Music’s tech nightmare: Part 3 – No spoils for this Victor

Part 3 – No spoils for this Victor: In part 2 we left off with the Western Electric company finally developing and perfecting a system of electrical recording, solving a problem which literally the entire record industry had been trying unsuccessfully to fix. But at this point, nobody outside of Western Electric, especially no-one in the record industry, even knew they were looking at the issue. Let alone that they had nailed it.

The first person from the industry who found out was actually Emil Berliner, the inventor of the gramophone back in the 1880s. You see before he revolutionised the record business with his flat disc concept, he had invented a brilliant telephone microphone. This remarkable microphone so impressed the top brass at the Bell telephone company they paid him a fortune for it and asked him to join them. Which he did.

Since then Bell had evolved into AT&T and while Berliner too had moved on from the company many years before (to revolutionise music as it turned out), a good number of his old work pals had stuck around and were now working at AT&T’s innovation arm, Western Electric. When passing through New York Berliner paid them a social call and they showed him what they happened to be working on – this clever new electrical recording idea. Berliner was blown away. Here at last was a working solution to the problem that had bedevilled the industry for so long. This was going to change everything.

By now Berliner’s US business had ended up as part of Victor Company, run by his former collaborator Eldridge Johnson and the US partner of the Gramophone Company in London. So Berliner put Western Electric in touch with Victor. If and when Victor got access to this breakthrough technology, The Gramophone Company would too through their connections and cross shareholdings with each other. Introduction made, Berliner left them to it. 

Eldridge Johnson

Eldridge Johnson

Now Western Electric was not in the habit of doling out their inventions to others. Any deal with any of these recording companies was going to come with a hefty royalty, of that you could be sure. Plus, they weren’t interested in doing their business in the public eye.

In fact so secretive were Western Electric that they insisted on keeping their negotiations with Victor completely behind closed doors. No word was allowed to leak out to any one else. Which also meant they couldn’t possibly use the pressing plants of any of the big companies for their test records as they couldn’t be trusted. They needed to go to one of the smaller, more niche players. Like Pathé.

For Hunting and Capps, producing records for a third party was not that unusual in itself. But Western Electric’s insistence on such over the top secrecy made them more than a little curious about what all the fuss was about. So, before sending the discs back to Western Electric, they had a sly little listen. And just like Berliner before them, what they heard completely blew their minds too.

A short while later, Louis Sterling received an urgent package at his office in Columbia in London. It was a letter from Capps together with some of those Western Electric test pressings. Neither side ever disclosed exactly how those copies were obtained so we won’t speculate either. From reading Capps’ letter Sterling knew that Victor was in pole position to secure exclusive rights from Western Electric. If that happened, Columbia’s old school acoustic recordings would become obsolete overnight. This was existential.

There was no time to lose. Sterling had to get to New York as quickly as possible to stop this calamity from happening.

Given that this was 1924, the quickest was to cross the Atlantic, indeed the only way to cross the Atlantic, was by ship. Commercial flights between Europe and the US were still 15 years away. Sterling didn’t delay and boarded the fastest boat on the Atlantic crossing, the RMS Mauretania, on Boxing Day, 1924. Before he left, he cabled Capps imploring him to do all he could to delay the Western Electric negotiations with Victor to avert disaster.

RMS Mauretania – the fastest ship on the Atlantic

RMS Mauretania – the fastest ship on the Atlantic

As he departed, the situation was in many ways even more serious and much worse for Columbia than Sterling realised. The negotiations between Western Electric and Victor weren’t just far advanced but complete. Terms had been agreed, contracts drawn up. All that was needed was the signature of Victor’s chairman, Eldridge Johnson, and the deal would be done.

As Sterling set sail on his four day journey to New York, the contract was literally sitting on Eldridge Johnson’s desk, waiting for his signature.

However the contract had been sitting, unsigned, on Johnson’s desk for over a month at this point. It remained unsigned not because of any misgivings by Johnson, but because Johnson had not come into the office at all – he was at his home, sick with serious depression. 

Completely unaware of any of this, Sterling arrived in New York and immediately went to Western Electric. When Louis Sterling was on a mission it was a case of get on or get out of the way.

It took him a week of unrelenting persistence, but finally he persuaded Western Electric that it was not in their interest to grant a monopoly of this revolutionary technology to just one company when instead they could collect royalties on every record produced by everyone.

And so, just like that, Victor lost their chance for exclusivity. Sterling had achieved a remarkable victory and Western Electric began negotiations with everyone. Well almost everyone. 

Having been convinced by Sterling that the best course of action wasn’t in fact an exclusive deal, Western Electric still managed to deliver another curve ball to the industry by deciding that they were going to only license their revolutionary technology to American companies. Why? We don’t know, but that was their (new) position.

The Gramophone Company didn’t have to worry as they were so closely linked with Victor. But Columbia was a different story. Columbia US was yet again, again! in dire financial straits. You can almost feel Louis Sterling’s frustration even now. He had single-handedly saved most of the recording industry, without any of them asking or frankly being aware.

And yet here, at the moment of triumph, the legal separation from its perennially insolvent American arm which had served Columbia UK so well, had switched in an instant from a source of immense strength to a liability of nightmarish proportions. Sterling, the architect of this bright future for the record industry, was facing the prospect of being frozen out solely because his company was based in London. This despite the fact that while legally based in London Columbia UK was actually listed on the New York Stock Exchange and not in London, and Sterling himself of course was American!

But if anybody could find a way through this mess, you just know it was going to be Sterling. He was smart, determined and resourceful and had a brilliant plan. If Columbia UK had the money but not the nationality, and Columbia US had the nationality but not the money, then the solution was elegantly simple, if unprecedented and audacious.

In 1925, Columbia UK took a controlling 60 per cent stake in its former US parent company. Within a year the UK company owned almost all of Columbia US, and Sterling didn’t stop there. In this same year alone, 1926, Sterling scooped up the leading record company in Germany, Carl Lindstrom, American jazz and dance label Okeh and Japan’s Nipponophone to its roster.

From being a whisker away from disaster, Sterling had steered Columbia UK into being the biggest record company in the world – and with the revolutionary Western Electric technology at its disposal.

Recording had finally, finally, secured its long term future. The future was bright.

And Sterling was far from done. While finally solving the problem of the really-not-very-good quality of acoustic recording, another threat was looming large over the record business – radio. Broadcasting was growing rapidly, and music was then as now a central feature of its programming.

The tension between the music industry, which makes money from the commercialisation of music, and others, who use music to enhance their own commercial prospects, is nothing new. In 1847 Parisian composer Ernest Bourget refused to pay for a meal he had just eaten at a restaurant on the basis that he hadn’t been paid for the use of his composition by the band who had been performing it while he ate. The restaurant argued that once published, Bourget’s songs, all songs belonged to everyone. Lawsuits ensued, and Bourget won, which is why all venues that play music now need to buy a license and pay for that music.

Ernest Bourget – arguably responsible for more money reaching artists than anyone in history

Ernest Bourget – arguably responsible for more money reaching artists than anyone in history

In the 1920s it was radio that was the shiny new technology which argued, just like that restaurateur in Paris nearly a century earlier, that it was helping the music industry by playing and promoting its wares and therefore had no obligations to pay. Meanwhile the music industry, just like Bourget, felt that radio stations were profiting of its wares and they expected some kind of financial recognition of that.

Sterling had this one figured out as well, addressing the issue in typically bold style. Columbia expanded into broadcasting. In 1927 it bought a small New York radio network called United Independent Broadcasters that was in desperate need of new investment to keep going. Columbia’s injection of capital saved the network and the company changed its name to the Columbia Phonograph Broadcasting System (CPBS).

Family radio time in 1920 – it’ll get better, we promise

Family radio time in 1920 – it’ll get better, we promise

However yet again Sterling found himself up against AT&T. Not just its research arm this time but the core business as CPBS needed AT&T’s copper landlines to syndicate its programming around the country. And AT&T was not going to give this upstart technology radio any kind of favours, that just wasn’t its style. Its charges for using its network were substantial. The fact that it was the only company capable of performing this service no doubt was nothing more than a coincidence. 

Despite his vote of confidence in radio by directing Columbia’s investment in the network, Sterling was not up for another bruising fight with AT&T. Columbia’s injection of cash had helped CPBS stay afloat and establish itself and so just a year later Sterling sold out of CPBS.

Now back to being an independent broadcaster again after its short but clearly influential time as part of a larger media and entertainment company, management of the radio network decided not to revert to their prior name following this change of ownership. Rather they chose to stick with their new name – almost. They dropped the ‘Phonograph’, but that was all. So rather than CPBS, they would be known as CBS. Yes. That CBS.

So if you ever wondered what the initials of CBS stood for, it’s Columbia Broadcasting System. The Columbia in CBS’s name is Sterling’s Columbia, and yes CBS would end up buying the US arm of Columbia in 1938, today’s Columbia Records. (And incidentally CBS would not pay any licensing fees to record companies – including their own – for playing music on their radio network, the one saved by Louis Sterling. In the US, the performance right in copyright law has never been extended to radio play.)

Ernest Bourget would for sure have had something – actually probably quite a lot – to say about that.