From the telegraph to the modern age, high technology has seen continuous innovation, followed by the rise of numerous competitors, then consolidation into fewer companies, and finally decline. Here is one of our favorite stories.
The advent of television rivals the automobile, airplane, telephone, personal computer, and Internet in its impact on the lives of people. Few technologies touch as many people on a daily basis around the globe as much as TV and its descendants cable, satellite, and streaming.
By the 1920s, when radio first rose to prominence, inventors and researchers were already working on radio’s natural child, television. Major companies including General Electric and Westinghouse began to bring together vacuum tube and the other technologies required to make television a reality, but it was the Radio Corporation of America (RCA) that led the way. At the 1939-40 World’s Fair in Flushing Meadow, Queens, New York, RCA premiered television, thrilling the millions of visitors to the Fair.
To understand television, we need to first take a glimpse at the evolution of radio.
RCA itself was born out of efforts to consolidate (monopolize?) the radio industry just after World War I. Engaged in patent battles over the emerging technology of radio, General Electric convinced competitors Westinghouse, American Telephone & Telegraph, and United Fruit (which used ship-to-shore radio on its banana boats) to merge their radio interests into one powerful company which they controlled: RCA. This effort had the support of the US government, particularly the Navy, which wanted to ensure that future radio inventions were American, not controlled by the British Marconi Company which was the “first-mover” in radio. Thus, the British were forced to sell their American operations and related patent rights to the newly formed RCA in 1919.
But RCA soon achieved independence from GE and its other owners under the brilliant leadership of David Sarnoff, a Russian Jewish immigrant who had started with the Marconi Company at the age of fifteen. Under RCA control, Sarnoff created the National Broadcasting Company (NBC), the dominant network in the early years of radio. In order to get music to play on his network, Sarnoff also bought the Victor Talking Machine Company, the leading maker of phonographs and records, with large manufacturing facilities in Camden, New Jersey. When the massive Rockefeller Center mixed-use complex opened in Manhattan, it was in large part “Radio City.” The tallest building was named the RCA building, opened in 1933, and the company had its NBC studios in Rockefeller Center at “30 Rock,” where they remain today.
In a pattern common to new consumer electrical technologies, radio took off rapidly. The first commercial radio station, Westinghouse’s KDKA in Pittsburgh, came on the air in 1920. Within five years, over 600 stations were in operation.
Sales of radio receivers to consumers rose from $50 million in 1923 to $207 million in 1926 and $366 million in 1929 (over $5.5 billion in 2021 dollars). While RCA was a leading maker of those receivers, with a market share of 15-20%, it dominated the more complex manufacture of the tubes and other components, as well as collecting patent royalties from other makers. Again in a typical pattern, there was a “goldrush” into the new technology: over 600 companies assembled and sold radio receivers in the 1920s. Continuing in the normal pattern, there was a shakeout: competition and the Depression wiped out most of the early radio makers like Atwater Kent and Grigsby-Grunow as well as later entrants. Only 18 radio manufacturers and assemblers remained in business by 1934.
In addition to RCA, the largest of those surviving radio makers were Philadelphia’s Philco and Chicago’s Zenith. Smaller competitors included Motorola (which specialized in car radios) and Crosley.
Television Comes Along
Immediately after its 1939 World’s Fair premiere, RCA tried to sell television receivers to the public. But there were few programs to watch and the tiny sets were expensive, so this time the market did not take off. Nevertheless, all those in the radio industry knew that television would succeed sooner or later.
With their experience in radio, Philco and Zenith were quick to follow RCA into the television business. These competitors, along with the second major broadcast network Columbia Broadcasting System (CBS), skirmished with RCA over the technical standards for television, but RCA’s system won out when the National Television System Committee (NTSC) adopted the RCA approach.
Then, as the nation converted to war production, the manufacture of television sets was banned by the government in 1941. Technical innovations developed during the war like radar made TV better, but the war put TV on hold.
After adjusting to peacetime production, establishing more TV stations, and developing more programming, television was again ready to roll by the end of the 1940s, beginning in New York City. (If you watch the wonderful 1948 film noir The Naked City, shot live in the streets of New York, you will see apartment residents hanging out of their windows, sitting on fire escapes, talking to neighbors. Just a year later, such scenes became nearly impossible to film, as TV drew people indoors.)
In 1948, about 800,000 television receivers were sold. Two years later, 1950 sales were 7.5 million and remained at 5-6 million per year for the next decade. Another goldrush was on. As in radio, RCA made tons of money on the patents flowing out of its large research laboratories and by making the picture tubes and other key components. Radio receiver brands General Electric, Westinghouse, Philco, Zenith, and Motorola all entered the TV set fray alongside RCA.
These natural competitors from the radio industry were joined by other brands. One was Fort Wayne, Indiana’s Magnavox, a maker of radio speakers and other parts. Another name was DuMont. Inventor Allen DuMont of New Jersey had actually produced the first all-electronic TV in 1938. DuMont made television sets and set up a broadcasting network; both efforts failed and ended in 1956.
An important new name was Admiral, a late entrant into the radio industry and the brainchild of aggressive Chicago entrepreneur Ross Siragusa. The company used plastic cabinets instead of the wood used by other makers, bringing out the 10-inch Consolette TV in 1949 at a price of only $249.95, a hundred dollars less than competitors (but even then, the Consolette cost almost $3000 in 2021 dollars). Admiral Corporation’s revenues tripled between 1948 and 1950.
Sears, Roebuck and Montgomery Ward also sold large numbers of TVs made by various manufacturers. Yet another competitor was Sylvania, the maker of lightbulbs and one of the few makers of TV tubes, competing with RCA.
Sears, Ward’s, GE, Westinghouse, Philco, and Admiral also offered an array of “white goods” (laundry and kitchen appliances) in addition to “brown goods” (such as televisions, radios, and phonographs). RCA even dabbled in these fields, buying an interest in white goods leader Whirlpool.
The Rise of Color TV
These many companies produced black-and-white television sets throughout the 1950s, with Zenith becoming the largest maker, producing over a million sets a year. At the same time, all realized that color TV would come along sooner or later.
RCA and its labs spent $130 million developing its color system, which narrowly beat out a system proposed by rival CBS. While both color TV’s (costing over $1000) and color broadcasting (very rare) had been available since the mid-1950s, color did not take off until the early 1960s. By 1962, a million color sets were in use, generally selling for $6-700 ($5-6000 in 2021 dollars), over three times the price of a black-and-white television.
At first, RCA held as much as 70% of the market for color television sets, but the other producers quickly joined the fray. By 1964, RCA’s share fell to 42%, followed by Zenith at 14%. Yet RCA made most of the picture tubes and other components, earning a profit of $35 on each picture tube that it sold to its competitors.
With this history and its outstanding research labs, in the 1960s RCA was the world’s largest producer of consumer electronics and the most technologically advanced company in the industry. But the company was not to remain on top.
The Collapse of the American Consumer Electronics Industry
In 1964, US makers produced 94% of the color TVs sold in the United States. In 1975, that percent had dropped to 67% and by 1987, just 17% (vs. Japan’s 42% share). Today, the RCA brand is a minimal vestige of its former self.
As business historians, our top question is, how and why did RCA lose its leadership and ultimately disappear from the industry? Were the Japanese companies Sanyo, Sharp, Sony, and Matsushita (Panasonic) just cheaper than the American makers? Or better?
As it turns out, there was more to the story than just Japanese prices and intelligence. According to eminent business historian Alfred Chandler in his excellent book Inventing the Electronic Century: The Epic Story of the Consumer Electronics and Computer Industries, much of the blame lies with the US government and with RCA management itself.
Despite being initially formed with the full backing of the Federal government, RCA’s dominance of the industry continually attracted the attention of Federal trustbusters (the Federal Trade Commission and the Anti-trust division of the Justice Department). In 1958, the government forced RCA to offer its patents royalty-free to its American competitors, though foreign companies had to pay full royalties. As is so often the case when legislators and regulators bear no burden or responsibility when things go wrong, there were unintended consequences to this action.
Without the ability to invent new things and profit from them for the life of a patent, RCA had little incentive to keep pioneering and innovating in consumer electronics, as it had done for decades. At the same time, to continue the company’s important royalty revenue stream, RCA aggressively peddled its technologies to Japanese firms including Sony and Matsushita and to European companies led by Philips of the Netherlands. (Philips bought Magnavox in 1974, giving the company strong US distribution.) The entire American television industry was thus weakened both by fewer new innovations and by more foreign competition.
At the same time, RCA management began to lessen its focus on consumer electronics. In 1968, David Sarnoff’s son Robert took over the reins of the company from his father, though David remained a major influence in decision-making. Losing its patent edge over competitors in consumer electronics, RCA pursued two initiatives: (1) to take on IBM in the mainframe computer business; and (2) to become a “conglomerate.”
The conglomerate idea was all the rage on Wall Street in the 1960s. Promoted by investment bankers who profit most when companies are bought and sold, the idea was that any good management team could run any kind of business and that operating totally unrelated businesses enabled companies to diversify away from the risks of being in only one industry. Litton Industries, Beatrice Foods, International Telephone & Telegraph (ITT), LTV, Gulf & Western, and many others became giant conglomerates, buying up everything from hotel chains to insurance and typewriter companies. In RCA’s case, the company bought a carpet maker, car rental leader Hertz, the makers of Banquet frozen dinners, and top American book publisher Random House, among others. The Radio Corporation of America had no expertise in any of these fields.
Neither of these strategies worked. RCA’s 601 mainframe alone cost $100 million to develop but only sold four units. After such huge losses, RCA sold its computer business to rival UNIVAC.
The conglomerate concept ultimately proved unsound. When the conglomerate builders retired or died, their successors gradually sold off the diverse businesses and returned to focusing on whatever industry had the greatest opportunity or what they were best at. (General Electric belatedly became a conglomerate by rapidly expanding into financial services under CEO Jack Welch and is still recovering from that era of diversification.)
In this context, RCA failed to keep moving ahead in consumer electronics, while the foreign companies kept innovating. The company’s efforts to pioneer in tape-based video recording fell behind those of a small company named Ampex. Ultimately, the Japanese Victor Company (JVC), controlled by Matsushita, developed the highly successful VHS system. Initiatives in the laserdisc field were equally unsuccessful against the Japanese. In CDs and DVDs, Philips and Sony led the way.
In this process, the other American makers of consumer electronics were sold out or buried by foreign competitors. Admiral was purchased by Rockwell and Philco by Ford; both new parent companies lost interest in the consumer electronics businesses. Some of the brand names have lived on after being purchased by new companies which saw value in the old brands. For example, one can still buy Westinghouse televisions online, though that great company is now long gone and split into many pieces. Selected niche American companies, as in high fidelity audio systems, live on. (Apple’s “designed in California, made in Asia” approach is a very different, unique story.)
Ironically, in 1986, RCA was purchased by its founding parent General Electric for $6.3 billion, without the government stopping the deal. GE kept the gem of the company, NBC, but by 1988 had sold off its television and consumer electronics businesses to the French Thomson company (also ironically descended from Boston’s Thomson-Houston, a forerunner of GE). Thomson later parted with these operations and brands. The historically strong RCA Victor record business was sold to the German Bertelsmann empire. The RCA building in Rockefeller Center became the GE building, and is now the Comcast building (current owner of NBC).
And thus, RCA’s glorious history of innovation, changing the lives of millions, came to an ignominious end. Yet consumer electronics marches on, in the hands of such current leaders as Apple, Samsung, LG, and Huawei. But given the ever-evolving nature of technology, how long will these companies stay on top?
American Business History Center