The first radio I ever saw was a primitive crystal set. A friend clamped the earphones on me and I was dumbfounded. It was hard to believe that I was hearing music out of the air and I never got over the surprise and the fascination. I quickly found someone to build such a set for me, because there were no ready-made radio sets at the time. As a radio fan in Philadelphia, I often sat up all night, glued to my set, listening and marveling at the voices and music which came into my ears from distant places. A few years later I became a sponsor.
While my father and uncle were on a trip in Europe, leaving me more or less in charge, I bought an hour program to advertise La Palina cigars on the local station WCAU. Cost? The munificent sum of $50 per broadcast. But when they returned, my uncle upon going over the books immediately spotted the new expenditure. “What kind of foolishness is this?” he demanded. “Cancel it right now.” Reluctantly, I followed instructions.
A few weeks later at a luncheon, my father remarked, “Hundreds of thousands of dollars we’ve been spending on newspapers and magazines and no one has ever said anything to me about those ads, but now people are asking me ‘What happened to the La Palina Hour?’ ” A feeling of vindication rose within me, for I had argued about advertising on radio with my uncle, and to my surprise, my uncle now agreed. He admitted to my father that he had ordered me to cancel the program and that he had since been asked about the program by friends. So, he said, perhaps he had been wrong.
At about the same time, my father was approached by one of his very close friends, Jerome Louchheim, a well-known and highly successful building contractor in Philadelphia, with a personal appeal that Congress Cigar advertise its La Palinas on a small radio network in which he had recently bought a controlling interest. The network, called the United Independent Broadcasters, was still in financial difficulties in New York City and Louchheim asked for my father’s advertising as a token of his personal friendship. So, my father agreed to advertise and put me in charge of organizing a program. I put together a program called The La Palina Smoker, a half-hour show that featured an orchestra, a female vocalist whom we called “Miss La Palina,” and a comedian as a master of ceremonies. It turned out to be a pretty good show.
Over the next six months I made frequent trips to the United Independent Broadcasters’ offices in New York and became rather well acquainted with this little network and its activities. UIB had been formed by Arthur Judson, the celebrated concert manager, and a few associates, as a vehicle for putting the classical musicians he represented on the air. Incorporating the network on January 27, 1927, Judson had arranged with the Columbia Phonograph Company that in exchange for its financial backing, the network would be known on the air as the Columbia Phonograph Broadcasting System. He had managed over that first year to sign up sixteen stations as network affiliates, each of which would receive ten or so hours of air time a week from the network.
Arthur Judson and his associates had a lot of trouble getting on the air. But after eight months of strenuous preparations, the network made its debut on Sunday, September 18, 1927, with its own twenty-two-piece orchestra. That same evening, it put on an ambitious performance of the Deems Taylor–Edna St. Vincent Millay opera, The King’s Henchman, featuring artists from the Metropolitan Opera Company. It was a gala premiere and a great achievement, but at a cost they were unable to bear. The UIB group went broke and was unable to meet its payroll. Hearing of the network’s financial distress, Isaac and Leon Levy, who owned station WCAU in Philadelphia, an affiliate of UIB, brought the wealthy Jerome Louchheim to the rescue. Louchheim bought an interest in the network and was elected chairman of the board of directors on November 7, 1927, and the Levys bought a smaller portion of its stock.
Shortly afterward, the Columbia Phonograph Company withdrew its participation, accepting free advertising time in payment for its interest. UIB then dropped the word “Phonograph” but continued to use the name Columbia Broadcasting System on the air. In its first full year of operation, UIB had taken in $176,737 in net sales and had paid out $396,803, for a net loss of $220,066. Louchheim had failed in all his efforts to turn the company around.
Some ten months after taking over and having bought the controlling interest in the company, he approached my father and offered to sell the network to him, saying, “Sam, why don’t you buy it from me? You at least have a cigar to advertise and you can make some use out of it. I can’t use it; I have nothing even to try to sell over it.” My father later repeated the gist of this conversation to me, as well as his answer: he had no interest in the matter whatsoever. Louchheim had told him he had bought “a lemon,” that the network’s books were a mess, and that he wanted out. But my father did not want to invest his money in such a venture.
I became tremendously excited at the prospect and the network’s shaky condition did not deter me. It was the great promise of radio itself that impelled me to act and to act immediately. I did not know what it would cost to buy control of UIB or whether Louchheim would sell it to me. But I had the money to buy it. I had about a million dollars of my own and I was willing to risk any or all of it in radio.
The source of that million dollars was a family affair. When I went to work for Congress Cigar in 1922, my father put a block of its stock in my name. As the company was privately owned by the Paley family (except for a modest amount of stock owned by Willis Andruss), Congress Cigar stock then had no known market value. Financially speaking, my shares did not impress me at the time. But in 1926, Congress Cigar went public with the sale of 70,000 shares, and the company was listed on the New York Stock Exchange. After the sale, 280,000 shares remained privately held. The following year my father arranged to sell 200,000 shares to the Porto Rican-American Tobacco Company, and my father and Uncle Jay entered into an employment contract to continue running the company for a number of years (they retired in 1931). Some of my stock went with these sales and so I came to have on my own account a little over a million dollars. This was the money I always regarded as sacrosanct, not to be spent or invested without my father’s approval.
Nevertheless, on my own I went to see Louchheim whom I had long known as a family friend. He was much older than I, rich, and an important figure in Philadelphia, a man who did not waste words. A bit in awe of him and in view of my youth, I feared that he might think I was not serious about what I had to say. But I told him straight out: I wanted an option to buy his UIB stock, or a substantial amount of it.
Louchheim, it turned out, owned about 60 per cent of the shares in the company. I asked for just over 50 per cent, that is, just enough to secure absolute control. We settled on 50.3 per cent. He asked for $200 a share, though I had no real way to judge the value of the stock. That came to $503,000, and I must say I did not blink an eye. I was satisfied because the sum came to only about half of my personal fortune. I knew that I would have to put in more, perhaps all of what I had when I got into the network. Indeed as part of the deal with Louchheim, I agreed also to place $100,000 in acceptable securities with the American Telephone & Telegraph Company as a bond for its wire services, in place of the similar bond which Louchheim had put up. UIB itself still did not have sufficient funds for the bond. In exchange, I got Louchheim to agree to place his remaining shares in a voting trust for five years—with the important provision that the Voting Trustee would vote for directors whom I nominated—an arrangement that further secured my control and made sure that my management policies in UIB would be stable at the directors’ level.
Louchheim, for his part, drove a conventional hard bargain. The price of the option he said would be $45,000, to be applied to the purchase price when I picked up the option, to be forfeited if I did not. The option was to run ten days. I am able to be so precise about these terms because I still have in my possession a copy of that option-contract. It is dated September 19, 1928. I was still in my twenty-sixth year.
I cannot recall just when I went to my father to ask his approval. Ours was an old-fashioned relationship in which he was the authority figure, especially when it concerned money I had received from Congress Cigar stock. But in this instance there was another ticklish question. The problem was how my desire to go up to New York and run UIB might affect my position as his heir-apparent in the cigar company. The fact that as a family we no longer held the controlling stock in Congress Cigar, and that my father and Uncle Jay had a limited contract to manage the business, left me somewhat freer than I might have been otherwise. Nevertheless, it was still my intention to continue in my father’s footsteps. I would promise only to take a leave of absence for a few months to put the network in shape and then to leave it to be operated by a professional management while I returned to my career in the cigar business. I knew my father expected to pass the management of the business on to me, so I had to explain my intentions to him.
On the other hand, I realized that my father would be disturbed if he thought his disapproval would embarrass me. I was troubled even by the thought of possibly disturbing him. Our relationship was then a crucial thing in my life. Family tradition, going back to my childhood, prevented either of us from knowingly giving offense to the other. It was also in our style to be polite and somewhat formal with each other. My father had always believed in giving me or letting me take responsibilities, even in fields where I had little experience. I was very conscious as a young man of my father’s confidence in me. It was not an uncomplicated confidence. We had our differences in philosophic outlook. My father, a self-made man who had known adversity, was far more cautious than I and, despite his confidence in me, he thought me rather rash. He also had a strong preference for tangible things: land, factories, physical products. UIB had nothing but office furniture; no radio station of its own, no tangible properties; just prospects. So, with considerable trepidation in my heart, my plans hanging in the balance, I approached my father. I put it to him straight: did he think I should do it or not?
He asked for a day to think it over and then he surprised me. “Yes, I would do it,” he declared. And he went further: he and the family would relieve me of some of the burden; they would join me in buying some of Louchheim’s stock. They took approximately $100,000 worth of stock, leaving me with about $400,000 worth. Later, I asked him why he was so congenial about it and he explained: “Well, I figured that if it were a failure, you’d lose some money, but you’d have gained a lot of experience. And if it were a success, what you were going into seemed to be more interesting. It would give you a more interesting world to work in than the field I was in. So, on balance, I didn’t think it was a bad risk.” He also anticipated something I didn’t: that if I made a go of it, I would not come back.
On September 25, I closed the deal and on the next day, September 26, 1928, was elected president of a patchwork, money-losing little company called United Independent Broadcasters.
I left Philadelphia for New York unaware that I was starting a new life. I moved into an apartment in the Elysée, a smart little hotel on Fifty-fourth Street between Madison and Park, which had one of the best French restaurants in town. The economy was booming, the stock market had begun its last wild rise before the crash, and the theatrical district, through which I passed on the way to work, was in its glory. The marquees read Strange Interlude, Show Boat, Animal Crackers, George White’s Scandals, This Thing Called Love, The Front Page and a score of others. I attended the theater many evenings during the 1928–29 season.
My office high above the Paramount movie theater was geographically at the hub of this playland, but only geographically. In comparison with stage and screen, radio then ranked nowhere in show business. In the twenties, movie stars disdained the upstart medium. Only musicians took to it. Radio was for music, popular and classical, along with bits of news, talks, vaudeville-like skits and, on occasion, the broadcasting of big events such as political conventions. A native radio art had not yet been created. But I had the gut feeling that radio was on the threshold of a great awakening, that marvelous things were about to happen and that I had come to the medium at the right moment.
UIB had about a dozen employees in a few offices on one floor of the narrow Paramount tower. Most of the money spent in furnishing the suite had gone into the large, fancy, wood-paneled head office, which seemed to have been designed by UIB’s early promoters to impress advertisers and prospective investors in the network. On the day of my arrival a new office boy, Albert Bryant, a stocky fellow with a sober face and a witty smile (he would later become a CBS executive) saw me as a callow youth like himself, without any real business to attend to. Bryant barred my way and insisted on a good deal of identification before he would let me in. It was the first hint of how I would be received. Although I wore clothes styled for older men, for the next few years I would usually be addressed as “Young man . . .” as if some pearl of wisdom or admonishment were about to follow.
The nominal head of the network when I arrived was Major J. Andrew White, a good broadcaster, who was known around town for his natty dress, which included a pince-nez with a ribbon and a white carnation in his lapel. He had style. He asked me one day for an advance of $500 and, when I gave him the money, he said, “Thanks, it’s going for a secondhand Rolls-Royce.” Major White understood radio at the microphone. But the business of radio or radio operations were not his talent or even within his knowledge. He took no offense about standing aside when I took over. He was happy to have someone take over the day-by-day running of the network, while he put programs together.
In those days we didn’t make records or tapes. We auditioned programs live. The potential sponsor would sit in one room and listen to the program, which would be wired in live from a studio performance. Major White would introduce it, saying who was in it and what it was about. The show then would go on and the person we were trying to sell would listen and buy it or not. Major White was adept at presenting programs in this way and on the air. For a time I put him in charge of programs, and since I did not intend to stay long, I kept myself in the background while Major White continued as public spokesman for the network.
Some of the original group stayed on in CBS for many years, even to retirement. Some were not in the right job. Major White had brought in one young radio announcer as his assistant and office manager, which was typical of the confused state of affairs. He had no idea how to manage an office. He drove me crazy, giving me the wrong answers to everything. One day soon after I arrived, Major White was ill and unable to broadcast a football game. So with my fingers crossed, I sent the inept office manager to Chicago to substitute for White. He had told me he had had some experience broadcasting local sporting events. As a result I lost an impossible office manager and gained the best and most famous sportscaster in the country—Ted Husing.
I could see why Jerome Louchheim had sold me his interest in the company. There was no one there who could grasp all of the strands that had to be pulled together to make the network a success. So, once I settled in, I began to analyze our problems and priorities.
The network was too small. We needed many more station affiliates to give us national coverage if we were to compete with the much larger National Broadcasting Company. We needed programs that would attract a larger audience and give us, in the language of the trade, “substantial circulation.” We had to sell time to advertisers. We had to build an organization in a field in which there was little experience to go on. Most important, we had to get control of the finances. We were not going to break even that year, but we had to slow down our losses.
All these matters needed attention more or less at once. But there were some logical priorities and there was one lifesaver: 1928 was a presidential election year. Herbert Hoover and Al Smith were engaged in a lively campaign in which whistle-stop journeys were no longer sufficient. Radio played an important part on both sides. The Republican and Democratic parties in their local and national election campaigns would spend a couple of million dollars on radio time. NBC got the lions’ share and we got the overflow business, perhaps a couple of hundred thousand dollars. Without it, the need for immediate revenues would have been the first order of business.
In sorting out the other problems, I could see that building an organization would take months of time and trial. Programming would take time and so would the development of contacts with advertisers and ad agencies. It was apparent I would have to take on that job. But most pressing was the problem of expanding the size and designing the composition of the network itself.
When I arrived on the scene, AT&T had not yet completed its radio line from coast to coast. The final link between Denver and Salt Lake City was scheduled for December, less than three months away. The only coast-to-coast broadcasting was done up to then on a temporary and irregular basis through the use of long-distance telephone lines. But the real thing—permanent radio lines—was coming by Christmas 1928. NBC had kept up with the development of radio lines, and, with the last link in place, would be prepared to announce the first regular national network. UIB had not kept up. But the opportunity was still there to catch up in several areas of the country and to race NBC for the Christmas announcement.
We had affiliations with only sixteen stations in eleven states, permanently connected by AT&T, which formed the nucleus of our network. Their call letters are still music to my ears: WNAC (Boston), WEAN (Providence), WABC (New York City—later changed to WCBS), WOR (Newark), WCAU (Philadelphia), WFBL (Syracuse), WMAK (Buffalo), WJAS (Pittsburgh), WKRC (Cincinnati), WADC (Akron), WAIU (Columbus, Ohio), WGHP (Detroit), KMOX (St. Louis), WJAZ and WMAQ (Chicago), KOIL (Council Bluffs, Iowa, near Omaha, Nebraska). I have a number of these old-fashioned microphones in my office today.
Compared with NBC, this was not much of a network. NBC had fifty-odd affiliated stations in its two major networks—the “Red” and “Blue,” plus a regional “Orange” network on the West Coast. Behind it stood the resources of the great Radio Corporation of America (RCA). RCA had formed NBC in 1926 by consolidating its own small network with a larger one owned by the American Telephone & Telegraph Company. NBC (in which General Electric and Westinghouse were minority shareholders until 1930) bought the AT&T network for one million dollars (that became the Red Network) and combined it with RCA’s network (the Blue). In setting up NBC as its broadcasting arm, RCA had a major motive which our fledgling network did not: as a manufacturer of equipment, RCA wanted to create a demand for its radio sets as much as to create radio programs.
Whatever its motivation, RCA was aggressively expanding NBC and our competition was not welcome. Indeed it was not even acknowledged. Not long after I came to New York, I asked somebody to arrange a meeting for me with Merlin H. Aylesworth, then president of NBC, so that we could know each other and talk about the future of radio. My friend came back two days later, ashamed, and reported he could not arrange the meeting. He said Mr. Aylesworth had thought about my request and said he didn’t want to meet me, because if he did, that would mean that they were acknowledging us as competition. As a matter of policy, NBC did not recognize CBS, just as an established nation might not recognize a newly formed state. He wanted to keep it that way. Aylesworth said we were too small. It made me wonder. Later we met and became very friendly.
The first order of business, if I were to succeed in making UIB grow, was to change the basic document of networking, the contract between the network and its affiliates. The original 1927 contract had played a major role in almost breaking the company financially. It had obligated the network to buy ten hours a week from each station affiliate at $50 an hour. Under the various contracts with the affiliated stations, which differed somewhat, the network was committed to pay out some $7,000 a week, whether or not it sold sufficient time to sponsors to cover that cost.
When Jerome Louchheim had taken over the network, they tried to plug the drain on the company’s cash with a new formula. Their new contract required the network as before to pay the stations for the time it used for commercial programs, but it now obliged the stations to pay UIB for the sustaining programs originated by the network. However, after operating for the better part of the year under this new contract, the company was still losing money. It just did not have enough sponsored programs to pay its total operating costs and the stations did not buy enough sustaining programs to cover our losses.
So, I decided to revise the contract once more in order not to make it less, but to make it more attractive to station affiliates. I hoped to attract additional stations to the network and at the same time I wanted the contract to protect the network from financial losses. I devised a package of compensations giving something of greater value to each side. I proposed the concept of free sustaining service: that is, to make the sustaining programs available to the affiliates at no cost. And I took the bit in my teeth: I would guarantee not ten but twenty hours of programming per week, pay the stations $50 an hour for the commercial hours used, but with a new proviso. The network would not pay the stations for the first five hours of commercial programming time; that is, we would pay the affiliates $50 an hour for all commercial time used in excess of five hours a week. The twenty contract hours were set forth at specified times, and to allow for the possibility of more business to come, the network was to receive an option on additional time.
And for the first time, we were to have exclusive rights for network broadcasting through the affiliate. That meant the local station could not use its facilities for any other broadcasting network. I added one more innovation which helped our cause: local stations would have to identify our programs with the CBS name.
This new arrangement was beneficial for both parties, for in those days local radio stations had plenty of time on the air to dispense and little cash. We offered programs of a quality that no local station could produce; and by going to twenty hours of such programming we could “sustain” a local station. On our side of the deal, the five free hours of commercial time assured us of some income that we could keep.
We put this proposition to our existing affiliates and received their agreement in November 1928. That put us in a position to offer it as an attraction to other local stations among the four or five hundred then operating in the United States, some of them hooked up to small regional networks. By telegram I invited a carefully selected number of unaffiliated stations from the South to a meeting in New York City. Twelve of their representatives came. This was a crucial meeting for me. We met in a room at the Ambassador Hotel, where I presented them with all the advantages of affiliation under my new formula for sharing commercial and sustaining time on the air. After some debate over the terms and conditions, the meeting ended with every station signing up. Suddenly, in one day, we had a southern leg to our network. Later, a few more stations came in from the Middle West and signed up. The Pacific coast remained a tantalizing plum, if we were to become nationwide.
The only possibility of our getting to the West Coast quickly was to hook into a regional network. There was one West Coast group called the American Broadcasting Company (no relation to the present network of that name) with headquarters in Seattle and five stations along the coast, plus one in Salt Lake City and one in Denver, with an AT&T-leased landline from Denver to the coast. Our relations with this network were rather unreliable. It claimed to be the third-largest network in the country, but it went into receivership the following August and vanished, leaving a new problem.
It was a hectic, busy two months—November and December—in which I was scurrying about trying to sign up affiliates and at the same time to acquire a station of our own. Operating on alternate nights on leased time from WABC (New York) and WOR (Newark), we badly needed our own station from which to originate programs. I negotiated with WABC and WOR, both of which were willing to sell. Simply because it was cheaper, we bought WABC in December 1928 for $390,000. The acquisition gave us a transmitting station and a studio on top of Steinway Hall on Fifty-seventh Street—and also some unusual assets of the WABC company, Atlantic Broadcasting. Desperate to sell local time, the station management often accepted merchandise instead of money. And so, coming to us with our purchase of a radio station were live chickens, kitchen appliances, pieces of jewelry, and whatnot. UIB’s fixed assets—in furniture, equipment, and improvements to leased premises—amounted to only about $25,000. Everything else was rather airy. The net worth of WABC at book value was about $130,000; the difference between that and the purchase price we listed in our books under the old accounting euphemism “Good Will.”
Where did we get the money? For that kind of expansion, we were undercapitalized. We issued 2,500 new shares of our stock at $200 a share to raise $500,000. I subscribed to about $200,000, raising my total investment to $600,000. The other shareholders took up the rest.
During this hectic autumn, one goal slid away almost unnoticed and was lost forever: my intention to return to my father’s cigar company. Only in retrospect would I realize how lucky I had been to have been there, on the scene, when the technologies of mass production, national advertising and national communications in broadcasting came together. At the time, I had some intimations of the future, but I really did not dwell on the bigger picture. I simply realized that I had an affinity for this new life in broadcasting. I loved what I was doing every day. The decision to make broadcasting the core of my new life came over me naturally, and my father took my decision just as naturally.