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Communications Conspiracy

by on March 20, 2012


When talking about red and blue, many Americans think of the political happenings and the colors of states.  But before there were those geographic designations, red and blue were associated with the National Broadcasting Company (NBC) and its networks.

While in recent years there has been an increase in the number of entities corporations can own, the United States government previously had exercised more caution about the size of some organizations and the power they yielded.  This included the broadcasting industry.  Although the main activities were in New York, Chicago also was a hub for many radio network programs.  And for lawsuits as well.

NBC was created by the Radio Corporation of America (RCA) in 1926 when it purchased a couple radio stations, WEAF in New York and WJZ in Newark, and merged them with a couple other stations, WGY in Schenectady and WBZ in Springfield, Massachusetts.  It was the first major broadcasting organization in the United States.  By 1927, NBC had formed its Red and Blue networks.  The Red Network had primarily entertainment and music programs that were commercially sponsored.  The Blue Network carried mainly news and cultural shows that had no regular sponsors, i.e. they were “sustaining” in old radio lingo.

However, legal actions began early in the broadcasting business.  In 1930, even though General Electric (GE) had founded the Radio Corporation of America (RCA), GE had to dispose of its progeny because of antitrust charges.  With the creation of the Federal Communications Commission (FCC) in 1934, the industry increasingly faced scrutiny.

NBC grew rapidly in the 1930s, and the FCC took note.  Considering it a monopoly, the FCC told NBC it had to divest one its networks saying the corporation was too powerful and had too much influence.  Some of the issues related to those charges came to court in civil action case number 3763, the United States of America v. Radio Corporation of America, et al., in the U.S District Court, Northern District of Illinois, Eastern Division, at Chicago.  The “et al.” included NBC; David Sarnoff, who was Chairman of the Board of NBC and President of RCA; Niles Trammell, President of NBC; and three vice presidents of NBC.  In late 1941, numerous charges were brought against RCA and NBC, mainly stemming from the far-reaching influences of the Red and Blue networks.

The suit contends the network restrained “commerce among [the] several states…and many of the unlawful acts pursuant thereto have been performed by defendants and their representatives.”  The plaintiff, the U.S.A., said there was a “wrongful and unlawful combination and conspiracy to attempt to monopolize…interstate commerce in radio broadcasting, electrical transcriptions and talent, in violation of … the Act of Congress of July 2, 1890, entitled ‘An Act to Protect Trade and Commerce Against Unlawful Restraints and Monopolies.’”

The case is interesting for a few reasons.  To prove the plaintiff’s merits, there is some statistical information.  For instance, it mentions the approximately 800 commercial radio broadcasting stations under the domain of the FCC.  Additionally, one exhibit comprises three pages of “metropolitan districts” with exact populations and the number of commercial radio stations in the markets.  The point was to show large areas such as Cleveland and Milwaukee only had three stations, and the two main broadcasters, NBC and CBS, put a stranglehold on allowing others to enter the market.  The FCC wanted to show the negative influence of those networks on the communications industry, which was labeled as a conspiracy in the lawsuit.

Other parts of the case include monetary figures.  Although CBS was not part of this legal action, the suit wanted to prove “that the power and dominant position of NBC and CBS are further shown by comparing the net operating income for the entire broadcasting industry with that of NBC and CBS….”  Operating incomes were provided for the years 1938-1940, reaching $33.3 million for the latter year.  The case states, though, that for this time period NBC and CBS had made “more profits than their only competitor in national network operations.”  Moreover, NBC broadcast affiliates had more than half the night-time power of all U.S. stations.  During what we now think of as “the golden age of radio,” many stations only broadcast during the day.

Some charges brought in the suit seem quaint by today’s standards.  By claiming that because of the dominance of NBC and CBS, their affiliates were granted so many advantages that “network affiliation with either CBS or NBC is desired by practically all commercial radio broadcasting stations.”  This seems like normal business practice, with organizations going with their best option.  However, the plaintiff said the networks imposed their power on the affiliates by putting in clauses that prevented stations from dealing with other competing network systems.

The case includes talent such as “musicians, virtuosi, speakers, comedians, announcers, news commentators and actors.”  And since the “creation of a public demand for the services of any individual possessing any form of talent requires some medium of public expression [and] that radio broadcasting is one of the principal mediums through which talent is brought to the attention of the public and a demand for such talent,” the networks were charged with a “wrongful and unlawful combination and conspiracy to attempt to monopolize the aforesaid interstate commerce in radio broadcasting, electrical transcriptions and talent.”

Sadly, there is no notice of order or settlement to specifically state the outcome.  Most likely because of the national ramifications, with the networks being headquartered in New York and radio programming being available across the country, court cases related to this were held elsewhere.  It can be assumed that the name change from the NBC Blue Network to simply “Blue Network” was done to appease the FCC and this civil case.

However, a later appeal to the U.S. Supreme Court in 1943 was unsuccessful and RCA had to sell the Blue Network Company.  It officially became the American Broadcasting Company (ABC) in 1945.

Certainly the thought of radio being so influential and being involved in so many lawsuits seems like ancient history with the growth of television post-war, and the surge of cable TV in more recent years.  Nonetheless, radio is still an important medium although it does not seem to get much attention.  If only the FCC could do something about shutting down some of those reality shows.


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