6
Battle of the Giants: ERPI and RCA Consolidate Sound

The Creation of ERPI
The Five-Cornered Agreement
ERPI Gets a Head Start
The Beginnings of RCA Photophone
The Interchangeability Dispute
Disc versus Optical Sound
Challenges to ERPI
Western Electric Makes Silence Silent
The Conversion Continues
RKO Radio Pictures

We could no longer ignore the handwriting that was gradually appearing on the wall with a plainly audible screech of the slate pencil.

Jesse Lasky, with Don Weldon,I Blow My Own Horn, 1957

The Creation of ERPI

It is unlikely that cinema sound would have become established as an international norm without some dominant organization taking charge and setting an agenda. That company would need manufacturing capability, deep financial reserves, and a large workforce for sales, installation, and service. Warner Bros., Inc., was not that kind of organization. Prior to its Vitaphone experiments, the company was a supplier of low-budget "programmer" pictures, many featuring Rin Tin Tin. Its only human star was John Barrymore, and its one prestige director was Lubitsch. Yet Warners' powerful contract enabled it to control the dissemination of Western Electric's sound system. Indeed, the fact that this small operation was able to negotiate such favorable terms in April 1926 suggests that John E. Otterson's predecessors in the electrical behemoth did not regard Warners' film sound experiments as much more than a short-term field test.

Probably no one was more surprised by the success of Vitaphone than executives at Western Electric. After the unexpected triumph of Don Juan, Otterson was convinced that Walter J. Rich and the Warners were more interested in putting Vitaphone into their own theaters than in making Western Electric products available to the largest possible market. The studio was using its exclusive access to Vitaphone to establish a commanding lead in sound. In an internal memo, Otterson told his superiors that the Vitaphone management was "incompetent and unsatisfactory" in its dealings with the studios.¹ Certainly, compared to AT&T's squadrons of representatives, Warner Bros.' sales staff must have seemed like ineffectual bumblers. Western Electric learned a few things about the sound movie business during the industry's reaction to Vitaphone in late 1926. There had been a change in fundamental conditions: the moguls who had disdained

sound were now ready to commit to it as a supplement to their existing programs. They began searching for ways to pool their corporate power. Meanwhile, RCA, which in theory was positioned as well as Western Electric to dominate sound, was making its move.

These were probably some of the considerations that led Western Electric to form the new division, Electrical Research Products, Inc., in January 1927. Its equity was held entirely by Western Electric. The offices were at 250 West Fifty-seventh Street. Otterson, of course, was president. With one thousand employees, it became the fastest-growing component of the Bell System. Its mission was to manage Western Electric's nontelephone products, services, and licensing. The sales staff marketed broadcast equipment, managed the transatlantic cable, and promoted devices for hard-of-hearing people. ERPI's fundamental enterprise, though, was installing and servicing sound motion picture systems.

One immediate effect was standardizing the cost of installing Vitaphone. Previously installation had been negotiated on a house-by-house basis. In February 1927, installation was set at $12,000, payable to Western Electric, not Warners. Like telephones in homes and businesses, the equipment remained the property of Western Electric, which had the right to reclaim it after five years.²

Otterson was in a dilemma. Since Vitaphone's 1926 agreement gave Warners exclusive sublicensing rights, ERPI could not initiate service without the studio's assent. But no other studio would apply for a license if Warners had the power to accept or reject it. Western Electric's way out of this catch-22 was to threaten to sue Vitaphone for its breach of the contract. This was alleged to have occurred when Vitaphone declined to license William Fox for Movietone, except under duress from Otterson. ERPI claimed that it was at liberty to bargain with the other producers. Waddill Catchings advised the Warners to renegotiate the contract rather than face a long court battle. In May 1927, Otterson got his revised agreement. The Big Five producers would be dealing only with Western Electric, not with a rival producer.³

The Five-Cornered Agreement

Owen D. Young, vice president of General Electric (with David Sarnoff, head of its RCA subsidiary), and Adolph Zukor, president of Paramount Famous—Lasky (and Jesse L. Lasky, his vice president), were the architects of the film industry's 1926 coordinated response to the introduction of Vitaphone. Aware of the Western Electric system and the Fox-Case system, they were investigating sound film as a possible expansion of RCA's phonographic and thermionic interests. This application might capitalize on GE's languishing film patents and forestall Western Electric's advance into a new area after having just exited broadcasting. Young had already acquired considerable experience in dealing with corporate giants and was a partisan of business associationism. In his previous negotiations (for example, for the distribution of RCA radio tubes), it had been his strategy to arrange mutually beneficial alliances when the more desirable goal of complete monopolization was not feasible.

Knowing of the studios' reluctance to subordinate themselves to Warner Bros., Young tried to seize the opportunity to interest the industry in the GE sound-on-film device. Twice, in October and December 1926, Young put together behind-the-scenes cabals to block Vitaphone's exclusive access. Fox had walked out of the first meeting. Young set up the second one in Palm Beach, Florida, to which he brought representatives from Famous Players-Lasky, MGM, Universal, Producers Distributing Company (PDC), Fox, and Film Booking Office (FBO). Theater people representing the Shubert and Albee organizations were also present. E. F. Albee later breached confidentiality and reported that Young was promoting a merger of the RCA and Western Electric talking film systems. The entertainment giants would restructure Vitaphone to make sound equipment available to producers and exhibitors on their own terms. Youngs idea seems to have been a replay of the formation of the RCA holding company a decade before. Zukor, however, convinced the other members that this plan would not work, and the meeting broke up.

Adolph Zukor had reason to know that the Young plan would not succeed because he himself had just failed to put together a similar deal with Vitaphone. He was still bitter. Harry Warner and his financial chief Catchings had approached Zukor around the time of the Don Juan premiere in August. They reached a tentative agreement whereby Famous Players—Lasky and Warner Bros. would buy out Walter Rich and jointly operate Vitaphone as a canned presentation-act service. By November 1926, however, the deal had soured. Zukor told Western Electric that he would only deal in unison with the other major producers. Besides, Young's overtures were now being heard loud and clear. RCA's newly acquired access to Western Electric's amplification patents gave sound-on-film a new luster, and the industry representatives decided they should take a look. At a December 1926 meeting convened by Zukor after the Palm Beach conference concluded, the producers gave Sarnoff a chance to prove the merits of the GE sound device and to formulate an offer which would compete with Otterson's. The Big Five producers reconvened to adopt an all-for-one agreement on 17 February 1927.⁴

The plan, called the "Five-Cornered Agreement" by Film Daily, united Loew's (MGM), First National, Famous Players-Lasky (which, on 29 March 1927, changed its name to Paramount Famous Lasky Corporation), Universal, and PDC. (Fox had already signed with ERPI, and FBO was committed to RCA, so neither participated in the deliberations.) Each company appointed one member to a producers committee charged with achieving a solution to the various problems of sound. The membership was top-heavy with personnel from Paramount, whose general manager in charge of distribution, Sidney R. Kent, chaired the committee. Louis Swarts of the Paramount legal staff was a member. Roy J. Pomeroy, head of the special effects department, chaired the technical subcommittee. The producers pooled their economic power to force the Radio and Telephone Groups to compete with each other for the prize of the talkies. The actual text of the agreement, of course, was not so blunt. It highlighted issues of compatibility and stressed the public benefits of cooperation:

Inasmuch as most or all of the systems now on the market are in an experimental stage and further development should follow the line tending toward standardization of devices to keep the market open to all, the five film companies will appoint a committee that will determine upon the system or systems best adapted for standardization in the motion picture industry. This committee will employ scientific experts and consult with governmental authorities and will make comprehensive experiments with all devices now or hereafter made available. (Film Daily, 23 February 1927, p. 5)

Other producers were cordially invited to send representatives (but none did). The moratorium was to last one year, so in theory the potential disruption that the sound film threatened had been contained.

In March 1927, there began a high-stakes competition as ERPI demonstrated its two Western Electric systems (Vitaphone and Movietone) in New York, and General Electric showed off the RCA Photophone (its eventual name) in Schenectady.

The producers' one-year moratorium was a boon to ERPI. "The most difficult part of the job," as Otterson described it retrospectively, was "that of selling a revolutionary idea to an established successful industry."⁵ The agreement enabled Otterson to put together a package so sweet that no one could think of going with RCA. The American Society of Composers, Authors, and Publishers (ASCAP) was insisting on royalties for the music heard in movies. Otterson saw that a central organization could best handle the licensing chores. He followed the precedent set by AT&T in 1925 when ASCAP accepted a blanket fee in lieu of paying for the individual compositions played on station WEAF. ERPI paid $1 million to the society for film rights retroactive to Don Juan and agreed to take out performance licenses for songs used in future Movietone and Vitaphone recordings. ERPI really had no choice since, in 1926, 11,000 exhibitors had taken out ASCAP licenses which would have prevented them from playing unauthorized sound tracks.⁶ In December 1927, ERPI worked out an arrangement whereby E. C. Mills, "acting as agent and trustee for practically all of the music publishers in the United States," licensed music rights for motion pictures. In lieu of royalties to ASCAP and other performance rights societies, exhibitors paid ERPI a seat tax. The organization then negotiated a rate with the music societies. Though the music clearance office required a large staff, its operating expenses were absorbed into ERPI's overhead. By 1930, fifty-two British and ninety-seven Continental publishers also sublicensed through ERPI, bringing the number of compositions available to moviemakers to well over one million.⁷

During the wait-and-see period of 1927, ERPI engineers were installing Movietone and Vitaphone equipment for Fox and Warners and gaining valuable field experience. The pace was slow, at first taking up to six weeks to wire a single theater. The major studios' hesitation gave Western Electric time to gear up for high-capacity production and to iron out the remaining glitches in the system, of which there were several, even after the premiere of The Jazz Singer. For instance, the development team requested additional funds after overspending its $15,000 budget, citing "numerous difficulties" with the theatrical amplifiers, including noisy tubes and a persistent AC hum.⁸

ERPI Gets a Head Start

In January 1928, Pomeroy's technical committee determined that three systems were acceptable: General Electric-RCA sound-on-film, Western Electric sound-on-disc, and Western Electric sound-on-film. The so-called Five-Cornered Committee disbanded in February and left producers and exhibitors to decide which system to use. From ERPI and RCA's view, there were two objectives. One was to win over the producers, the other was to convert the biggest theaters. ERPI won the battle for the moguls. The producers' financial backers felt more secure (or more prestige) being associated with the corporate giant AT&T. ERPI, emulating Western Electric practice, promised extensive on-site consulting and product support. Its established Western Electric equipment-manufacturing plant in Hawthorne, Illinois, was already grinding out recording and projection machines around the clock. A bet on ERPI was a hedge: whether disc or photographic recording won out, the producers would be covered. By the end of May, a beaming Otterson could report that Paramount, Loew's, United Artists, First National, Hal Roach, and Keith-Albee-Orpheum had signed ERPI licenses for the Western Electric system and would all use the name Movietone. Christie Studios signed in June, Universal in July, and Columbia, after a trial period, joined in September, bringing ten producers into ERPI's fold.⁹

The twenty-seven-page ERPI contract was designed to cover both production and exhibition. It was careful to prevent any of the sound technology from interfering with AT&T's telephone or radio business. An exception was made for experiments such as MGM's "Telemovies." The studios could make records to accompany other studios' product, as well as sublicense other producers according to defined conditions. Any sound patents owned or developed by the licensee, or any in-house improvements (perhaps anticipating tinkerers like Sponable at Fox and Pomeroy at Paramount), would have to be shared with ERPI. Producers' royalties were on a variable scale but were basically set at $500 per 10 minutes of running time, with a minimum of $50,000 per year. All licensees were entitled to the same rates. The studios were responsible for the living expenses of the ERPI consulting engineers during their visits to service the equipment. There was a long section on contingencies and indemnities in case patent lawsuits disrupted service. The agreement ran through the year 1944. Foreign royalties and music rights were addressed separately.¹⁰

While ERPI was the logical choice for producers, on the exhibition front the selection was not so clear. Managers of the affiliated chains installed what the home office told them to install: Vitaphone discs, often with the Movietone optical sound option. This left the minor chains and the independent theater owners to make the dreaded decision of whether or not to convert to sound, and which system to install.

It seems that Western Electric was slow in realizing the scope of the demand for sound equipment. In an internal memo from February 1927, a manager estimated that "the yearly demand [for theater amplifiers] will be approximately 200."¹¹ This estimate proved to be accurate for 1927, but as a long-term forecast, it was grossly inadequate. In April 1928, even before the major theater chains had signed with ERPI, Warners was already complaining that the installers were far behind schedule. Vitaphone tried to push ERPI into speeding up installations by invoking the binding arbitration clause in its contract.¹² Almost four hundred shorts and fifty features were available to rent, but in July 1928 only about four hundred theaters were projecting sound pictures, although twice that number of independent exhibitors had signed ERPI contracts. Western Electric enlarged its Hawthorne facility to handle the increased load. By August the plant had one thousand workers on twenty-four-hour shifts, but orders had fallen six months behind.¹³ By the end of 1928, more than one thousand ERPI systems had been installed. The number would have been larger had Western Electric been able to keep up with demand.

Fox's Movietone equipment was also behind schedule, but William Fox chose to stay out of the fracas. One reason for his uninvolvement became clear when his vice president Winfield Sheehan told a Los Angeles Times interviewer that ERPI deals were already enriching the company. He explained that Fox Film and Fox Theaters controlled 50 percent of the Fox-Case Corporation, which owned the rights to Movietone and received royalties for all Western Electric installations in theaters and studios.¹⁴

The studios were adjusting rapidly to sound. By the end of 1928, one hundred disc recorders and sixty sound-on-film recorders were in operation.¹⁵ Western Electric responded to complaints from producers using discs that other studios using the optical system had an unfair advantage when filming outdoors. ERPI introduced portable disc-recording units housed in two-ton vans similar to those used by Movietone News. The so-called Kearny Trucks, named after the New Jersey town where they were manufactured, made it possible to record anywhere there were roads.¹⁶ ERPI's policy was to supply all licensees on an equal footing, thereby diminishing competition among users to maximize the diffusion of Western Electric products.

With the major and smaller studios alike announcing their plans to produce talkies, the largest exhibitors signing up, and Western Electric wallowing in back orders, it became clear to all theater owners that staying unwired was a greater risk than installing sound. Will Hays assured them that, unlike the earlier crazes,

there is no doubt about [sound's] future. It will be universally adopted—that is, it will be used universally to the extent that it is used. Sound will be dramatized when such dramatization adds to the total dramatic value of the picture. Great new interest will be created, probably great new audiences. (Film Daily, 21 June 1928, pp. 1, 3)

Hays's statement about the drama of sound is gobbledygook, but his near-guarantee of "new audiences" made the investment seem like a sure thing.

The Beginnings of RCA Photophone

The creation of ERPI galvanized General Electric. Hoxie's Pallophotophone, dormant at the laboratories for a couple of years, was revived as the Kinegraphone. The soundon-film system was demonstrated to the scientific press on 30 January 1927 in Schenectady, and to the film trade in New York at the Rivoli on 11 February. Hoxie's original system had been improved by adding Western Electric microphones and amplifiers (available because of 1926 RCA-AT&T cross-licenses) and by RCA's proprietary Hewlett loudspeakers, which used dynamic cones. GE began a campaign to show off the system's advantages to the studios. Its research laboratories emphasized that there would be minimal disruption to existing production techniques. This claim is not surprising because, in the spring of 1927, Photophone was being described as a system for post-synchronizing music to silent prints, mimicking the Vitaphone virtual orchestra:

Development of this field requires no change in the technique of making the original film. After the original picture film has been made and titled, the accompanying music is played by a concert orchestra and is recorded on a film. The picture and sound are then printed on one film in the proper time relation…. The community picture house, accustomed to having a piano, or piano and violin, will be able to have the same music as the metropolitan theater. ("Talking Motion Pictures," Scientific Monthly, March 1927, pp. 286-89)

Perhaps acknowledging de Forest's interview films (and anticipating Movietone subjects), the prospectus also hypothesized a talking newsreel: "Not only will it be possible to show important persons, but they can talk to the audience, and visiting notables can extend their greeting." The anonymous author admitted that "at this early date it is not possible to define the fields in which this new type of talking motion pictures will be of use."¹⁷

RCA commenced to market its reproduction equipment but lagged far behind Western Electric in manufacturing it. President James Harbord was able to announce on 14 September 1927 only that the system was "almost ready." He described the device as 1920s radio-with-pictures:

In furnishing good music to the scattered motion picture theaters of the country, many of which still depend on a solitary pianist, it would seem that radio were destined to repeat there the service it now renders to millions of homes.

The new system, employing the technique of radio reproduction, brings nearer the day also of the "talking movie" news picture, when current personalities will not only be shown on the screen, but will be heard by the audience as they are being interviewed by a movie reporter; the picture of an important event will be accompanied by all the stirring sounds that emanate from a great mass of people; the parade thrown on the canvas will bring the music of the bands and the cheering of the spectators. The system would have great educational value. (Film Daily, 15 September 1927, p. 6)

GE claimed that Pathé, First National, MGM, and United Artists were interested in jointly financing the General Electric—RCA system. It was decided that rights to the device, still referred to as the Kinegraphone or the Pallophotophone, would be sold to the highest bidder. For demonstration purposes, two reels of Flesh And the Devil (MGM, 1927) were given a synchronous score.

Owen Young was successful in keeping RCA in contention during the Big Five's 1927 system trials. He and Sarnoff must have felt that they had a powerful ally in Adolph Zukor, who was already experimenting with GE sound equipment. In April 1927, the trade press assumed that because of Paramount's influence, the Five-Cornered Committee would select RCA.¹⁸

General Electric technicians began working with Roy Pomeroy to make two special versions of Wings (1927) with music and sound effects—propellers and plane roars. The technically sophisticated Pomeroy had developed two of his own sound systems at Paramount. One used cued discs. The film opened to great acclaim on 12 August 1927 at the Criterion in New York and at the Erlanger in Chicago. "Each time an airplane hurtled in flames to the earth there was a doleful hooting behind the screen," reported Mordaunt Hall. "When the aviators are about to take-off and the propellers are set in motion, the sound of whirring motors makes these stretches all the more vivid."¹⁹ The other system was Pomeroy's modification of the Pallophotophone; it read the optical track from a separate filmstrip as it was projected on a second interlocked machine. The sound-on-film device was utilized for the early 1928 road shows of Wings. RCA provided the amplification and dynamic cone speakers for both systems. This system was less satisfactory. If the picture and sound films lost synch, it was difficult to restore. A break in either would raise havoc with a show.

In March 1928, after the wait-and-see agreement had expired but before the major studios signed with ERPI en masse, Jesse Lasky announced that Paramount was entering the sound field "in the greatest possible way." Zukor made an informal agreement with RCA and announced that the "Pomeroy Device" would be widely used, perhaps to make a talking newsreel. The equipment arrived in Hollywood for testing in mid-April. All twenty-five films in the upcoming 1928-1929 season would have synchronized tracks using this "Paramount-Tone" system. Victor Schertzinger was hired to arrange the scores. For his efforts, Pomeroy's six-year contract was renewed.²⁰

The consensus of the Five-Cornered Committee had moved rapidly to Western Electric. The members acknowledged that the GE system was less cumbersome than Western Electric's, its synchronization was better, and RCA's financial terms were more favorable. But reports of bad sound and the frequent breakdowns plaguing the Wings road show worked against RCA. ERPI had the corporate and financial clout of the telephone company behind it. The country was covered with a corps of 450 field engineers, and ERPI's operations in Europe and Asia were established. Plus, ERPI offered more than technical assistance. It cleared music rights and established projectionist training centers, for example. Perhaps most important, ERPI was wiring a theater a day, whereas RCA Photophone was still a creature of the laboratory. The technical sub-committee attended a side-by-side demonstration in Pomeroy's Hollywood lab, and a week later the Big Five chose not to mandate either ERPI or RCA. In a remarkable about-face, Paramount abandoned RCA and joined the other large studios in signing an ERPI license on 11 May. Zukor cited two factors influencing his decision. One was the availability of Victor Talking Machine music rights for accompaniment. Although RCA was known to be trying to purchase Victor, the major recording company had already signed a music licensing agreement with ERPI that would survive an RCA buyout. Zukor also took into account Western Electric's ability to produce machines and to wire theaters in quantity, since Paramount's extensive chain of Publix theaters would require sound projection without delay. The fact that ERPI was not endorsed exclusively suggests that the committee wished to keep its relations amicable with both these corporate giants.

David Sarnoff was ready for this. When the committee members sided with ERPI, he and Young put their contingency plans into operation. RCA Photophone was incorporated in March 1928, with ownership split 50—30—20 percent among RCA, GE, and Westinghouse. Sarnoff was president. But all the while the Five-Cornered Committee was deliberating, Sarnoff had been dealing with some powerful banking and securities interests represented by a Bostonian whose business acumen matched his own.

Enter Joe Kennedy

This major player was Joseph Patrick Kennedy (father of John F. Kennedy). He had been president of a bank (Columbia Trust) at age twenty-five, a shipbuilding tycoon, an importer, and a stock speculator. Recently his attention had turned to the movies. Operating a string of New England theaters convinced him that the big profits were being made by producers and distributors, not by exhibitors. Kennedy, said to disdain Hollywood's businessmen as "pants pressers," determined to buy into this burgeoning enterprise. In February 1926, he put together a partnership to purchase a small Hollywood studio, Robertson-Cole, and its New York distributor, Film Booking Office (FBO). Kennedy easily refinanced the operation, put FBO on solid footing, and furnished a weekly schedule of low-budget features, mostly Westerns, to small-town cinemas. For his vice president in charge of production, he hired William LeBaron, a seasoned Famous Players-Lasky associate producer. LeBaron was the image of the suave New York producer. Educated at the University of Chicago and New York University, LeBaron began his film career at Hearst's Cosmopolitan Productions. He had risen to general director when the company merged with Goldwyn in 1924. LeBaron did not wish to move to California at that time and joined Famous Players-Lasky. He had been in charge of the Paramount Long Island studio's feature production unit until it was closed in a downsizing move in March 1927. Kennedy enlisted his services and him to Hollywood to become vice sent president and general manager of FBO.²¹

Sarnoff, trying to divert the tide which was turning toward Western Electric's sound system, approached Kennedy in October 1927 to sway FBO into the RCA camp. Photophone bought a $500,000 stake in FBO, about 11 percent of the stock. Harbord of RCA and Young of GE joined the FBO board of directors. On 6 January 1928, RCA and FBO jointly announced that the GE device was ready to be sublicensed to the film industry. Kennedy issued an optimistic statement:

I have been vitally interested in the development of sound reproduction in conjunction with motion pictures ever since the first experiments along that line, and have watched with eager interest, every phase of the progress that has been made toward that end. Long ago, I was convinced that the so-called "talking movie" was only the first small step.

The devices developed by the G.E. and the methods perfected by their engineers open the door to a development which is actually staggering in its possibilities, and I am happy indeed that FBO will be able to bring them to the industry. (Film Daily, 5 January 1928, pp. 1, 8)

Among the advantages of the Kinegraphone (Photophone) was that it could record either on the film taking the picture or on a separate film—the process now called double-system recording. "The two recorders can also be mounted separately and the sound and picture film negatives made as individual units, such an arrangement being preferable when the camera is being shifted constantly."²²

The availability of the device was delayed until 6 April. Rather than sublicensing through FBO, producers and exhibitors would deal with the newly created RCA Photophone subsidiary. Subverting ERPI, the new combine promised to supply films to all exhibitors, regardless of the kind of equipment installed. Sarnoff also identified a potentially lucrative nontheatrical market which Western Electric had neglected. Since the Photophone equipment was relatively compact, RCA targeted schools and churches and developed a library of sound films for institutional and home use.²³

National theaters were essential for competing with the majors, but when Sarnoff and Kennedy began talking in 1927, Kennedy had only a few houses to offer. During the formation of their alliance, though, a separate chain of events was unfolding in the vaudeville business. The Keith-Albee circuit merged with the Orpheum theater group to form KAO. The mover behind the deal was John "J.J." Murdock, a ruthless businessman and aggressive point man for his employer. Murdock had been involved in film since almost the turn of the century.²⁴ In June 1927, Murdock acquired on behalf of the KAO chain the Pathé film studio and the Producers Distributing Corporation. Pathé, one of the original movie companies, had become a rather stagnant distributor. The PDC studio was on the former Ince lot in Culver City and was controlled by its principal shareholder, Cecil B. DeMille. In February 1928, Murdock made himself president of Pathé and engaged his old friend Joe Kennedy to consolidate the two small filmmaking concerns. Though Kennedy was an "unpaid" special adviser, KAO invested $1 million in his FBO to interlock the organizations.

One of Kennedy's first tasks was to oversee Pathé's merger with PDC. This was not difficult, since a friend of Kennedy's, the copper baron Jeremiah Milbank, was a shareholder in both. Having made his movie millions financing The King of Kings (1927), he was ready to take his profits. But Kennedy had to placate the assertive DeMille, who was threatening to join United Artists if his demands were not met. A mutually beneficial reorganization was reached after six months of negotiations. PDC was subsumed, DeMille became a Pathé producer with a seat on its board of directors, and Murdock and Kennedy ended up in control of the enlarged Pathé Exchange.

But Kennedy already had a studio. For him (and for RCA) the most valuable asset in the merger was the Keith-Albee-Orpheum vaudeville houses, which could be converted to sound. Murdock sold out Albee by secretly transferring his KAO stock options to Kennedy. Milbank put together a syndicate which included Lehman Brothers, Chase National Bank, and other backers. Together they made a generous offer to Albee that, unbeknownst to the aging theater magnate, would deprive him of his voting majority. Kennedy installed himself as president of KAO in May 1928 and launched a reorganization. One historic change was the top-billing of films on the programs of the venerable vaudeville circuit.

Kennedy, with Sarnoff behind him, pushed sound. In January 1928, LeBaron supervised the dismantling and shipment of the GE lab studio from Schenectady to the FBO lot in Hollywood. A second studio was set up in the New York City RCA headquarters. Meanwhile, the GE and Westinghouse plants were said to be producing sound reproduction equipment in great quantities. The trademark Pathé rooster had its crow recorded in June. DeMille's King of Kings and his last PDC/Pathé film, The Godless Girl (1928), both originally silent, were scheduled for national release on the 1928-1929 program with symphonic and choral scores recorded by RCA. Anticipating bad reviews of the latter, Pathé held up the New York release until April 1929 and added two talking scenes at the end, which everyone thought were gratuitous. As for DeMille, he quit Pathé and joined MGM as an independent producer.²⁵

A major film studio also needed big stars, and FBO had produced mainly low-budget Westerns with two cowboy heroes. Tom Mix had been picked up when Fox did not renew his contract. Fred Thomson (husband of the screenwriter Frances Marion) was just as popular and admired for his daring stunt work. In 1928 he left FBO for Paramount and, unfortunately, contracted a fatal case of pneumonia. During this period Kennedy was associated with Gloria Swanson, one of the most admired stars of the silent era, who also had a reputation as a savvy business person. They had met in November 1927, and at first their relationship was strictly professional. He was a silent partner in Gloria Productions and set up her company on the FBO lot. But the two quickly became romantically involved. Swanson would seem to have been a logical candidate for the company's big star. Indeed, in February it was reported:

Gloria Swanson, who is transferring production activity to the FBO lot, is being sought to appear in a picture to be made with Kinegraphone, [the] talking film device sponsored by the Radio Corp. of America, General Electric and Westinghouse. These three firms recently acquired an interest in FBO.

William LeBaron, FBO production head, is expected to return [to Los Angeles] tomorrow, prepared to begin production of talking pictures. Some time ago it was reported that he was to supervise Gloria's next picture. (Film Daily, 1 February 1928, p. 3)

Swanson, however, was still bound by a distribution contract with United Artists and was therefore unable to participate in RCA's expansion. Kennedy did finance the production of this film, Queen Kelly (1929), but not for FBO (see chapter 12).

Sarnoff was looking for stars in the musical heavens. In January 1929, RCA purchased Victor's manufacturing and recording plant in Camden, New Jersey, its music contracts, and its extensive list of performers who would become valuable for both talking pictures and Sarnoff's National Broadcasting Company radio programs. Television's future need for talent was cited specifically as a further justification for the acquisition.²⁶

Following the lead of the majors, FBO instituted sound production in New York to capitalize on local celebrities. The first Photophone part-dialogue film was The Perfect Crime, which premiered 17 June 1928 and opened at the Rivoli on 4 August. Directed as a silent by Bert Glennon and starring Clive Brook, the sound version was touted by Sarnoff as proof that Western Electric's and RCA's systems were interchangeable, a claim immediately denied by ERPI's John Otterson. Most critics trashed the film. There were damaging reports that its synchronization was way off. This is puzzling. The film may have been shown with the sound on a separate optical track which had gone out of synch (as was the case with the Wings road-show prints and with Photophone versions of Lilac Time). Another possibility is that the dialogue had been improperly dubbed over the original silently shot footage. Neither FBO nor Pathé was capable of shooting live dialogue until about August, when the Photophone equipment became operational in the studios. On 22 August 1928, Kennedy signed Photophone licenses and set up a lab called Sound Studios, Inc., within the Manhattan Studios (124th Street and Park Avenue). Sarnoff acquired music licenses from the Music Publishers Protective Association (MPPA). The facility was under the direction of Robert T. Kane, a former First National and Paramount producer. (It was Kane who had introduced Swanson to Kennedy.)²⁷

For three months in 1928, Kennedy, the forty-year-old financier-turned-mogul, even took charge of First National. Founded as a consortium of theater owners, it had started a production branch to compete with the major studios. Now it was being torn apart from within by powerful competing theater chains, of which Stanley was the largest. Westco, owned by William Fox, had one-third of the shares in First National. Other franchisees included Balaban and Katz, Skouras Brothers, Saenger, and KAO. The First National board wished to hire Kennedy to reorganize the company as he had done with Pathé. One of his first moves, which stunned the industry, was to attempt to renege on First National's commitment to the Western Electric system and switch to Photophone. This was after the synchronization of Lilac Time using Firnatone, its proprietary disc system manufactured by Victor, had already begun. Kennedy pointed out that no contract had actually been signed with ERPI. After this, and realizing that Kennedy intended to merge their company with the Pathé group, the directors of the First National board became hostile and declined to ratify his appointment. On 14 July 1928, First National rebuffed Kennedy by forcing him to sign with ERPI. The trade was stunned again. Kann editorialized:

Here Kennedy has RCA and General Electric as partners in FBO and yet, First National, one of Joe's "specially advised" companies signs with Western Electric for sound. Nobody would have believed it. But it was all decided the day Kennedy left for the Coast. A number of fellows traveled up to Harmon [north of New York City] with him and when the arguments cleared away, it was all set for F.N. to go Western Electric. (Film Daily, 22 July 1928, pp. 1, 28)

The loss of the First National franchise was a blow to RCA and contributed to the deterioration of relations between Kennedy and Sarnoff. Kann observed that Kennedy's inability to deliver First National's theaters would have no permanent effect on RCA: "If you think [Sarnoff's] outfit, backed as it is by millions, is going to allow W.E. to walk away with the sound picture field, you need some straightening out. So watch Sarnoff. He's clever."²⁸ Shortly thereafter, RCA balked at Kennedy's proposal to build a $1 million studio in Manhattan. This was but one bone of contention in a power struggle between two stubborn individuals.

Kennedy told his recalcitrant board of directors at First National that he would resign if he did not get the complete control he wanted. He first flexed his muscles by announcing a 40 percent cut in overhead. Then he refused to renew Richard A. Rowland's contract, which expired 2 August 1928. Rowland had been in charge of production at First National since 1921. Kennedy also fired twenty-five other executives and placed LeBaron (already heading production at FBO and Pathé) in command of First National. One draconian plan was to dismantle Pathé's Culver City facility (formerly DeMille's) and relocate it in First National's Burbank studios, which would be converted for sound production. He was planning a huge merger that would have combined all the Kennedy interests with the Stanley theater chain and Warner Bros. But the First National board, which was advised by Waddill Catchings (who also represented Warners), voted against him. Despite these internecine feuds, when Kennedy's contract was finally signed, the board of directors gave him free reign for five years, $150,000 annual salary, and an option to buy 25 percent of First National's stock.²⁹

On 17 August, a week after signing his five-year contract, Kennedy announced he was quitting First National. When Kennedy licensed Photophone for FBO and Pathé on 22 August, he also secretly sold RCA an option to buy the controlling interest in FBO. Then he departed on a five-week transatlantic vacation.³⁰

Emboldened by First National's resistance to Kennedy, the KAO board of directors showed mutinous tendencies as well. They declared that his contract, which was set to expire on 1 December 1928, would not be renewed unless efficiency and morale improved. Kennedy seemed to be wearying and extracting himself from the film business. During a radio address on 30 September 1928, he said:

The day has gone when the intelligent public we seek as permanent customers will tolerate a hodge-podge of poor plots and pretty faces. They want substance to stories and real acting. Perhaps the time will come when television will carry the best of entertainment into the home. I don't know…. But one thing I do know, and everybody who has any business in the amusement business should know—that sophistication is on the increase, and that prizes in the form of profits only go the way of producers who bet their brains and money in the long run on popular intelligence. (Film Daily, 3 October, 1928, p. 4)

In October, while Warners was reportedly attempting a hostile takeover of Kennedy's Keith-Albee-Orpheum and the shareholders were complaining of his drastic cuts, Kennedy sold his stock in KAO and FBO to RCA. In addition to the appreciated value of the shares, he received $150,000 from RCA for his services as a facilitator. He resigned from both companies (but stayed as head of Pathé). A later audit would reveal that KAO-FBO had lost $1,064,278 during the eight months ending 31 August 1928. But after less than three years in the film business, Kennedy was some $5 million richer. By 23 October, Sarnoff had at his command KAO and its 200 theaters, the Hollywood production facilities of FBO and Pathé, the potentially lucrative RCA Photophone system, and the licenses, research staff, technological prowess, and corporate clout of RCA. The new holding company, Radio-Keith-Orpheum, was formed on 21 November 1928. Sarnoff was RKO's first chairman. In January 1929, he completed his purchase of the Victor Talking Machine Company, placing RCA in a position not only to dominate the radio-phonograph industry but either to go head to head with Western Electric in talkie production or to collude with them on noncompetitive strategies. Kann predicted the latter. No protracted battle would take place. "Here is significant indication that Western Electric and RCA have no thought of open tussles insofar as sound is concerned. They will be competitors quite naturally, but that friendly cooperation is to mark their efforts may be taken for granted."³¹

Sarnoff selected a site in New York on Sixth Avenue and Twenty-fourth Street for RKO's new Photophone sound stage. RCA had already taken out a master music performance license with ASCAP. The industry was surprised when RKO won the bidding war for Rio Rita, a Harry Tierney operetta which Ziegfeld had turned into the biggest Broadway hit of 1927.³²

At the end of 1928, Western Electric ruled the nation's sound film supply. The ERPI-signed studios had announced plans for 156 features and 712 shorts using the Western Electric system. RCA, by comparison, had 16 features and an insignificant number of shorts in production. Its most important client was the independent producer Tiffany-Stahl. All other systems combined had about two dozen features in the works. In theaters, the Photophone equipment promised in April began trickling in around November. Customers complained frequently that it did not work well.

RCA also announced that it planned to market a disc system which would sell for about one-third the price of Photophone. The machine obviously was intended to play Vitaphone records in addition to disc copies of RKO sound tracks. Though exhibitors could play these discs physically, could they play them legally? It appeared that reproducing Western Electric sound tracks on RCA players would violate the exclusivity clauses of ERPI's contracts with studios and exhibitors.

The Interchangeability Dispute

Sarnoff, beaten out of the production end by ERPI, concentrated on Otterson's weak area, expensive theater installation. RCA played a trump card: the Photophone system could project any optical track, and the company would gladly sell it to any exhibitor at a price substantially below ERPI's Movietone equipment. RCA initiated an ambitious advertising campaign pitched toward exhibitors who had not committed to any sound system. The goal was to convince them that Photophone was not only technically and legally interchangeable, it was intrinsically a superior system because of its connection to radio science. The advertisements declared that, "in the entertainment field, Science has always blazed the trail." Radio engineers were responsible for the system's acoustic excellence: "Much of the effectiveness of 'talking' pictures is dependent upon the skill exercised in the placing of the microphones. The Radio Group's vast experience in such work as the result of its broadcasting activities will be utilized in the production of all films."³³ Tonal fidelity was said to exceed Western Electrics, thanks to the variable-area track, which was implied to be better than the variable-density track. RCA used cone loudspeakers rather than horns, supposedly for a flatter frequency response. Photophone never lost synch because it did not require a phonograph. RCA claimed that the prints were more durable. The sound track was more permanent than records. Projectors were more easily modified. The prints provided "full-sized" pictures. This last benefit was obtained by optical-printing the full-frame negative onto the release print, creating a wide frame line that slightly reduced the picture size. This made room for the sound track while preserving the original aspect ratio. Finally, RCA said that projectionists could service the equipment themselves, saving the theater the expense of the mandatory ERPI service contract. Underlying these bold claims, though, was the reality that Westinghouse, where the equipment was to be manufactured, was not yet ready to begin production on a commercial basis. An ad in June 1928 acknowledged that production was behind demand, but RCA tried to assure exhibitors, "You can afford to wait."³⁴

Otterson countered Sarnoff's claims about interchangeability: "We have had no occasion to either try other types of sound films on our projectors or to adapt our own records and films to use on other machines. Why should we?"³⁵ ERPI exerted control over exhibition through its leases with exhibitors and its license contracts with producers. But the ambiguity in the "quality" argument began to backfire as RCA, Pacent, Bristolphone, and other competitors claimed that their systems met or exceeded Western Electric's standards. Otterson issued a statement on 26 June acknowledging that the exhibitor physically could run other films on Western Electric equipment, but the "responsibility would of course be his own and not that of the manufacturer or the equipment."³⁶

In fact, at the time the two optical systems, RCA Photophone and Western Electric Movietone, were similar, because of the cross-licensed patents, but not absolutely identical, owing to their ancestry in different labs. The width of the sound tracks on the prints was slightly different. Kann aired the exhibitors lament that the compatibility issue must be resolved: "Why not? When you buy a Radiola, you don't have to use RCA tubes, do you? If you prefer a Brunswick talking machine, what is to prevent your using Victor records? Or any one of several gases in your car? The results may not be alike, it is true, but that, after all, is a consumer's, not a manufacturer's, problem."³⁷

One significant—and at the time puzzling—test was the initial Broadway screening of the re-released synchronized sound version of The King of Kings. Scheduled to open at the Rivoli on 8 July 1928, the Pathé print had what the engineers called a "loud" track, 100 mils wide (a mil is one thousandth of an inch). The Rivoli was a Western Electric house, and the projectors were calibrated for an 80-mil sound track, producing distorted audio. Western Electric sent engineers, who were able to replace the pickup just before show time. ERPI hastily stated that "this was done at the request of officers of the Radio Corp. and is not to be construed as a precedent as to its future policy under like conditions."³⁸ Why was this assistance given to a competitor? Later FCC testimony revealed that Sarnoff and Otterson were discussing an agreement that would have ended their direct competition. It resulted in a letter allowing RCA-produced films to be exhibited on ERPI equipment—as in the King of Kings case—but no other concessions. Anticipating a future alliance, ERPI did not mount a strenuous defense of the interchangeability clause after July 1928, and RCA's lawyers determined that its equipment could be used for recording by other studios.³⁹

In order to solve the mechanical problem, RCA changed the dimensions of the Photophone sound track and projector slit to match the Western Electric 80-mil width. While Otterson was out of the country in August, Sarnoff conducted a trade demonstration at the Astor Theater and announced with fanfare that Western Electric films had been proven projectable on Photophone equipment. Afterward the interchangeability issue became more of a legal concern for exhibitors than a technical question.

In acquiring their ERPI licenses, producers agreed that they would not allow their sound tracks to be reproduced on non-ERPI equipment. The wording of the particular clause was couched in a "quality" argument:

Licensee recognizes the highly technical nature of the said methods, systems and equipments, and of the art of recording and reproducing sound for the purposes herein contemplated, and that the production of sound records under the licenses herein granted and the reproduction of sound from such records by the use of equipment or with methods and systems other than those prescribed by [ERPI], may produce results of such inferior quality as to seriously impair the prestige and business reputation of the parties hereto, and also that uses of said equipments otherwise than as herein licensed may involve infringement of patent rights of third parties. Therefore, in order to secure and insure the proper production of sound records made hereunder and the proper reproduction of sound from such records to the satisfaction of the parties hereto, Licensee agrees that it will use the recording equipment to be leased to it by [ERPI] as herein provided, pursuant to the methods and systems and in the manner prescribed by [ERPI] from time to time, and that it will distribute sound records made hereunder only for use with, on, or in connection with, reproducing equipment which operates properly, reliably and efficiently to reproduce sound from sound records made hereunder, with adequate volume and of quality equal to that obtained by the use of equipment supplied by [ERPI]. (Recording License Agreement, p. 5)

The company's right to rule whether the quality of another system matched its own was a veto power which it used to keep other manufacturers' films and equipment out of its licensed theaters.

ERPI's tolerance was tested by a theater owner who showed Lilac Time (First National, 1928, released with Vitaphone discs) on a Bristolphone disc system in Hagerstown, Pennsylvania. Distributors who balked at delivering prints and discs of Lilac Time to non-Western Electric theaters in Detroit and Madison, Wisconsin, were sued by newly aggressive theater owners. Producers and the regional exchanges were also upset with the inconsistent enforcement of the ERPI interchangeability clause. In October, MGM and First National became the first majors to announce that they would rent their pictures to non-Western Electric houses unless the quality of the sound system was unacceptable. With his major licensees forcing his hand, Otterson conceded in a 23 October statement that other systems were mechanically interchangeable and that ERPI would not interfere as long as the equipment was of high quality. Independent exhibitors, who, in Kann's words, had been "floundering in a sea of uncertainty," now were free to order sound equipment from almost any manufacturer without jeopardizing their access to major studio releases. On 28 December 1928, Otterson issued a statement to ERPI's producer-licensees that, though persisting with the quality argument, basically told them to furnish product to anyone. "If other manufacturers can build and sell equipment as good as ours for less money, and it is equipment that does not infringe our patents," he wrote, "they deserve the business and will get it."⁴⁰ Two months later, Red Kann could observe that the "interchangeability issue" had moss growing on it.⁴¹

Disc versus Optical Sound

With compatibility between optical systems assured, the changeover from disc to soundon-film was very rapid. Until mid-1928, most sound films were recorded and played back on ERPI disc systems. The second half of 1928 and the beginning of 1929 was a time of transition. Most studios switched to sound-on-film registration, but in theaters playback was mainly on disc. By the end of 1930, however, the majority of theaters projected Movietone, Photophone, or an off-brand optical sound track. A decreasing but sufficient number of exhibitors continued to order sound tracks on discs. What caused this turnaround, and why did some theaters resist the change? Standardization may explain the industry's motives. Producers wished to consolidate a redundant manufacturing operation. It may also be the case that they made a deliberate effort to drive discs out of the exhibition market.

In the first months of 1929, the most important distributors, Paramount, MGM and United Artists, announced that they would discontinue disc releases. Recording the primary sound track on disc was a practice that, except at Warners and First National, had failed to catch on in Hollywood. Nevertheless, most studios, including the ones which had always recorded optical sound tracks (Fox, Pathé, and RKO), supplied disc versions of all their sound-on-film releases.

The film producers claimed that their motive was to eliminate the competitors' poor-quality reproduction as a service to exhibitors and the public. (This strategy mimicked the telephone company's "quality" argument put forth to justify its monopoly.) Sidney Kent at Paramount led the charge against discs. Surface noise and scratches, he said, inevitably crept into disc recordings. The records were physically bulky, hard to handle, and broke easily. The average one was good for no more than twenty runs.⁴² Kent also stated that optical sound had better tonal quality (a vague claim which many disputed). Pat Powers, promoting his own Cinephone optical system, was quick to characterize discs as uneconomical, especially because multiple shipments of backups were necessary. Optical sound prints were easily repairable, unlike prints for disc systems, which required "patches," "injecting ugly flashes" into the picture. (Powers was referring to the blank frames which had to be inserted in a projection print in order to maintain synchronization with the disc if the print had been damaged.) A director at Tiffany-Stahl, Al Ray, disliked the aural properties of discs. "Nothing can be more annoying than the scraping of a needle on a record," he asserted. "This is always heard when using the disc method of recording." Marty Cohen, his film editor, liked optical because there were "no jumping or screechy tones." Carl Laemmle, Jr., at Universal noted that optical sound avoided the possibility of the exchange shipping the wrong discs with the film. The Fox director Charles Klein (a former assistant of de Forest) claimed that the notorious lisping and other diction problems were handled best by film recording.⁴³

Directors were enthusiastic about the flexibility to be gained in double-system recording, in which the sound track and the picture were photographed on separate synchronized filmstrips. Fred Niblo, MGM's star director who was currently at work on Redemption (1930), explained his preference:

The chief advantage is that the sound track and the film of pictorial action both receive proper development. With Movietone, one or the other must be favored in the developing process. With the double film track, each receives most careful attention, The Broadway Melody, for instance, utilizes this film recording.

The Disc process is easiest to synchronize because facilities for reproducing are more advanced. The principle follows closely that of phonograph recording. Most trailers utilize the Vitaphone disc for their short subjects. The disc has limitations technically, in being unable to record the very low or high sounds that can be clearly discerned on synchronized film, with its greater register. (Film Daily, 18 June 1929, p. 3)

The veteran exhibitor Barney Balaban disputed the quality claim for optical but nevertheless gave a pragmatic reason for choosing it: "While at the present time it is our experience that sound-on-disc gives better tonal results, we find sound-on-film to be so much more simple and convenient to handle that we feel it is much to be preferred."⁴⁴

Only Warner Bros./First National said they would continue recording and distributing Vitaphone discs exclusively. Albert Warner responded to Paramount's optical-only test by saying that his company was still sold on discs. Warner lieutenants lined up to agree with their generals. The Vitaphone vice president George Quigley prudently said he was more worried about keeping up with the demand for installation. Darryl Zanuck, though his claims were rather dubious, positively raved about disc, "the only system which permits music to be synchronized beneath dialogue, thereby allowing the symphony orchestra to play a score throughout a picture." He felt that the phonographic technique gave a more accurate reproduction of voice and sound effects and generated less surface noise. "I sincerely believe," Zanuck testified, "that all companies will ultimately release their talking pictures on discs."⁴⁵ A 1929 ad emphatically assured theater owners,

Warner Bros. will continue to supply their productions exclusively on discs. Experience and research have conclusively proven the superiority of Discs over any other method of sound recording. Our confidence in Disc recording has been further confirmed with the excellent results obtained in connection with the increased use of Technicolor. Until engineering science has evolved some better system, we shall continue to record all of our productions exclusively on Discs. (Film Daily, 31 October 1929, p. 12)

But even Warners had to admit that optical sound was editable. At some time around 1930 its engineers began transferring disc recordings to optical for editing, then re-recording the final track back to disc for release. In 1931 Warner Bros. stopped recording on disc, though it continued to release sound tracks transferred to that format.⁴⁶

The partisans of optical sound claimed that their system sounded better, but the quality argument did not hold up. The Western Electric disc was the state of the art in phonographic reproduction. Merritt Crawford, an electrical engineer and sound specialist, wrote, "[S]ound-on-film is certainly not superior to sound-on-disc in tone quality, while in photographic values it is, on the average, much inferior…. The chief arguments against the disc are not based on its sound reproducing quality, but on the material of which the disc is made." He predicted that the discs of the future would be made of metal.⁴⁷ Neither the disc nor the optical system was perfect, and there was no impartial verdict in the trade press on the acoustic merits of one or the other. For present-day researchers, listening to modern restorations of disc recordings reveals them to be less noisy than early optical sound, with a limited but pleasing frequency range. Optical prints invariably have a loud background hiss but seem to reproduce high frequencies more accurately. These, however, are subjective opinions that do not (and cannot) take into account the effects of the extensive electronic re-mastering that the restoration and transfer process usually entails. Furthermore, even if we were to compare playbacks on original equipment, we would not resolve the question satisfactorily, for we cannot duplicate the acoustics of, say, the Rivoli's optical versus the Warners' disc installations, and contemporary accounts noted significant variations in reproduction from theater to theater.

The motives of the producers in discontinuing disc were more likely to have been economic than aesthetic. We might speculate that some of the anti-disc sentiment was orchestrated by ERPI against Warner Bros., which, after all, was openly backing Pacent, a competing disc system (discussed in chapter 8). For the distributors, circulating a second sound track added an extra overhead expense. Most important, the cheap unlicensed systems with bad reproduction were almost all disc-based and installed in unaffiliated theaters. The ERPI-licensed producers and movie chains must have realized the obvious competitive advantage to be gained from squeezing rival discs out of the marketplace. Making film sound optical-only was one way to accomplish this objective.

The campaign against disc systems by the major producers, if it existed—and the question is still open—was not immediately successful. Without giving any reasons, Paramount decided to end its experimental discontinuation of discs and, in May 1929, went back to releasing sound tracks in both formats. By the end of the year, MGM and UA had also brought back discs.⁴⁸ One reason was Vitaphone's huge hardware advantage. At the start of the sound conversion, Movietone had been treated as an optional accessory. So every house wired by ERPI before 1929 had the basic disc system. Many had dual components, but none had optical-only. The studios conceded that some discs would always be used and continued to support disc and optical sound. MGM in 1930, for instance, was still making dual-purpose prints. In addition to its optical Movietone tracks, it had edge-numbering for disc synchronization. Labs included instructions and stern warnings to projectionists on print leaders.⁴⁹ Even RCA recognized the importance of the market for discs. In late 1931, the company introduced its new twelve-inch Vitrolac shellac disc. It weighed only four ounces, compared with the twenty-four-ounce Vitaphone record.⁵⁰

Sound-on-film became the standard for large theaters through a combination of factors: the concerted efforts by ERPI and the studios, market forces of supply and demand, and the optical format's projection convenience. Small exhibitors were loathe to abandon their investment, so disc playback lingered on. But these houses were in the nation's backwaters. At the 1930 SMPE convention, a paper on disc versus film recording "failed to awake any warm discussion."⁵¹ Respondents to a survey in August 1930 revealed that half the theaters in the country no longer were equipped to use disc recordings, but in New York City only 4 percent of the theaters played discs.⁵² Though the majors obviously wished to do away with disc sound, servicing the silent houses continued as long as the rental return justified the cost of maintaining this separate system of sound distribution.⁵³

As late as 1931, 5,000 theaters were equipped for disc accompaniment only. In March 1932, there were 3,500 theaters which could not project optical sound.⁵⁴ Long after ERPI's disc recorders had been mothballed by the studios, many of its durable playback units remained in service.

Challenges to ERPI

ERPI's one-thousandth installation occurred at the Lucas Theater in Savannah, Georgia, on 24 December 1928. Impressive though this was, the competition was expanding much faster. Sound was still an urban phenomenon; three-quarters of the most important theaters in big cities had been wired by the end of 1928 (although they constituted only 5 percent of the total U.S. theater census).

Many independent theater owners were eager to acquire licenses after the studios announced sound production, but they did not like the terms of ERPI's agreement. Midwest exhibitors gathered in Des Moines to lament the plight of the small showman. Despite the initial rhetoric about the sound film's spreading of "democracy," few theaters in towns with population less than 25,000 could afford to invest in ERPI equipment. Showing the films was expensive. The rental fee for sound prints tended to be double that of silent films. Discs had to be purchased outright. Then there was the ERPI service charge and mandatory service contract. The small exhibitor's only option was to hold out until competition brought lower prices, better terms, and alternative equipment. The owners sensed—correctly, as it turned out—that the small chains and the independents were in for a rough time. Abram Myers, immediately after becoming head of the Allied States Association theater owners' trade group in January 1929, sought relief for exhibitors (and indirectly producers) by asking the Justice Department to outlaw agreements that restricted Western Electric-recorded product to approved machines. This was a direct attack on ERPI's recording and exhibition license agreement. Myers claimed that the situation was no different from the government's suit against the Motion Picture Patents Company in the early days of the industry.⁵⁵

Not only were theater owners mad at ERPI, but RCA also threatened to sue Western Electric for violating the Sherman Antitrust Act. Sarnoff complained to the Department of Justice that the exhibition contract restrained RCA's trade. At some time during 1928, Western Electric's share of the exhibition market slipped to below 50 percent. Photo-phone and "gray market" sound systems ate further into ERPI's market share. Western Electric responded by advertising a standard price tag—$5,500 for a disc or optical playback system, $7,000 for both. The service charge was also reduced.

With demand exceeding supply, the remaining 95 percent of unwired theaters was fertile territory for ERPI's competitors. Many of these small-company outfits simply patched a phonograph into the theater's public address system to play nonsynchronous background music. The synchronous devices were knockoffs geared to play the unique Vitaphone format: a 16-inch-diameter disc which rotated counterclockwise at 33⅓ rpm. Only three competing systems (Cinephone, Phonofilm, and Sonograph) were sound-on-film.⁵⁶ W. Drake, an ERPI executive, identified these "icicles" as his corporation's biggest challenge:

It is competition. As with every other successful enterprise, there have been a large number of imitators (icicles as they call them in the motion picture business) who have entered the field looking for easy money….

They have brought about a condition that is disturbing not so much from our own viewpoint as from their effect on the public's response to talking pictures. As far as we know there is not a single bootleg equipment giving satisfactory reproduction in theatres. (Erpigram, 20 June 1929, pp. 1, 4)

In April 1929, ERPI began an expensive public relations campaign to reach eight million readers of numerous mass-circulated magazines. The high quality of Western Electric sound was stressed in an effort to convince consumers that any other sound was inferior. The public, it was probably hoped, would pressure exhibitors to remove their "icicle" equipment. The pitch emphasized the scientific origins of the talkies: "Sound Pictures—a product of the Telephone," one ad read. Another claimed that "Science, art and business, working shoulder to shoulder have accomplished [sound motion pictures]." The rapid progress of the talkies was cited, appealing to those who might have been turned off by attending an earlier screening. The wonderful technicians of Bell Laboratories had cured the talkies of their "lisp." Engineers studied pitch and timbre, and "the results of these investigations are the basis for the design of all Western Electric equipment…. We have mastered the 'S' in Sound Reproduction."⁵⁷

Western Electric also embarked on a campaign to improve its image within the industry. ERPI formed a Department of Educational Talking Pictures and distributed films made to order by outside producers. Its first release was Business in Great Waters (1928), a five-reeler about the transatlantic cable. This publicity tactic paralleled and reinforced other AT&T strategies emphasizing the telephone as a public service, not just a corporate monopoly. Telephone advertising campaigns stressed its social value, its contribution to building communities, and its role in personal safety. ERPI's ads similarly not only generated goodwill among film people and consumers but enhanced the image of Western Electric. Claude Fischer has argued that the public service activities and advertising were part of an effort to combat the telephone's "shortage of charisma." He notes, "In the late 1920s AT&T leaders worried …that the rate [of telephone service] adoption was not great enough, because more American families were buying cars, electricity, and radios than were buying telephone service."⁵⁸ Again, ERPI patterned its activities on those of its corporate parent, using advertising to counteract its own imminent loss of competitive "charisma."

Western Electric provided free program material to exhibitors and provided audiences with what might today be called "edutainment" or "infotainment." Two examples from 1929 were What Makes the Film Talk, a silent to be projected before the house was wired, and Finding His Voice, to be played with a first talker. The films contained schematic explanations written by C. W. Barrell, head of the Western Electric Motion Picture Bureau. They were produced by Max Fleischer and animated at the Carpenter-Goldman studio. After a weeklong run at the Capitol, the manager reported that "Broadway patrons are intensely interested in seeing and hearing how films get their voice."⁵⁹

Western Electric Makes Silence Silent

ERPI stopped trying to control the exhibition of talking cinema and instead built on its advantage in the production sector. The chief activities of the company in 1930—1931 were helping Hollywood establish foreign-language production and exhibition, adding new product lines to supplement its diminishing share of the theater trade, specializing in acoustic consulting, expanding into nontheatrical markets, and introducing noise-reduction recording techniques.

Producers in 1930 were preoccupied with the "foreign problem," that is, how to show their films in non-English-speaking markets. ERPI would have to be instrumental, so Otterson's attentions were focused increasingly on international adaptation. Milestone theater installations were achieved. The five-thousandth ERPI system was put into the Lyceum Theatre in Belfast, Ireland; the six-thousandth at the Comœdia in Marseilles, France. Western Electric devices were installed in forty countries and on two steamships.

ERPI continued to diversify its product offerings. Otterson put his vice president, J. J. Lyng, in charge of domestic affairs. One innovation was individual headsets to aid the hearing-impaired. In August 1929, the Paramount in Brooklyn became the first theater to install them.⁶⁰ They were distributed nationally beginning in 1930. The company introduced a new screen called Ortho-Krome, claimed to transmit sound and reflect light better. It diversified its broadcasting apparatus and test-marketed a new line of rubber-coated wire. A big seller was the Western Electric radio "superimposing" (dubbing) system, which added sound effects from a record library (applause, for example) to live broadcast material. Fifty-six stations leased the system. ERPI also operated an "electrical transcription" service which sent out disc recordings of The Chevrolet Chronicles (to mention one program) to 122 stations.⁶¹

In addition to creating new products, the company also emphasized service. An acoustic consulting department was created in 1929 and augmented in September 1930. A former Yale engineer, S. K. Wolf, was in charge. The unit consulted with industrialists, architects, and managers of arenas and theaters outside the motion picture business. Wolf garnered favorable publicity when he took his analyzing equipment into noisy urban environments such as the New York subway. This activity exploited the company's close ties to Bell Laboratories and reinforced the association between sound technology and the telephone. ERPI (recalling AT&T's social uplift publicity) emphasized its contribution to the common good: "It is a matter of … possessing knowledge and making it of practical value for the first time." The acoustics consultants went into seventy-five theaters a week with their reflectors and echo-detectors, advising managers on how to improve their sound systems. In a typical study, "Articulation Test for Sound Houses," Wolf reported that movies were aspiring to match the normal speech comprehension rate of 96 percent, as measured by the "curve of conversational efficiency" developed by Dr. Fletcher of Bell Laboratories. The engineers were trying to quantify the variables of volume, extraneous noise, and excessive reverberation. The engineer's mission was to foreground speech and desired sounds and to suppress the background. By increasing the ratio of signal to noise, the film could be played at lower volume, generating less distortion. The consultants' theater surveys no doubt improved the effectiveness of ERPI's equipment, but they also redistributed a certain amount of exhibition control, taking it away from the theater management and giving it to Western Electric.⁶² The company's momentum suffered a setback in August 1930 when J. J. Lyng died while attempting to save his sister from drowning.⁶³

Each sound transport, whether disc or optical, had its own distinctive background noise. Phonograph records had scratches and needle scrape. Variable-density optical (Western Electric) had continual hiss. Variable-area (RCA) had ticks and pops. The acoustic superiority of sound-on-film took a decided step forward on 8 December 1930 when ERPI introduced the Western Electric New Process Noiseless Recording System. This involved "flashing" the raw film stock with low-intensity light to alter its photographic density. Also, recorders were equipped with a newly designed light valve. ERPI Vice President H. M. Knox described the improvement as a response to consumer demand:

Motion picture audiences are well aware of the hissing or scratching sound which becomes audible as soon as the sound apparatus is turned on. In other words, during the silent introductory title of a picture everything is quiet. Just before the recorded portions of the film start listeners are warned of the coming sound by the scraping ground noise coming from the screen. While in good recording this ground noise is not particularly offensive, it nevertheless means that any whispers or low level sounds must be raised artificially to a relatively high volume if not masked by the noise of the system itself. During normal dialogue or music the presence of the ground noise fades to relative unimportance and, of course, during loud dialogue or heavy passages of music it is completely covered up. It is therefore a question of making "silence" silent.

… It is now possible to record the lowest whispers in thrilling silence. Fortunately this innovation comes at a time when audiences are demanding more realistic sound and at a time when producers are using less dialogue and more silence. To be effective the silence must be complete. During dramatic periods the expression will soon be true that "it was so quiet that one could hear a pin fall"—even in a talking picture theatre. (H. M. Knox, "Great Advance in Recording," Erpigram, 15 December 1930, p. 8)

The Right to Love (Paramount, 1930) was the first film released employing the new technique. Film Daily found that the system produced the "finest quality sound to date…. [It] adds greatly to the qualities of the dialogue." Jesse Lasky predicted that it would soon be in use by all major producers. The director Richard Wallace found ways to foreground his new quiet-recording capability: "[A] light breeze stirring the trees can be observed in the picture and the resulting rustle of the leaves distinctly heard from the screen. Here is naturalness which under the old method of recording would have been utterly impossible." One bit of fallout was that "talking pictures have become so quiet that system noises as well as sounds in the booth or auditorium that formerly went unnoticed may now become annoying." In other words, the ambient sound in the theater distracted the viewers attention. Most theaters followed the precedent of one in Iron Mountain, Michigan, supposedly the first to deaden projector noise by covering the booth's openings with optically ground glass. Mordaunt Hall felt that, "because of the background of silence, the players' voices are more life-like than ever." But, hard to please, he added, "The quiet may seem at times too noticeable, but this is only because one has become accustomed to hearing the intrusive mechanical undertones." The introduction of noise-reduction recording made it possible for critics like Hall to demand using sound in ways which alternated between dialogue and silence, yet without calling attention to the manipulation of the sound track.⁶⁴

In November 1931, ERPI received an Academy award for noiseless recording.⁶⁵ (It would receive four other sound-related technical awards from the Academy from 1931 to 1935.) Not only did noiseless recording help to hide the mechanical basis of reproduction, it further hastened the end of disc playback because the technique was applicable only to optical sound. RCA developed its own system simultaneously, and by 1931 its licensees, RKO, Pathé, Educational, Tiffany, Mack Sennett, Tec-Art, and Standard Cinema, were using noiseless recording.⁶⁶

Though the motion picture industry weathered the first year of the Depression, theater revenues (and consequently ERPI's income) began to dwindle. In 1930 Western Electric's sales of theater equipment were down 12 percent from 1929. But in his year-end statement, Otterson glossed over the nation's economic problems and once again invoked the quality argument. He blamed bad (meaning non-Western Electric) sound for his company's woes: "At least a third of the American public doesn't know how good talking pictures really are because five thousand poorly equipped theaters have sent them away dissatisfied, and they don't come back for more."⁶⁷

ERPI continued to look for new product outlets. In April 1931, it began selling a Western Electric 16-mm sound projection system to the general public. This utilized the single-perforation film stock which Eastman Kodak had introduced in 1929, and it competed with RCA's system, which had already begun to dominate this market. Nontheatrical talkies were popular with institutional and home users, but exhibitors saw them as a menace to their business. Though ERPI itself had no announced plans to manufacture nontheatrical films for the projector, the major studios had for years been releasing 16-mm silent prints for home screening, and naturally they would switch to sound. On behalf of theater owners, Film Daily's publisher, Jack Alicoate, lambasted ERPI for its nontheatrical campaign:

[ERPI] leased, sold or otherwise bargained with the aforesaid [film] industry for plenty-plus of equipment at boo-koo jack, thereby, we presume, making for itself a most satisfactory profit…. We now find this ERPI-Western Electric combine practically closing the window as far as this industry is concerned and reorganizing its forces and shock troops for a powerful offensive on the non-theatrical front. Installations in Hotels, Clubs, Churches, Schools, Colleges, Institutions, etc. is the objective…. Would this hurt the legitimate picture business? Answer it yourself, for we haven't the heart. (Film Daily, 13 April 1931, p. 1)

While the nontheatrical market provided ERPI with new income, the identification of the company as a competitor, not a partner, must have further strained its relations with exhibitors. Sound continued to spread, but ERPI's presence in theaters declined.

The Conversion Continues

According to Film Boards of Trade statistics, in the spring of 1931 there were 21,739 motion picture theaters in the United States. Of these, the overwhelming majority (19,304) were independently owned and operated houses. Eleven percent (2,435) were affiliated with film studios. Sixty-two percent (13,000-plus) of the nation's theaters had converted to sound.

As of Dec. 31:	1926	1927	1928	1929	1930	1931
a. Not available. b. An estimate.
By ERPI	12	157	1,046	3,157	4,922	5,537
By other	NAa	NA	3,000b	4,843	8,284	8,343
Total	12	157	4,046	8,000	13,206	13,880

Table 6.1 shows that ERPI did not participate proportionately in the rapid rise of wired houses; its momentum stalled after its five-thousandth theater mark. Other reproducing systems, mostly but not entirely RCA Photophone, made inroads in ERPF's territory. If we assume that the majority of the ERPI-serviced theaters were studio affiliates, the table suggests that very few independents were choosing the Western Electric system. Not only was Photophone more affordable, but the apparatus was also owned by the theater. There were no burdensome service contracts. The equipment occupied less space in the booth and behind the screen. Both Western Electric and RCA continued improving theater sound, considered to be the weak link in acoustic reproduction. Combinations of dynamic cones and horns reproduced both music and speech with high quality. One result of these innovations, though, was that the two systems became slightly less compatible when one type of recording was played on the other's speakers. The SMPE proposed a standard in 1934 to resolve the problem.⁶⁸

The slowdown in ERPI theater installations was not only the result of competition. The high-end market of giant picture palaces had been saturated. Acknowledging the increasingly severe effects of the Depression, ERPI did an about-face. Rather than competing for the remaining share, a strategic decision was made not to place equipment in small movie theaters.

Approximately 65 per cent of sound installation propositions considered by the electrics [that is, Western Electric and ERPI] are understood being rejected on the grounds of bad risks. As practically every large house in the country is now wired, theaters at present seeking devices are almost exclusively small revenue producers. Rather than chance the possibility of being forced to take over the houses of uncertain accounts, the electrics are refusing to make numerous deals. (Film Daily, 29 March 1931, p. 1)

Western Electric estimated that it might take four years to wire the remaining silent houses, but this task would require a workforce whose costs would not be sustained by low-return theaters. The Depression trend was toward drastic layoffs, not increasing staff. So ERPI let RCA and the competitors take their chances with the leftover exhibitors. Film Daily reported that "the smaller sound equipment companies …are doing a thriving business among this class of houses."⁶⁹

One of the signs of the company's diminished control was the effort to represent its high-quality service as a desirable commodity rather than a burden imposed upon an unwilling exhibitor. ERPI tried to change its image from that of primarily a provider of equipment to that of a source of "scientific" service. The ads to the trade portrayed the ERPI factory representative as a businessman dressed in a sharp suit. The electronic schematic of the amplifier was shown to be so complex that the lay person (or your ordinary projectionist) could not possibly decipher it.

Much of the organization's activities were spent defending its patents. Western Electric's backing gave ERPI practically unlimited resources to protect its rights and to mount lengthy defenses against infringers. So the litigation was never-ending. Eventually, twenty-two actions sought $175 million from ERPI. By 1938 the majority had been settled out of court.⁷⁰ Among the most significant lawsuits was General Talking Pictures v. Stanley (1930). Film Daily pointed out the significance:

Although the action proper is against Stanley Co. of America, charging infringement of De Forest sound patents, it constitutes a test of Western Electric's position in the sound apparatus field. What the outcome will be is strictly a matter of judicial opinion. If General Talking Pictures [GTP] get the decision it means a radical shakeup in the situation affecting every phase of the business. (Film Daily, 1 July 1930, pp. 1-6)

Western Electric and ERPI won three counts and lost one to GTP; Western Electric immediately appealed the latter. On the strength of its partial victory, GTP sued RCA, RKO, Powers Cinephone, and Fox-Case. In May 1938, the federal district court ruled that ERPI's patent pool was legal, and that General Talking Pictures had to pay backroyalties. The U.S. Supreme Court reaffirmed the decision in November 1938.⁷¹

"Threats arrived regularly, on the average of one per month from 1928 until 1932, from a variety of firms," Gomery reports. In 1932 Sarnoff sued ERPI for antitrust activities. This set off a three-year Justice Department investigation of AT&T and ERPI. Separately, the Stanley theaters (on behalf of parent Warner Bros.) sued ERPI to eliminate the weekly service charge, arguing that the equipment was actually sold and not leased. The complaint cited several abuses. The service personnel were accused of condemning parts unnecessarily, installing overpriced replacements which the licensee was obliged to accept, and then reselling the used parts to other theaters. The plaintiffs asked the court to nullify all ERPI agreements since inception and to require the company either to accept for return all Western Electric apparatus or to reimburse the theaters $30 million. Duovac Radio Corporation and General Talking Pictures joined the suit in November 1932. The Danish producer Nordisk sued Paramount in November 1932, claiming infringement of its Peterson and Poulsen photoelectric cell patents. This led to a boycott, negotiations, and a settlement that paid the Danes royalties through 1935.⁷²

ERPI's and the industry's biggest scare came from William Fox. Though he no longer controlled his original companies, he was still president of American Tri-Ergon. Unexpectedly, he found himself holding trump cards. The U.S. Patent Office granted Tri-Ergon's request for a patent on the standard double-printing process whereby the sound track is exposed on the edge of the film in a separate pass through the printer. Then the federal district court upheld the Tri-Ergon patent on a photoelectric cell, previously denied by the patent office. Fox wasted no time suing Paramount (and by extension, the industry). He also sued an RCA licensee for violating the Tri-Ergon flywheel patent, the crucial device that enabled the film to flow smoothly past the sound-recording beam. At the time, fifteen New York houses and distributors were showing or circulating German dialogue films recorded on the Tri-Ergon system. He sued them, too.⁷³

ERPI and RCA pooled legal forces to defend against Fox. When the controversy reached the Supreme Court in 1934, the justices dealt a blow to the industry by declining to hear the cases. The victorious Fox immediately sued the other seven majors. Meanwhile, RCA's staff was scouring the files and discovered an application made in 1921 and granted in 1931 that anticipated the edge-recording technique. Without precedent, the Court vacated its earlier decision, heard the cases, and in March 1935 overturned the lower courts' decisions. Fox was allowed to collect royalties on his valid patents, but nothing like the tens of millions in fees that Hollywood would have owed him and American Tri-Ergon had the decision gone the other way.⁷⁴

ERPI's clout with the studios almost vanished. For example, to make up for declining revenue, the company became very aggressive about collecting royalties, exploiting the vagueness of the 1928 license agreement. When ERPI tried to impose taxes on silent versions and foreign remakes as though they were new productions and claimed that trailers should be assessed as short subjects, producers refused to pay. The studios were generally successful in winning concessions. The much-maligned service and inspection requirements were eliminated in 1933. As a result, in 1935, ERPI's service department lost money for the first time.⁷⁵ The arbitration hearings between ERPI and Warner Bros. that had begun in 1928 resumed in September 1931 and led to an out-of-court settlement on 6 June 1934. ERPI agreed to pay Warners $4 million in cash and $2.1 million in credits.⁷⁶

When the Depression deepened, ERPI found itself in the production business. It took over Christie Film Company and the Educational Pictures studios in 1933 when they could not pay their license fees. The studio also offered loans to back independent production through a New York subsidiary, Exhibitors Reliance Corporation. In three years it financed 33 features and 207 shorts. ERPI's dabbling in production ended after 1936, when it lost $1 million.

John Otterson resigned in June 1935. Most of the major studios switched to RCA Photophone. Symbolically, perhaps, Warners converted its Burbank sound stages to the RCA system in 1936, a move that left only Paramount, MGM, and United Artists still signed with ERPI. Western Electric deactivated the company in 1937, although its patent and contract royalties continued to flow in.⁷⁷

RKO Radio Pictures

Sarnoff sailed to Paris in February 1929, ostensibly to oversee the "'invasion' of Europe by RCA-Photophone." It was rumored he was signing an agreement with Tobis, purveyors of sound equipment in most of Europe. In actuality, Owen Young had asked him to assist as confidential adviser on the German War Reparations Committee. Sarnoff's suggestions for restructuring Germany's crippling debt were effective, though subsequent historians have minimized the Young Plan's impact. The aim was, of course, to improve the country's economic situation; no one suggested that strengthening a potential market for American radios and films might have been a small consideration.⁷⁸

RKO Productions, in February, adopted a new trade name, Radio Pictures, and a corporate logo with suggestive flying bolts of electricity. The studio made its films in Hollywood on the former FBO lot at 780 North Gower Street at Melrose (absorbed since into Desilu and Paramount) and distributed them out of New York. Kennedy's former studio head, William LeBaron, stayed on as vice president in charge of production, assisted by Lee Marcus as studio manager.

The most important order of business for LeBaron was consolidating Radio Pictures production on the West Coast, part of a $5 million expansion program. A new sound stage was built, and the two existing stages were revamped. A separate building was designed for housing the RCA Photophone recording equipment and the special effects and music departments. By March two complete Photophone installations were working.⁷⁹ During its first year, the studio turned out mostly low-budget musicals. The first films released on the Radio Pictures label were Syncopation (1929), a musical directed by Bert Glennon that highlighted the radio personality Morton Downey and featured Fred Waring and the Pennsylvanians, and Street Girl (1929), directed by Wesley Ruggles and starring Betty Compson. It opened at the Globe Theater in New York on 30 July 1929 and was a well-received light musical comedy.⁸⁰

In New York, RCA Photophone built the Gramercy Studios (between Twenty-fourth and Twenty-fifth Streets off Lexington Avenue) in February 1929. All recording equipment was state of the art, in wheeled sound-proof booths. But when production moved west, and with only two talking features slated to be shot in New York for the 1929-1930 season, the new studios suddenly became surplus property. Photophone rented the facility to low-budget independent producers. Prudence Pictures, for example, filmed The Talk of Hollywood (1929) there, starring Nat Carr. The studios also used Gramercy as a lab to test George K. Spoor's stereoscopic experiments.⁸¹

Most RKO business during 1929 was wheeling and dealing to grab market share. RCA Photophone cut its prices for theater installations in May to underbid ERPI (and to respond to the competition of Pacent and other low-end systems). RCA courted independents by making special arrangements with the little Tiffany-Stahl studio in August 1929: if a manager booked one of the Tiffany-Stahl blocks of twenty-six films, RCA would wire the theater for $2,995. The idea flashed, and 2,460 theaters had signed up by February 1930.⁸²

Sarnoff joined forces with Paramount to engineer (unsuccessfully) a takeover of the Pantages theater chain. Meanwhile, when the powerful stock manipulator Mike Meehan tried to put together a syndicate to buy Kennedy's Pathé stock, Sarnoff let it be known that he would block it; the effort fell apart in June. Sarnoff wanted the studio for himself and resumed talks with Kennedy.

At the end of its first year of operation, twenty-one of RKO's thirty releases had produced profits. In a short time, Sarnoff's holding company had become a diversified entertainment force, and RKO became the fifth member of the new "Big Five."⁸³ Film, of course, was only part of Sarnoff's growing empire. While RKO was prospering, RCA entered into an agreement with General Motors to combine two of the most exciting developments of the twentieth century into one apparatus: the car radio. Investors loved it. From March 1928 through September 1929, the price of RCA stock shot up 600 percent.⁸⁴ John Sedgwick's statistical analysis of RKO income shows that the 1929 releases Rio Rita, Street Girl, The Vagabond Lover (directed by Marshall Nielan and starring the popular crooner Rudy Vallee), and, in 1930, The Cuckoos (directed by Paul Sloane, starring the team of Bert Wheeler and Robert Woolsey) provided RKO with the best return on investment that the company earned during its entire history (see appendix 1).

RCA's executives were intent on diversifying their installations and anticipated that 40 percent of their future sales would be to nontheatrical businesses. A 16-mm projector was introduced in 1930.⁸⁵ RCA's experience and connections as purveyors of tubes and radios helped the company win federal contracts. There were 283 Photophone installations in 1930, for example, for the U.S. Navy.⁸⁶ Sarnoff cited the company's anticipation of a big rise in sales of home reproducing equipment (motion pictures, radios, and phonographs) as a rationale for merging RCA Victor and RCA Photophone.⁸⁷ RCA's AC current projector, aimed at institutions and small theaters, was a success. These products and their accompanying marketing strategies paid off. While ERPF's installations lagged, the business of RCA Photophone was up 200 percent in 1931 over the same period in 1930. Foreign expansion accounted for much of the new business.⁸⁸

After a tumultuous collaboration followed by their breakup, Sarnoff's and Kennedy's ventures led them away from direct participation in the movie business. Their activities demonstrate how unexpected combinations of forces helped derail the Western Electric monopoly. The opposition between the Titan Sarnoff and the Olympian ERPI continued, but there was no battle royal. Instead, they divided the riches. The profits were vast enough to share.

If Laemmle had his Universal City and Fox had his Movietone City, should not Sarnoff have his "Radio City?" On 27 October 1929, he unveiled blueprints for a new corporate headquarters in a "giant Fifth Avenue amusement enterprise" in what would become Rockefeller Center. Under construction between 1931 and 1933, the seventy-story RCA skyscraper anchored the fourteen buildings comprised by the original plan.⁸⁹ The scheme called for the gleaming modern complex to accommodate twenty-seven radio and television broadcasting studios—a veritable radiopolis. The Metropolitan Opera would relocate into the complex. RKO would lease and operate four big theaters, including "one seating 7,000 and devoted to a new conception of variety entertainment." This, of course, was the germ of Radio City Music Hall.⁹⁰

Though neither ERPI nor RCA Photophone achieved the dominance it sought, the ten years of competition and complicity between them facilitated the changeover to sound. Western Electric and RCA provided capital, competed to improve technology, and enabled moviegoers to become avid consumers of the talkies.

It was in RCA/ERPF's best interests to disseminate its products and services widely to all studios and theaters. It is unlikely that the talkies would have become universal had one film studio held all the power or if there had been two or three incompatible systems. By agreeing (reluctantly) to share the field between them (and later with Tobis Klangfilm in Europe), the companies made a calculated decision to exchange monopoly power—which would be expensive to attain and risky to hold—for defined competition. As would happen decades later with giant computer corporations, this strategy ultimately resulted in lost control as the technology multiplied beyond the oversight of any one company. Unchecked competition led to the demise of ERPI—but not, of course, of Western Electric. Film sound, because of this productive competition, became consolidated at a corporate stratum above the studio level. It helped unify the industry and standardize the product. As a result, the talkies changed from a special package of goods and services to one common trait shared by all movies. In 1927 synchronized sound was something extraordinary; by 1931 it had become generic. The film without speech, such as City Lights, was the novelty.