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The Economic History of the Radio Industry

The radio indstry is now a rather stalwart part of the economy, but at one time, the early twentieth century, it was the highest of the high tech industries. Its technology developed out of what previously had been the cutting-edge technology of the telephone and telegraph industries and the electrical equipment industries.

Gugliermo Marconi

The technical feasibility of radio communication was demonstrated in 1899 by the Italian inventor Gugliermo (William) Marconi. He showed that a ship at sea could transmit and receive Morse code (telegraph) signals from a site on shore. Marconi created a company, Marconi Wireless, in London to develop the commercial possibilities of his invention. However there were other companies more formed elsewhere that would prove to be more effective competitors in the field than Marconi Wireless.

In Germany in 1904 the major leaders of the electrical equipment manufacturing, Siemens and AEG (Allgemeine Electricität Gesellschaft), formed a joint-venture company Telefunken to develop the wireless communication technology. For Americans of recent generations it is hard to realize that in the late nineteenth century that the United States was not the foremost leader in technology. It was Germany that invented the chemical and electrical equipment manufacturing industries. The internal combustion engine was invented not in Detroit or anywhere else in America but instead by Otto in Germany. The first automobile company likewise was Daimler in Germany. When the U.S. government confiscated the aspirin factory of Bayer in upstate New York during World War I it found that it could not find American personel to operate it and had to rely upon German technicians. The point is that in the late nineteenth and early twentieth century American industry was not yet at the forefront of technology. The strength of U.S. industry was in practical innovations such as in agricultural machinery and the trial-and-error inventions of Thomas Edison.

By the 1920's the situation was changing. In 1919 a group of American companies formed a joint-venture company analogous to what had been created in 1904 as Telefunken. The American companies were General Electric (GE), American Telephone and Telegraph (AT&T) and Westinghouse and their joint-venture was the Radio Company of America (RCA). RCA was actually created by GE but AT&T and Westinghouse participated by turning over to RCA the rights to patents they held in radio technology. The core of RCA was Marconi Wireless of America, the American subsidiary of Marconi's British company, which GE purchased for $3.5 million.

David Sarnoff

Along with the other assets of Marconi Wireless of America came a young engineer who would lead RCA to technical dominance in the decades ahead, David Sarnoff.

The wireless technology was applied to the important but limited field of ship communication. There was extensions into the fields now associated with what later was called shortwave radio communications. These applications were important and their importance was high-lighted by the experiences of war during World War I but they were miniscule compared to what later developed for radio technology.

The earliest technology of wireless communications depended upon crystal receiver sets. In a crystal set a fine wire, called a whisker, was manually placed in contact with a crystal of a metal compound such as galena (lead sulfide) or germanium. The very weak response of the wire-crystal contact point to electromagnetic waves was picked through earphones. Radio communication of continuous voice transmission as well as Morse code signals was definitely feasible with crystal set technology but the full blossoming of radio technology had to await the invention of amplification by means of the vacuum tube.

Amplification of electrical signals was achieved in Palo Alto, California in 1906 at a branch of Federal Telegraph, a San Francisco company. In a vacuum tube a weak electrical signal is allowed to control the flow of a much stronger electrical current. In effect, the vacuum tube is a valve which opens and closes the flow of current. In BRitain such tube are in fact called valves. The leader of the group at Federal Telegraph was Lee DeForest, a man who for decades vociferously, almost hysterically, claimed credit for the invention of radio. He did not just call it his invention, he frequently called it his baby. The reality is that the vacuum tube was but one of many different essential inventions for the radio industry and one that would have been, and probably was, developed elsewhere if it had not been developed at Federal Telegraph. The vacuum tube was a natural develop out of the technology of the incadescent lighting field. Federal Telegraph's development of electrical signal amplication had nothing to do with wireless communication. It dealt with the amplication of long distance telephone transmission. Lee De Forest was simply an ego-maniac.

The early commercial development was in the hands of the Westinghouse Corporation. The founder, George Westinghouse, was adept at acquiring patents and developing products based upon those patents. He acquired from the Serbian inventor Nicola Tesla the patents for the alternating current (AC) electrical motor/generator. From Edwin Armstrong Westinghouse acquired patents for the circuitry of the early radios. Armstrong was a true technical genius who invented not just one type of radio receiver but three. The first vacuum tube radio receivers developed by Armstrong (1912) used a circuitry called the regenerative circuit based upon feedback. This also became the basis for radio transmitters. Later, while in Paris during World War I with the U.S. Army Signal Corps, Armstrong invented a much more powerful amplifier circuit called the superheterodyne circuit. This is the basis for radio, television and radar reception to this day. This is AM (amplitude modulation) radio technology. His crowning achievement was the invention in the early 1930's of an entirely new technology for radio transmission and reception, FM (frequency modulation as opposed to AM, amplitude modulation) radio that provides much higher quality reception. Nefarious litigators bankrupted Armstrong and eventually drove him to suicide in 1954.

In the early 1920's Westinghouse began manufacturing radio receiving sets based upon Armstrong's AM patents. (FM technology was not commercially developed extensively until after World War II.) Westinghouse established the first commerciall radio broadcasting station, KDKA, in Pittsburgh, Pennsylvania in 1920. It was not however the first radio broadcasting station.

The first radio broadcasting station had been established in 1909 in San Jose, California only three blocks from the San Jose State University campus by Charles D. Herrold but it was not a commercial operation. It did broadcast under the call letters FN voice and music to a listening audience on a regular basis. Later, in 1921 its call letters were changed to KQW and finally in 1949 to KCBS.

By the end of 1922 the U.S. Department of Commerce had licensed 26 radio stations and in 1923 five hundred and thirty more so that by the end of 1923 there were 556 radio stations in America.

The structure of the radio industry was rapidly changing. David sarnoff was given the assignment of working out an agreement amongst the potential competitors in the radio industry. The firms would get in return for the patents they held two things, exclusive fields for their operation and shares of RCA. The table below shows the nature of the cartel agreement that was concluded in 1921.

Cartel Arrangement for the U.S. Radio Industry
CompanyFieldShare of RCA
AT&Tradio-telephone systems
broadcasting transmission
General Electricmanufacturing radio
Westinghousemanufacturing radio
United Fruit 4.1%
American Marconiwireless spark
Miscellaneous inventors 
RCAmarketing radio

United Fruit was involved because it developed radio technology to provide communication for its banana boats. The British firm of Marconi, the Dutch firm of Philips and the German firm of Telefunken were also involved in the cartel arrange, having licensed RCA to utilize their patents.

David Sarnoff was appointed general manager of RCA in 1921 and went on to become vice president of RCA in 1922. The president of RCA was willing to let Sarnoff manage RCA and Sarnoff was the effective CEO of RCA.

The 1921 cartel arrangement for the radio industry was creating problems in the 1920's. The Federal Trade Commission (FTC) filed suit against RCA for restraint of trade. RCA countered by licensing manufacturers to utilize its patents. This not only the countered the accusations of restraint of trade but also brought in to RCA substantial revenues as royalties. By 1928 RCA was earning several millions of dollars per year from royalties and the FTC dropped it restraint of trade suit.

But there were other problems with the 1921 cartel arrangement. AT&T had exclusive right under the arrangement to produce broadcasting equipment. It interpreted this as extending to the operation of radio broadcasting stations. General Electric and Westinghouse objected to AT&T creation and operation of radio stations as being in violation of the 1921 agreement. In 1923 GE and Westinghouse carried their challenge of AT&T to arbitration and won finally in 1926. AT&T agreed to give up its radio stations which fell to the control of RCA. RCA then combined those radio stations with stations owned by GE and Westinghouse to form the National Broadcasting Company (NBC) consisting of 19 stations. NBC was owned 50 percent by RCA, 30 percent by GE and 20 percent by Westinghouse.

In 1927 the Columbia Broadcasting System (CBS) was created by William Paley.

From the original 19 stations NBC grew to 102 stations by 1936. Within NBC there was a group of stations that were designated as public service stations as opposed to commercial stations. In 1942, as a result of pressure from the Federal Communication Commission (FCC), which was the Federal agency created to serve as the watchdog regulatory agency for the radio broadcasting industry, RCA sold the group of its public service stations. This group became the American Broadcasting Company (ABC).

This was how the three major broadcasting networks came into being.

The proliferation of broadcasting stations and the creation of three national networks created a demand for radio broadcast receivers (i.e., radios). The 1921 arrangement called for GE and Westinghouse to manufacture these receivers and RCA to market them. The sales of these receivers jumped from about $50 million in 1923 to $207 million in 1926 and to $366 million in 1929.

The 1921 arrangement was previously characterized as a cartel arrangement and that was was it was. But it was only effective in suppressing competition among the big players of GE, Westinghouse, AT&T and RCA. It was not effective in suppressing competition over all. Many, many firms entered the market of assembling radio receivers. Over six hundred entered the industry in the period 1923 to 1926. In some cases the firms that began manufacturing radio receivers were from related fields as noted below:

Firms Which Entered the Radio Industry
in the 1920's and Their Primary Industry
Atwater Kentautomobile
Stromberg Carlsontelephone
Sylvanialight bulbs
Source: Alfred D. Chandler, Inventing the Electronic Century, p. 18

Most were startups and did not survive. One notable survivor was Zenith.

(To be continued.)

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