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How CBS Got Its Start
August 1955 | Volume 6, Issue 5
To Arthur Judson, well-known manager in the field of music, the new field of radio presented a challenge and an opportunity. The results were both explosive and unexpected.
Along about 1920 or 1922, I noticed my son fooling around with some gadgets. He told me with great glee that it was a radio machine. I didn’t believe in it much then.
At that time, the First World War was over. There had been, during that war, a pool of patents which ceased to operate after the war. Some cross-licensing agreements were signed in an effort to make the patents covering radio available for use, since some were held by one company, some by another, and nothing could be manufactured without agreement among the patent-holders. It resulted in the long run in the formation of the National Broadcasting Company, which merged the broadcasting interests of RCA and A.T.&T. WGY at Schenectady had the experimental end of it, but it was not allowed to sell advertising time. That problem was ironed out later on, which gave an opportunity for the radio chains to start.
At the time when it began to be apparent that there was going to be an opportunity for artists to have a much wider public through radio than they could get out of concert tours and concert halls, all of us began to think about broadcasting.
In 1915 I became manager of the Philadelphia Orchestra and, during the years from 1915 to 1926, I developed Concert Management Arthur Judson into an important booking agency.
At the time NBC was just about to start, I made an appointment to see Mr. Sarnoff—now General Sarnoff—to discuss the possibilities of artists appearing on sponsored programs on the air. This grew out of the fact that radio stations had been requesting the free services of artists, with the result that throughout the country a good many of those who bought artists for concerts were beginning to become fearful that they would have no audiences.
I proposed to Sarnoff, when he told me that the sponsored program was coming into being, that we ought to have some definite method of utilizing the artists’ services for a sum sufficient to make it worth while and yet not ruin the business. He agreed with . me and asked me to prepare some sort of a plan and submit it to him. This I did some time in the early part of 1926.
Sarnoff read the plan with great interest and it was my understanding that if it was within his power when he got his chain organized—which he was then doing—he would certainly put me in charge of the programs and of supplying the artists.
It wasn’t very much later than that when I discovered that the chain had been organized and that I was not to have anything to do with engaging artists for the network programs.
Meanwhile, in order to prepare for that, and for other matters, I had organized the Judson Radio Program Corporation in September of 1926. In part, this grew out of my visit to Mr. Sarnoff, but was quite as much the result of an interview I had with George Coats, a promoter.
I discussed the Sarnoff matter with him and I think it is partially due to him that we organized the program corporation. That was not necessarily for us to make money, although I think Coats wanted to do so, but to enable us to give to the radio chains the best of music at an adequate price and to keep the standard of programs very high.
When this didn’t work out, I had several conversations with Coats and with some other people here who had been associated with me. We decided that if we were going to be shut out of what looked to be the only chain in the broadcasting business that we would have to challenge the NBC monopoly.
Coats and I went to see Sarnoff and asked him if he were going to do anything about it. He said that he wasn’t.
I said, “Then we will organize our own chain.”
With that, he leaned back in his chair and laughed heartily. He said, “You can’t do it. I have just signed a contract to take one million dollars’ worth of long lines from the telephone company. In any event, you couldn’t get any wires even if you had a broadcasting station. It can’t be done.”
Sarnoff was right; it couldn’t be done. But we happened to get all the breaks, and it was done. I hate to think of the years and the time that we spent on that operation. We were within a hair’s breadth of bankruptcy all the time.
What we proceeded to do first was to organize a company called the United Independent Broadcasters. We though the “Independent” would be a protest against the monopoly of the RCA.
My associates were a man by the name of Edward Ervin, George Coats, and later J. Andrew White, who was a broadcasting man whom we knew, and H. H. Newman, who was a newspaperman and a promoter. We divided the 1,000 shares of stock up amongst us.
We then had a problem before us. We had to organize a chain before the chain could operate. Our chain consisted of nothing but stations and of course we had to find these and persuade them to join us. I put up the money for George Coats to go out on the road and sign up units for our network. We decided we would have to have ten or twelve or fifteen stations before we began to operate. After considerable travel, he came back, having signed contracts with, I think, eleven organizations at $500 an hour for the hour we used. At the same time, we agreed to furnish sustaining music and programs for those stations without payment.
We then negotiated with WOR, which was under the control of the Bamberger’s stores at Newark, for WOR to be the head station. Our contracts with all units in the network were for one year only.
The stations were signed up some time around—before and after—April of 1927.
We now had the stations, but before we could operate we had to have telephone lines. We held a good many rather hectic meetings to discuss the question of getting them. We applied to the telephone company and were informed that all of their lines were in use and that it would be impossible to furnish lines for at least three years. We argued with them but got nowhere.
Finally, Coats, who was from Indiana, said, “I think I’ll go down to Washington. I know some Indiana people in Washington.”
He came back and said, “There’s a friend of mine down there.”
I said, “Who is he?”
“Well,” he said, “he’s just a man about Washington who fixes things. He has contacts.”
Coats went down to Washington again, came back and said: “If you give him two checks, one for $1,000, and the other for $10,000, he will guarantee that you will get the wires.”
I didn’t ask him who was to get the $10,000.
After he went to Washington, the Bell Telephone Company sent two representatives, an executive and an engineer, to demonstrate to me, with the help of the engineer, that the lines could not be furnished in less than three years. Fortunately, the engineer sat somewhat behind the executive, and all the time the latter was explaining that the wires could not be furnished, the engineer was motioning that they could! 1
In the midst of the conversation, a telegram was handed to me which said, “We have the wires.”
So I turned to the executive and said, “You don’t need to stay any longer. We’ve got the wires and you don’t need to make any more excuses.”
That ended it; we had the wires.
Now in the meantime, while we had been negotiating, we had had a good many staff meetings. At one of those meetings, Mrs. Christian Holmes, formerly of Cincinnati, but then of New York, a staunch friend of the Philharmonic, happened to come into the office as one of these meetings was going on. She asked, “What are you doing?”
“Well,” I said, “we are losing our shirts.”
She said, “Tell me about it.”
I told her about the broadcasting. “Well,” she said, “I’m a good sport. I want to come in. What will it cost me?”
I said, “Mrs. Holmes, you keep your money for the Philharmonic, I’m not going to lose it for you.”
“Well,” she said, “you can’t stop me. I’m coming in.”
“All right,” I said, “we need $6,000 to send George Coats on the road.”
She said, “All right, here’s a check.”
So George went on the road and got the stations.
In the meanwhile, Mrs. Holmes from time to time put in more money until she had about $29,500, as I recall it, in the business.
We figured it would cost us about $100,000 a month to operate this system. We began then to explore the possibility of getting someone to cooperate. We visited a good many people.
The first one was the Victor Company. We negotiated with the lawyers and had the forms of the contracts practically completed. While we were there, the announcement was brought into the room of the sale of the Victor Company to the RCA. That completely stopped the Victor negotiations.
We then began to open up other possibilities. The most important of these was Paramount Pictures, who requested a thirty-day option.
We were very brave and refused it. It was not that we wouldn’t have liked to wait but we couldn’t.
So we then began to develop one other idea that we had. That was to sell our network to the Columbia Phonograph Company, which had been in pretty difficult straits some years before but which had been pulled out of its difficulties by a man by the name of Louis D. Sterling. (He now lives in London and is Sir Louis Sterling.) Sterling was a business promoter of tremendous ability. He organized companies in England, Japan and all over the world. He was and still is a man of farsighted vision.
Finally we had an arrangement whereby the Columbia Phonograph Company took over the operating broadcasting rights of the United Independent Broadcasters. I think the initial payment was $163,000. The sum was probably arrived at by the amount of money that we needed
Thereafter, they were to pay the expenses of operating under the name of Columbia Phonograph Broadcasting System. They signed a contract which gave them the right of cancellation on thirty days’ notice.
At that time, the Columbia Phonograph Company had as its president a man by the name of Cox. We made a contract to furnish the talent for the chain. If I recollect properly, supplying the talent for ten hours’ program a day for the twelve stations was $50,000 a month. That was continuously paid until later on, under the Columbia Broadcasting System, when we cancelled that contract because there was then no longer any need for it.
Newman, who was the business head of Columbia Phonograph Broadcasting System and the advertising manager, succeeded in selling but one commercial hour by the time the chain was ready to open on September 19, 1927. We had also at that time some advertising from the Columbia Phonograph Company—a house advertisement.
We operated the first month and naturally, as Louis Sterling realized, we lost a very considerable amount of money. He figured before he left for Japan that we would probably have to operate for several months with no income and practically all loss.
As soon as the second month began, Cox served notice on us that the contract would be cancelled at the end of the month. At that time, I assumed it was because Cox felt that the company couldn’t afford to lose any money. I now think quite differently.
The reason was this. Cox operated it for the second month. When we had received the notice of cancellation, I had taken Major J. Andrew White, who was a Christian Scientist and was waiting for something to turn up—by the arm and up to Cox’s office. We sat there and in the Athletic Club for three days, but I came out with an agreement for thirty days’ leeway, making an additional month at a cost of $170,000 more to Columbia Phonograph Company.
During that time, we knew that if we did not end up with the controlling power and the ability to run the chain after the end of the thirty days, Cox would take it. We were then in great difficulties because we had exhausted our finances.
Mrs. Holmes, our investor, was in Europe. By investigating, I found that she was on a boat returning to the United States. I wirelessed her what the situation was and told her I needed between $40- and $45,000 to pay the telephone bill. She sent a wireless to her office and I had a check for $45,000.
This was the last day of the month, after which we would be in default. We had the telephone receipt and went down to the Columbia office and waited until the time expired—which was at eleven o’clock at night —and then walked into Mr. Cox’s office. He sat there with his thumbs in the armholes of his vest and said: “Well the chain belongs to us.”
We said, “Why?”
He said, “Well you can’t pay your telephone bills.”
“Well,” I said, “here is the receipt.”
He called us a number of violent names and then asked, “Well, what will you give me for it?”
I said, “We don’t owe you anything for it but we’ll give you $10,000.”
“No,” he said, “we’ve got to have more.”
“All right,” I said, “thirty hours of advertising for Columbia Phonograph Company.”
He said, “Sold.”
We made him out a check for $10,000 and an order for the thirty hours and again we owned the chain.
We still didn’t know what to do with it. We had paid the telephone bills for thirty days. Coats finally said, “I note that there is a man in Philadelphia by the name of Jerome Louchheim who is in the contracting business and that he is rated at nineteen millions of dollars. I’m going to see him.”
“Well, Coats,” I said, “I know Louchheim and you’re going to have your hands full.”
Nevertheless he went over to Philadelphia. Louchheim nearly threw him out of his office and finally did make it so uncomfortable for him that he got out of the Columbia System.
Louchheim then sent for me. “Now,” he said, “I’m interested in this. I think there is a lot of money in it. I’m going to buy it but I must buy the controlling interest.” Louchheim was a good solid substantial man who dealt with facts. Coats dealt with theories and promotion and Louchheim could not deal with a promoter.
After almost a month’s negotiation, we sold Louchheim about 1,020 shares of the United Independent Broadcasters. I kept my stock, Coats was forced to sell his, Ervin kept his and Mrs. Holmes kept hers.
After we had agreed upon the deal, we had a meeting to close the arrangements in the Columbia Phonograph System’s office. Louchheim’s lawyers and ours were both present. Just as we were about to sign the papers, Mr. Louchheim’s lawyer got up and in his best pontifical manner, said, “Now, Mr. Louchheim, you are putting a half million dollars in this thing. Next month, you put another half million, a month after that another half million, and it is just a bottomless barrel, I warn you.”
Our lawyer turned white and I thought, “Well, here it goes.” Louchheim looked at his lawyer over his glasses and said, “Whose money is it? Give me the pen.” So he signed.
As a result of that deal, all of this money of Louchheim’s went into the chain except the $40- or $45,000 to reimburse Mrs. Holmes for the advance to pay for telephone wires. She had an investment of just about 929,500 plus the cost of some additional stock, which she sold out just a little later on for approximately three and a quarter million dollars. So it wasn’t a bad investment.
I was at that time on the board of directors and Louchheim felt that he wanted to make me president of the broadcasting system. I did not want that as I was not interested in broadcasting I was interested in music.
I eventually resigned from the board but not before I had one experience with Mr. Louchheim. We were using Station WOR as one New York outlet on a one-year contract. Louchheim came to me one day and said, “Do you know these Bamberger people? Let’s go over to Newark—I want to renew that contract.”
So we went over to Newark and had a meeting there at lunch. The net result was that they said they just did not believe in chain broadcasting, that never in God’s world would it amount to a row of pins. They preferred to operate an independent station. Louchheim said, “All right.”
When we came back, I said, “Louchheim, why didn’t you insist a little more? You could have gotten that.”
“Well,” he said, “I didn’t want it. We’ll have to get another station.”
Stations then were as scarce as hens’ teeth. I asked him, “Where are you going to get it?”
He said, “I don’t know’do you know of one?”
I thought for a moment and said, “There is a little one-horse thing up in Steinway Hall-Station WABC. They don’t do any business. I think they would be glad to sell. All they have got is a license to operate.”
That same day we went up to WABC and inside of a week he had bought it—I think the price was pretty high. The station wasn’t worth anything but we had to have a New York outlet and there were no licenses available.
Shortly after that time, about a year or a year and a half later, Louchheim got tired of operating this system and kept telling me about a young man in Philadelphia named Paley, whose father had started the Congress Cigar business and who eventually divided it up amongst himself, his brother and his sons. Meanwhile Louchheim had further interested Ike Levy, a ‘Philadelphia lawyer, and his brother, Léon, a dentist, and owners of Station WCAU of Philadelphia.
In order to keep the chain operating, additional stock had to be sold and they insisted that I buy more stock. I told them I had no money and did not want more shares.
Then one day the bankers in Philadelphia sent for me and said, “We want to lend you $90,000.”
I said, “I don’t want it.”
“Well,” they said, “you’re going to take it and invest it in the Columbia Broadcasting System and take the stock.”
“All right,” I said. “It is your funeral.”
I made the investment and there is a sequel to that.
Louchheim got more money out of Ike Levy and Leon Levy. They had started Station WCAU in Philadelphia. Louchheim had paid the big losses and made the Levy brothers take their share although he had to loan them the money to do it. The Levy brothers are very rich men today because they were forced into this.
After a while, Louchheim got tired of running the network. He was an older man and the excitement wore off. He decided he wanted to interest a young man in it. He picked William Paley as the young man whom he knew. Eventually he sold the greater part of his interest—I don’t know quite how much—to Paley and left him in charge as president of the company.
Paley operated the company very successfully, but his first big deal was when he went back to Paramount with whom we had been negotiating years before. He sold a half interest to Paramount for a block of their stock worth $3,800,000. In other words, the network, inside of a year and a half, had risen in value from $100,000 to $7,600,000.
In back of this were few physical assets: just ideas, the Station WABC and the agreements with the stations comprising the chain. Really, it had all been built up on ideas and hustling ability.