Presiding over the landmark Microsoft antitrust case, Judge Thomas Penfield Jackson made international headlines when he compared Microsoft’s market power to the hegemony enjoyed by John D. Rockefeller’s Standard Oil a century ago. But perhaps another, less chronicled story actually serves as a better model for what is happening today and what may yet take place in the years to come. Way back during the birth of broadcasting, a largely forgotten but portentous battle raged between a lone inventor and the indomitable mogul at the helm of the first electronic media-age monopoly. The conflict differed sharply from the Rockefeller case, which involved the supply of a physical product-oil-as well as the system for piping and transporting this commodity. By contrast, the primary product in broadcasting was information, broadly defined. And the primary issue at hand wasn’t pricing but innovation itself.
Innovation in the early days of radio was controlled so tightly by David Sarnoff, the stocky, domineering, Russian-born visionary who led the Radio Corporation of America (RCA), that the federal government was compelled to investigate. What government trustbusters found was something that had been obvious to industry insiders for years: Sarnoff’s company had an iron grip on every aspect of radio, from the patents on the device itself to the creation and distribution of programming. “Sarnoff was the Bill Gates of his age,” says Thomas Lento, director of communications for the Sarnoff Corp., a Princeton, N.J., research lab spun off from RCA in the late 1980s. “RCA had a stranglehold over an entire sector of the economy.” But it was Sarnoff’s move to capture the next big thing, television, and his plot to destroy the ambitious young inventor behind the new technology, that sent sparks flying.
Just as Microsoft didn’t invent the PC operating system, RCA didn’t invent radio. The firm was formed in 1919 when General Electric purchased the U.S. subsidiary of the Italian inventor Guglielmo Marconi’s original company. Sarnoff, who had worked at the American Marconi Company since his teens, was among the first to envision the news and entertainment applications of broadcasting.
Appointed RCA’s commercial manager at 28, Sarnoff greatly expanded the original Marconi patent portfolio and made sure no one could legally manufacture or sell a radio set without paying RCA a stiff royalty, just as no one could later make or sell a so-called IBM-compatible PC without paying a fee for the use of Microsoft’s MS-DOS and Windows. “The patents were all bundled together,” Lento says. “If you wanted to make a radio, you had to license all of them.”
And just as Microsoft used the infrastructure of Windows to propel its Office software to dominance, Sarnoff leveraged his advantage as radio’s standards-setter to organize hundreds of local stations into a national network, founding his National Broadcasting Company (NBC) division in 1926 and making it the primary provider of free electronic news, music and sports.
The rewards of dominance were great. Over a span of 15 years, radio exploded, from the domain of a few thousand hobbyists to a fixture in most Americans’ homes. Along the way, the RCA shares that GE issued skyrocketed. Multiplying more than 10,000 percent, RCA became the single hottest security in the great bull market of the Roaring Twenties-going from startup to component of the Dow even faster than Microsoft would accomplish the same feat decades later.