From The Wealth of Networks by Yochai Benkler
This very interesting to read given the parallels of is origins with the Internet and how business and the Federal Government worked to alter the course of history
“The introduction of radio was the next and only serious potential inflection point, prior to the emergence of the Internet, at which some portion of the public sphere could have developed away from the advertiser- supported mass-media model. In most of Europe, radio followed the path of state-controlled media, with variable degrees of freedom from the executive at different times and places. Britain developed the BBC, a public organization funded by government-imposed levies, but granted sufficient operational freedom to offer a genuine platform for a public sphere, as opposed to a reflection of the government's voice and agenda. While this model successfully developed what is perhaps the gold standard of broadcast journalism, it also grew as a largely elite institution throughout much of the twentieth century. The BBC model of state-based funding and monopoly with genuine editorial autonomy became the basis of the broadcast model in a number of former colonies: Canada and Australia adopted a hybrid model in the 1930S. This included a well-funded public broadcaster, but did not impose a monopoly in its favor, allowing commercial broadcasters to grow alongside it. Newly independent former colonies in the postwar era that became democracies, like India and Israel, adopted the model with monopoly, levy-based funding, and a degree of editorial independence. The most currently visible adoption of a hybrid model based on some state funding but with editorial freedom is AI Jazeera, the Arab satellite station partly funded by the Emir of Qatar, but apparently free to pursue its own editorial policy, whose coverage stands in sharp contrast to that of the state-run broadcasters in the region. In none of these BBC-like places did broadcast diverge from the basic centralized communications model of the mass media, but it followed a path distinct from the commercial mass media. Radio, and later television, was a more tightly controlled medium than was the printed press; its intake, filtering, and synthesis of public discourse were relatively insulated from the pressure of both markets, which typified the American model, and politics, which typified the state-owned broadcasters. These were instead controlled by the professional judgments of their management and journalists, and showed both the high professionalism that accompanied freedom along both those dimensions and the class and professional elite filters that typify those who control the media under that organizational model. The United States took a different path that eventually replicated, extended, and enhanced the commercial, advertiser-supported mass-media model originated in the printed press. This model was to become the template for the development of similar broadcasters alongside the state-owned and independent BBC-model channels adopted throughout much of the rest of the world, and of programming production for newer distribution technologies, like cable and satellite stations.
The birth of radio as a platform for the public sphere in the United States was on election night in 1920.7 Two stations broadcast the election returns as their launch pad for an entirely new medium - wireless broadcast to a wide audience. One was the Detroit News amateur station, 8MK, a broadcast that was framed and understood as an internal communication of a technical fraternity - the many amateurs who had been trained in radio communications for World War I and who then came to form a substantial and engaged technical community. The other was KDKA Pittsburgh, launched by Westinghouse as a bid to create demand for radio receivers of a kind that it had geared up to make during the war. Over the following four or five years, it was unclear which of these two models of communication would dominate the new medium. By 1926, however, the industrial structure that would lead radio to follow the path of commercial, advertiser-supported, concentrated mass media, dependent on government licensing and specializing in influencing its own regulatory oversight process was already in place.
Although this development had its roots in the industrial structure of radio production as it emerged from the first two decades of innovation and businesses in the twentieth century, it was shaped significantly by political - regulatory choices during the 1920S. At the turn of the twentieth century, radio was seen exclusively as a means of wireless telegraphy, emphasizing ship-to-shore and ship-to-ship communications. Although some amateurs experimented with voice programs, broadcast was a mode of point-to-point communications; entertainment was not seen as its function until the 1920S. The first decade and a half of radio in the United States saw rapid innovation and competition, followed by a series of patent suits aimed to consolidate control over the technology. By 1916, the ideal transmitter based on technology available at the time required licenses of patents held by Marconi, AT&T, General Electric (GE), and a few individuals. No licenses were in fact granted. The industry had reached stalemate. When the United States joined the war, however, the navy moved quickly to break the stalemate, effectively creating a compulsory cross-licensing scheme for war production, and brought in Westinghouse, the other major potential manufacturer of vacuum tubes alongside GE, as a participant in the industry. The two years following the war saw intervention by the U.S. government to assure that American radio industry would not be controlled by British Marconi because of concerns in the navy that British control over radio would render the United States vulnerable to the same tactic Britain used against Germany at the start of the war - cutting off all transoceanic telegraph communications. The navy brokered a deal in 1919 whereby a new company was created - the Radio Corporation of America (RCA) - which bought Marconi's American business. By early 1920, RCA, GE, and AT&T entered into a patent cross-licensing model that would allow each to produce for a market segment: RCA would control transoceanic wireless telegraphy, while GE and AT&T's Western Electric subsidiary would make radio transmitters and sell them under the RCA brand. This left Westinghouse with production facilities developed for the war, but shut out of the existing equipment markets by the patent pool. Launching KDKA Pittsburgh was part of its response:
Westinghouse would create demand for small receivers that it could manufacture without access to the patents held by the pool. The other part of its strategy consisted of acquiring patents that, within a few months, enabled Westinghouse to force its inclusion in the patent pool, redrawing the market division map to give Westinghouse 40 percent of the receiving equipment market. The first part of Westinghouse's strategy, adoption of broadcasting to generate demand for receivers, proved highly successful and in the long run more important. Within two years, there were receivers in 10 percent of American homes. Throughout the 1920S, equipment sales were big business.
Radio stations, however, were not dominated by the equipment manufacturers, or by anyone else for that matter, in the first few years. While the equipment manufacturers did build powerful stations like KDKA Pittsburgh, WJZ Newark, KYW Chicago (Westinghouse), and WGY Schenectady (GE), they did not sell advertising, but rather made their money from equipment sales. These stations did not, in any meaningful sense of the word, dominate the radio sphere in the first few years of radio, as the networks would indeed come to do within a decade. In November 1921, the first five licenses were issued by the Department of Commerce under the new category of "broadcasting" of "news, lectures, entertainment, etc." Within eight months, the department had issued another 453 licenses. Many of these went to universities, churches, and unions, as well as local shops hoping to attract business with their broadcasts. Universities, seeing radio as a vehicle for broadening their role, began broadcasting lectures and educational programming. Seventy-four institutes of higher learning operated stations by the end of 1922. The University of Nebraska offered two-credit courses whose lectures were transmitted over the air. Churches, newspapers, and department stores each forayed into this new space, much as we saw the emergence of Web sites for every organization over the course of the mid-1990s. Thousands of amateurs were experimenting with technical and format innovations. While receivers were substantially cheaper than transmitters, it was still possible to assemble and sell relatively cheap transmitters, for local communications, at prices sufficiently low that thousands of individual amateurs could take to the air. At this point in time, then, it was not yet foreordained that radio would follow the mass-media model, with a small number of well-funded speakers and hordes of passive listeners. Within a short period, however, a combination of technology, business practices, and regulatory decisions did in fact settle on the model, comprised of a small number of advertiser-supported national networks, that came to typify the American broadcast system throughout most of the rest of the century and that became the template for television as well.
Herbert Hoover, then secretary of commerce, played a pivotal role in this development. Throughout the first few years after the war, Hoover had positioned himself as the champion of making control over radio a private market affair, allying himself both with commercial radio interests and with the amateurs against the navy and the postal service, each of which sought some form of nationalization of radio similar to what would happen more or less everywhere else in the world. In 1922, Hoover assembled the first of four annual radio conferences, representing radio manufacturers, broadcasters, and some engineers and amateurs. This forum became Hoover's primary stage. Over the next four years, he used its annual meeting to derive policy recommendations, legitimacy, and cooperation for his regulatory action, all 'without a hint' of authority under the Radio Act of 1912. Hoover relied heavily on the rhetoric of public interest and on the support of amateurs to justify his system of private broadcasting coordinated by the Department of Commerce. From 1922 on, however, he followed a pattern that would systematically benefit large commercial broadcasters over small ones; commercial broadcasters over educational and religious broadcasters; and the one-to-many broadcasts over the point-to-point, small-scale wireless telephony and telegraphy that the amateurs were developing. After January 1922, the department inserted a limitation on amateur licenses, excluding from their coverage the broadcast of "weather reports, market reports, music, concerts, of speeches, news or similar information or entertainment." This, together with a Department of Commerce order to all amateurs to stop broadcasting at 360 meters (the wave assigned broadcasting), effectively limited amateurs to shortwave radio telephony and telegraphy in a set of frequencies then thought to be commercially insignificant. In the summer, the department assigned broadcasters, in addition to 360 meters, another band, at 400 meters. Licenses in this Class B category were reserved for transmitters operating at power levels of 500-1,000 watts, who did not use phonograph records. These limitations on Class B licenses made the newly created channel a feasible home only to broadcasters who could afford the much-more-expensive, high- powered transmitters and could arrange for live broadcasts, rather than simply play phonograph records. The success of this new frequency was not immediate, because many receivers could not tune out stations broadcasting at the two frequencies in order to listen to the other. Hoover, failing to move Congress to amend the radio law to provide him with the power necessary to regulate broadcasting, relied on the recommendations of the Second Radio Conference in 1923 as public support for adopting a new regime, and continued to act without legislative authority. He announced that the broadcast band would be divided in three: high-powered (500-1,000 watts) stations serving large areas would have no interference in those large areas, and would not share frequencies. They would transmit on frequencies between 300 and 545 meters. Medium-powered stations served smaller areas without interference, and would operate at assigned channels between 222 and 300 meters. The remaining low-powered stations would not be eliminated, as the bigger actors wanted, but would remain at 360 meters, with limited hours of operation and geographic reach. Many of these lower-powered broadcasters were educational and religious institutions that perceived Hoover's allocation as a preference for the RCA-GE-AT&T-Westinghouse alliance. Despite his protestations against commercial broadcasting ("If a speech by the President is to be used as the meat in a sandwich of two patent medicine advertisements, there will be no radio left"), Hoover consistently reserved clear channels and issued high-power licenses to commercial broadcasters. The final policy action based on the radio conferences came in 1925, when the Department of Commerce stopped issuing licenses. The result was a secondary market in licenses, in which some religious and educational stations were bought out by commercial concerns. These purchases further gravitated radio toward commercial ownership. The licensing preference for stations that could afford high-powered transmitters, long hours of operation, and compliance with high technical constraints continued after the Radio Act of 1927. As a practical matter, it led to assignment of twenty-one out of the twenty-four clear channel licenses created by the Federal Radio Commission to the newly created network-affiliated stations.
Over the course of this period, tensions also began to emerge within the patent alliance. The phenomenal success of receiver sales tempted Western Electric into that market. In the meantime, AT&T, almost by mistake, began to challenge GE, Westinghouse, and RCA in broadcasting as an outgrowth of its attempt to create a broadcast common-carriage facility. Despite the successes of broadcast and receiver sales, it was not clear in 1922-1923 how the cost of setting up and maintaining stations would be paid for. In England, a tax was levied on radio sets, and its revenue used to fund the BBC. No such proposal was considered in the United States, but the editor of Radio Broadcast proposed a national endowed fund, like those that support public libraries and museums, and in 1924, a committee of New York businessmen solicited public donations to fund broadcasters (the response was so pitiful that the funds were returned to their donors). AT&T was the only company to offer a solution. Building on its telephone service experience, it offered radio telephony to the public for a fee. Genuine wireless telephony, even mobile telephony, had been the subject of experimentation since the second decade of radio, but that was not what AT&T offered. In February 1922, AT&T established WEAF in New York, a broadcast station over which AT&T was to provide no programming of its own, but instead would enable the public or program providers to pay on a per-time basis. AT&T treated this service as a form of wireless telephony so that it would fall, under the patent alliance agreements of 1920, under the exclusive control of AT&T.
RCA, Westinghouse, and GE could not compete in this area. "Toll broadcasting" was not a success by its own terms. There was insufficient demand for communicating with the public to sustain a full schedule that would interest listeners tuning into the station. As a result, AT&T produced its own programming. In order to increase the potential audience for its transmissions while using its advantage in wired facilities, AT&T experimented with remote transmissions, such as live reports from sports events, and with simultaneous transmissions of its broadcasts by other stations, connected to its New York feed by cable. In its effort to launch toll broadcasting, AT&T found itself by mid- 1923 with the first functioning precursor to an advertiser-supported broadcast network.
The alliance members now threatened each other: AT&T threatened to enter into receiver manufacturing and broadcast, and the RCA alliance, with its powerful stations, threatened to adopt "toll broadcasting," or advertiser-supported radio. The patent allies submitted their dispute to an arbitrator, who was to interpret the 1920 agreements, reached at a time of wireless telegraphy, to divide the spoils of the broadcast world of 1924. In late 1924, me arbitrator found for RCA-GE-Westinghouse on almost all issues. Capitalizing on RCA's difficulties with the antitrust authorities and congressional hearings over aggressive monopolization practices in the receiving set market, however, AT&T countered that if the 1920 agreements meant what the arbitrator said they meant, they were a combination in restraint of trade to which AT&T would not adhere. Bargaining in the shadow of the mutual threats of contract and antitrust actions, the former allies reached a solution that formed the basis of future radio broadcasting. AT&T would leave broadcasting. A new company, owned by RCA, GE, and Westinghouse would be formed, and would purchase AT&T's stations. The new company would enter into a long-term contract with AT&T to provide the long-distance communications necessary to set up the broadcast network that David Sarnoff envisioned as the future of broadcast. This new entity would, in 1926, become the National Broadcasting Company (NBC). AT&T's WEAF station would become the center of one of NBC's two networks, and the division arrived at would thereafter form the basis of the broadcast system in the United States.
By the middle of 1926, then, the institutional and organizational elements that became the American broadcast system were, to a great extent, in place. The idea of government monopoly over broadcasting, which became dominant in Great Britain, Europe, and their former colonies, was forever abandoned. The idea of a private-property regime in spectrum, which had been advocated by commercial broadcasters to spur investment in broadcast, was rejected on the backdrop of other battles over conservation of federal re-sources. The Radio Act of 1927, passed by Congress in record speed a few months after a court invalidated Hoover's entire regulatory edifice as lacking legal foundation, enacted this framework as the basic structure of American broadcast. A relatively small group of commercial broadcasters and equipment manufacturers took the lead in broadcast development. A govern-mental regulatory agency, using a standard of "the public good," allocated frequency, time, and power assignments to minimize interference and to resolve conflicts. The public good, by and large, correlated to the needs of commercial broadcasters and their listeners. Later, the broadcast networks supplanted the patent alliance as the primary force to which the Federal Radio Commission paid heed. The early 1930S still saw battles over the degree of freedom that these networks had to pursue their own commercial interests, free of regulation (studied in Robert McChesney's work). By that point, however, the power of the broadcasters was already too great to be seriously challenged. Interests like those of the amateurs, whose romantic pioneering mantle still held strong purchase on the process, educational institutions, and religious organizations continued to exercise some force on the allocation and management of the spectrum. However, they were addressed on the periphery of the broadcast platform, leaving the public sphere to be largely mediated by a tiny number of commercial entities running a controlled, advertiser-supported platform of mass media. Following the settlement around radio, there were no more genuine inflection points in the structure of mass media. Television followed radio, and was even more concentrated. Cable networks and satellite networks varied to some extent, but retained the basic advertiser-supported model, oriented toward luring the widest possible audience to view the advertising that paid for the programming.”
The Wealth of Networks: How Social Production Transforms Markets and Freedom, Yochai Benkler, Yale University Press, 2006