.
    8 These agreements were revised in 1926. It should be noted, however, that although these agreements purported to confer exclusive rights, they were binding only on the parties. With respect to persons not parties to the agreements, the exclusive nature of the rights exchanged depended upon the validity and scope of the patents upon which they were based. And, in fact, some manufacturers made and sold broadcast transmitters and receivers without regard to those patents.
    9 The following table, based upon data in the F. T. C. Radio Report, p. 20, indicates the distribution of RCA stock outstanding in 1922:
 
        
Name of stockholderCommon
stock		Preferred
stock		Percent of
total vot-
ing stock 1
General Electric
Westinghouse
American Telephone & Telegraph Co.
United Fruit Co.
Others2
          Total		 1,876,000
1,000,000
-----
160,000
   2,698,194
5,734,974		 620,800
1,000,000
400,000
200,000
   1,735,174
3,955,974		 25.8
20.6
4.1
3.7
         45.8
100.0
      1 Both common and preferred shares had equal voting power, share for share. Moody's Manual of Railroads and Corporation Securities--Public Utilities (1920), p. 2246.
    2 Most of these were former stockholders of the Marconi Co. of America. Report on Communication Companies, pt. 3, p. 1003.

    10 Report on Communication Companies, pt. 3, pp. 1003-1004. For terms of consent decree, see Hearings on H. R. 4523, Before House Committee on Patents, 74th Cong., 1st sess. (1935), pp. 229-233.
    11 F. T. C. Radio Report, p. 33.
    12 Id., p. 37.
    13 Report on Communication Companies, pt. 3, pp. 4186, 4194.
    14 Id., pt. 1, p. 115, and pt. 3, p. 4173.
    15 Supra, p. 10.
    16 F. T. C. Radio Report, p. 37.
    17 RCA Annual Report for 1924, p. 14.
    18 See the statement of David Sarnoff, chairman of the board of directors of NBC and president of RCA, Tr., p. 29.
    19 Radio Broadcast, June 1929, p. 78.
    20 Moody's Manual of Investments--Industrials (1931), p. 2277.
    21 F. C. C. Telephone Report, p. 399.
    22 Report on Communication Companies, pt. 1, pp. 118, 224.
    23 F. T. C. Radio Report, p. 76. Even after the expiration of this patent, RCA was able to retain at least half of the total radio tube business for almost 10 years. Radio Broadcast, April 1929, p. 379. One of the methods through which RCA was able to maintain its position was a standard clause in its contracts with radio set manufacturers licensed under RCA patents, the effect of which was to require RCA licensees to use RCA tubes in their receivers. This clause was held to be in violation of sec. 3 of the Clayton Act (Lord v. Radio Corporation of America, 24 F. (2d) 565 (D. Del. 1928), affd. 28 F. (2d) 257 (C. C. A. 3, 1928), cert. den., 278 U. S. 648 (1928); 35 F. (2d) 962 (D. Del., 1929), affd. 47 F. (2d) 606 (C. C. A. 3, 1931), cert. den., 283 U. S. 847 (1931), and the percentage of the radio tube business controlled by RCA has since declined.
    24 Report on Communication Companies, pt. 1, p. 115.
    25 Ibid., and infra, p. 14.
    26 Id., pt. 3, p. 4233.
    27 RCA Annual Report for 1934, p. 6.
    28 Poor's Industrials (1929), p. 2902; New York Times, January 5, 1928, p. 33.
    29 Moody's Manual of Investments--Industrials (1930), p. 582; RCA Photophone. Inc., was originally owned by RCA, General Electric, and Westinghouse in the ratios of 60, 24, and 16 percent, respectively. In 1930, however, RCA acquired the entire stock interest in RCA Photophone. Inc. Archer, Big Business and Radio, p. 331.
    30 F. C. C. Telephone Report, pp. 401-415.
    31 RCA Annual Report for 1928, p. 7: Poor's Industrials (1929), p. 2906.
    32 Poor's Industrials (1929), pp. 2906-2907.
    33 Report on Communication Companies, pt. 1, p. 116, and pt. 3, p. 4142.
    34 Moody's Manual of Investments--Industrials (1931), p. 2278.
    35 RCA Annual Report for 1930, p. 23; for 1932, p. 4; Poor's Industrials (1931), pp. 2849-2851.
    36 RCA Annual Report for 1935, p. 2.
    37 RCA Annual Report for 1937, p. 6.
    38 Sarnoff, Tr. pp. 8495-8496.
    39 RCA Annual Report for 1924, p. 9. The consummation of this contract was announced by David Sarnoff on behalf of RCA as follows:
    "Under the contract recently concluded, the phonograph company gains the right to install Radiola receiving sets in combination with Brunswick phonographs. In turn, the phonograph company will add its share to the public service now rendered by the principal broadcasting stations and aid the development of free broadcasting to the public by permitting the stations of the Radio Corporation of America and those of its manufacturing associates to broadcast from the laboratories of the Brunswick Co. when its artists are recording for phonograph reproduction and to encourage these artists to aid the programs at other times as well." New York Times, March 13, 1924, p. 15.
    40 RCA Annual Report for 1925, pp. 7-8. The contract with the Victor Talking Machine Co., signed May 16, 1925, provided that RCA would manufacture receiving sets to be put into Victrolas and that Victor artists would broadcast over the facilities of station WJZ. New York Times, May 21, 1925, p. 16.
    41 Report on Communication Companies, pt. 3, pp. 4242-4244.
    42 Id., pp. 4229-4230.
    43 Moody's Manual of Investments--Industrials (1929), pp. 790-791; Poor's Industrials (1929), pp. 2902-2903.
    44 RCA Annual Report for 1931, p. 4.
    45 RCA Annual Report for 1933, p. 12.
    46 RCA Annual Report for 1935, p. 2.
    47 See supra, p. 8, n. 25.
    48 This table, as well as the corresponding tables on CBS and Mutual, is based upon the record and upon reports to the Commission filed since the committee hearings. All three tables include stations not only in continental United States but also stations in the possessions and Territories.
    49 Station WBZA, with a power of 1,000 watts, operates synchronously with WBZ.
    50 Supra, p. 11.
    51 After these arrangements had been voluntarily abandoned, the renewals were granted for reasons set forth in the orders and decision of the Commission. In re Applications of Westinghouse Electric and Manufacturing Company for Renewals of Licenses (stations WBZ, WBZA, KYW, and KDKA), Docket Nos. 5823-5826, September 4, 1940; In re General Electric Company (WGY), Application for Renewal of License and Auxiliary, October 22, 1940, Docket No. 5822.
    52 The effective date of these contracts for the four Westinghouse stations was July 1, 1940, and for the General Electric station, October 1, 1940.
    53 Radio Daily, March 24, 1941, p. 1.
    54 RCA Annual Report for 1940, passim.
TOC | Previous Section: Chapter I | Next Section: Chapter III