Licensing the Western Electric Electrical Recording System

Western Electric recording systems were then made available in the latter part of 1924 to Victor and also to Columbia to evaluate.  Victor at first hesitated to license the new system, it would seem primarily because of its high cost.  Victor's business condition in 1924 was seriously compromised by the explosion of commercial radio ¹⁶, and Victor's 1924 earnings dropped to only $25,000 ⁸.

Victor's reticence as to the cost of the Western Electric system is certainly understandable.  The Western Electric system was to be licensed and leased; not sold, and was expensive.  It required Victor and Columbia each to make an up-front payment of $50,000 (equivalent to more than $600,000 in current value¹) followed by payment of a variable royalty per record, but which averaged approximately $0.01 per disc (equivalent to about $0.12 today¹).  The annual minimum royalty was set at $25,000, or about $300,000 in current value¹.  So, this minimum royalty was equal to the entire Victor earnings for the previous year of 1924.

The often repeated story that Eldridge Johnson was inalterably opposed to an electric system in a Victrola cabinet does not seem to have been a factor, since Johnson had progressively further and further withdrawn from the management of Victor since about 1919.  During 1924, Victor delayed their response, but did not reject the Western Electric proposals.  However, it was Columbia, and Louis Sterling who would be the first to act.

Louis Sterling (later Sir Louis Sterling):  Phonograph Entrepreneur

Louis Saul Sterling (1879-1958), was a US citizen, born in Kovno, Russia (now known as Kaunas, second city of Lithuania), May 16, 1879 and who emigrated with his family to the U.S. at age 3 ²⁴.  In January, 1903 Louis Sterling decide to relocate to London.  In later years he said that he arrived in London with a phonograph and with  5 Pounds in his pocket ³⁰.  Sterling started work in 1903 for Gramophone and Typewriter Ltd.  After leaving G&T in 1904, Sterling became manager of British Zonophone, which manufactured both phonograph records and machines. 

In December 1904, Sterling started his own Sterling Record Company ²⁷. which made cylinder recordings.

In March, 1905, Sterling Record Company was renamed the Russell Hunting Record Co., Ltd., and was subsequently reorganized and renamed several times.  Russell Hunting (1865-1945), an American, was one of the early independent phonograph entrepreneurs in the U.S. and in England.  Russell Hunting made the 1907 recording of the Gilbert and Sullivan opera HMS Pinafore, and was previously well known in the U.S. for his comedy recordings. Sterling became the Managing Director of the Russell Hunting Record Co., Ltd., but continued to invest and build his other interests.  Russell Hunting and Louis Sterling continued to make cylinder recordings, so perhaps they believed that cylinders would emerge as the winners over the flat gramophone disc. The Russell Hunting Record Co., Ltd. was ended in December, 1908 ³³. 

In 1908, Sterling formed Rena Manufacturing Company, which the U.S. Columbia Phonograph Company purchased in 1909.  Sterling was then appointed Columbia's British Sales Manager, and went on to develop a number of other phonograph businesses in England ²⁵.   Beginning in 1915, under Louis Sterling's initiative, a number of orchestral recordings were made of Thomas Beecham with the Beecham Symphony Orchestra and Sir Henry Wood conducting the New Queen's Hall Orchestra ³⁴.

Louis Sterling in about 1914, age 35. At that time, Sterling was manager of the Columbia Graphophone Company, Ltd., UK subsidiary of the U.S. Columbia Graphophone Company

The U.S. Columbia Phonograph Company (named Columbia Graphophone before 1921) in 1898 had created a British branch, which was reorganized in 1917 as the (British) Columbia Graphophone Company, Ltd.⁵.  It was this British affiliate of Columbia which was to became the basis for the emergence of Louis Sterling as a power in the phonograph industry. 

Sterling's British phonograph interests grew during the 1910s, as did the circle of investors who trusted in him. On Friday, December, 8 1922, Sterling arranged for himself and his British investment partners, using the company entity "Constructive Finance Co., Ltd.", to purchase the (British) Columbia Graphophone Company, Ltd. subsidiary from is financially troubled U.S. Columbia parent⁴.

Sterling continued to grow (British) Columbia Graphophone Company, Ltd. during the 1920s and reinvest earnings into company growth. During this same period, the U.S. Columbia Phonograph Company went into bankruptcy and was reorganized twice.  However, its debt load was excessive, and Columbia also experienced the same drop in demand for phonograph records in the early 1920s as did Victor. This was a result of post-war economic recession and the growth of radio.  Victor, better managed and without excessive debt, grew while Columbia declined.  By 1925, Louis Sterling was prepared to make his next move, which was triggered by the development of the new technology of electrical recording.

Recall that a license to the Western Electric recording system had been offered to the Victor Talking Machine Company and to the Columbia Phonograph Company, both US firms.  Western Electric at this time did not want to license to companies outside the U.S. ², perhaps because they were concerned about legal enforcement of patents or of agreements in courts outside the US  During most of 1924, both Victor and Columbia in the US had hesitated to license this expensive technology from Western Electric.

Columbia Licenses the Western Electric Recording Process

First mover on the Western Electric system was this brilliant entrepreneur Louis Sterling.  On Christmas Eve of 1924, Louis Sterling (in 1937 Sir Louis), General Manager of the (British) Columbia Graphophone Company in London heard some of the test recordings made with the Western Electric system ².  These records may have come from the Bell Laboratories wax masters provided to Victor and Columbia, or may have been made by Columbia engineers in the U.S. evaluating the Western Electric system as early as August, 1924 and certainly by November, 1924⁹.  Joseph Maxfield of Bell Laboratories in a oral history recalled using the Western Electric system to make records in both the Victor and Columbia facilities.   He said: "...by 1924, we had an exceedingly good recording system. We had made records at both Columbia and Victor Talking Machine Laboratories - demonstration records. They were both interested in licensing, and in 1925, they did..." ²⁸

Another interesting version of the source of the test recordings was that Sterling's former colleague Russell Hunting sent the tests to Sterling.  According to this account, Bell Labs, lacking their own record pressing facilities contracted with the New Jersey manufacturing facilities of Pathé-Frères.  By 1925, Russell Hunting was back in the U.S. working for Pathé, and if this version is true, Hunting send the recordings to Sterling.  A version of this story is included in the Jerrold Northrop Moore biography of Fred Gaisberg ³⁶.

The more direct version of this history: that of Bell Laboratories working directly with the Victor and Columbia recording laboratories, as recalled by Maxfield seems more plausible.  However, the Russell Hunting "back door" story is still interesting.

Whatever the source of the test recordings, Sterling immediately grasped the significance of this new technology. Sterling began transatlantic negotiations with Western Electric between December 26, 1924 and the end of January, 1925 to license the Western Elecric system.  There is also an often-repeated story that Louis Sterling heard the test recordings at Christmas and immediately took the next ocean liner to New York.  However, the U.S. travel and immigration records ³ do not support this version, but rather show Sterling to have come to New York City on February 11, 1925.  That he would negotiate the transaction by cable, and then travel to close the transaction seems plausible.

Faced with Western Electric's decision to license only to US firms, Sterling acted decisively by arranging for his Columbia Graphophone Company, Ltd. (U.K.) to purchase, in early 1925, the outstanding shares of the financially troubled Columbia Gramophone Company (U.S.).  The U.S. Columbia business, after going bankrupt in 1923 ³² had been in financial reorganization in 1923 and 1924, and Sterling likely had his sights on U.S. Columbia all during this period.

Negotiation of this purchase of Columbia Gramophone occurred during January and February, 1925.  Sterling again used the "Constructive Finance Co., Ltd." controlled by Sterling and his associates to purchase the U.S. parent, just as he had in 1922 to purchase the British subsidiary Columbia Graphophone Company, Ltd.  This purchase by Sterling $2.55 million was partially financed by the J.P. Morgan Bank, where Thomas W. Lamont, the famous Morgan partner was an admirer of Sterling. 

Sterling arrived in New York on February 11, 1925 as shown in the New York passenger lists, below ³.  On Friday, March 6, 1925 the Constructive Finance Company, Ltd., controlled by Sterling, purchased the 51,000 of outstanding shares of the Columbia Phonograph Company for $50.00 per share, therefore paying $2,550,000 to purchase the U.S. Columbia operation¹⁹.  It seems likely that $2,500,000 was the purchase price of the shares, and the additional $50,000 was to fund the initial license fee payment from Columbia to Western Electric.

Sterling was still a U.S. national, and maintained a New York City residence (where his mother Julia lived on West 117th Street). Sterling had excellent New York financial connections, including with J.P. Morgan.  1925 was a busy time for Sterling, and in fact he crossed the Atlantic to England again, returning on July 15, 1925.

Thus, by Sterling's ingenuity, US Columbia, the former parent of the British subsidiary, Columbia Graphophone now became the subsidiary, and the British firm, controlled by Sterling became the parent.

Louis Sterling now had the US company necessary to enter into a license with Western Electric for the Western Electric electrical recording process.  According to George Blau, US Columbia had already cut electrical sides on February 25, 1925 ¹⁰ that were commercially issued when Art Gillham, the "Whispering Pianist", a pioneer radio performer recorded 5 sides.  This was 8 weeks before Columbia signed the definitive license agreement with Western Electric. 

Art Gillham (with glasses) standing to left of Will Rogers in November 4, 1924 during the Eveready Hour, broadcast by WEAF New York.  AT&T sold WEAF in 1926 as part of a settlement with GE/RCA to exit broadcasting, and GE and RCA committed to transmit all their network broadcasts via AT&T long distance lines ³⁵.  (note the Western Electric carbon microphone in the 1B housing on a stand. However, for electrical recording, beginning at least by 1927, Western Electric condenser microphones were used in the Western Electric gramophone recording system, rather than the more noisy and frequency-limited carbon microphone)

The definitive agreement between Columbia and Western Electric was signed April 22, 1925 (one month before Victor's definitive license agreement), and the up-front license fee was $50,000.  It may be that Louis Sterling's purchase of Columbia for $2,550,000 consisted of a purchase price of $2,500,000 with an extra $50,000 to allow the cash poor Columbia company to pay the $50,000 initial Western Electric license fee.

In addition to the up-front $50,000 initial license fee, the Western Electric license contract called for royalties at different rates, but starting at about $0.01 per record or about $0.12 in current money.  Also, the agreement called for a minimum annual royalty of $25,000 (about $300,000 today) free of British taxes⁶. 

In identifying its electrical process recordings, Columbia adopted the name "Viva-tonal" and "Electrical Process" in lightening-bolt style font, which they added to early labels of Columbia discs recorded with the Western Electric electrical system.

   Early Columbia Viva-tonal disc label

Victor Talking Machine Company Licenses the Western Electric System

Meanwhile, the Victor Talking Machine management was perhaps influenced by the Columbia licensing of the Western Electric system, and more likely by the need to reverse the poor business results of Victor.  Victor was also aware that the Gramophone Company, Ltd. was evaluating the Western Electric recording system in Britain.  The Victor Talking Machine Company on December 5, 1920 had purchased half of the shares of the Gramophone Company for $1,600,000¹³.  This Victor half-ownership later gave the Gramophone Company access to license the Western Electric system, even though it was not a US company.

In early 1925, Victor Talking Machine Company decided to license the Western Electric recording process and equipment.  Preliminary patent license agreements were made with Western Electric in February, 1925, and the equipment installed in March, 1925. 

Allan Sutton does conclusively document that Victor's earliest electrical recording session with the Western Electric system that resulted in a commercially released record was on February 26, 1925 in Camden ¹¹.  Victor and Western Electric signed the definitive license agreement for the Western Electric system on May 21, 1925 according to the (sometimes unreliable) Fenimore Johnson memoir ⁷.  However, as to the exact date, likely more reliable is the Harry O. Sooy memoir which states:  "...March 11th, 1925: I celebrated my birthday, and incidentally, my 27th year with the Victor Company by starting to make Electrically recorded records for our Catalog, indicating the demonstration proved satisfactory to the Victor Company, although the Contract for same has not been signed. This work started on permission from the Bell Company. Mme. [Olga] Samaroff being the first artist to make records for Domestic use.  March 18th, 1925: Contract was signed by the Western Electric and Victor Talking Machine Companies for the process and method of making records electrically..." ²³.

So, about 4 weeks after Columbia had signed their contract, the definitive license agreement between Victor and Western Electric for the recording system was signed. Victor paid Western electric the $50,000 up-front license fee upon signing, with subsequent royalties similar to those paid by Sterling and Columbia (described above).

Installation of the Western Electric System in Victor Talking Machine Camden Building number 15

At the beginning of February, 1925, Western Electric equipment was installed in Camden in Building no 15 as recounted by Harry Sooy: "...February 3rd, 1925: The Electrical Recording Equipment from the Bell Laboratories arrived at the Victor Laboratory, Building # l5, via truck, this date...February 4th, 1925: Mr. Maxfield came over to inspect wiring, etc., and pronounced same satisfactory..." ²³  The Philadelphia Orchestra made its first electrical recordings thereafter in Camden Building number 15 on April 29, 1925.

However, after the 1925 Camden electrical recording sessions, and following the installation of Western Electric equipment in the Academy of Music in Philadelphia in early 1926, Camden studios were not used again to record the Philadelphia Orchestra until 1931. 

The Western Electric system was also subsequently installed in Victor's New York Studios and on July 31, 1925, the first Victor New York electrical sessions were commenced¹⁴.

Louis Sterling Expansion of Columbia, Leading to the Creation of EMI

Louis Sterling in the next three years after the 1925 acquisition of Columbia went on to acquire a series of European, Asian, and U.S. phonograph companies.  In October, 1925, Sterling arranged for a holding company to combine Columbia Graphophone and the Carl Lindstrom group of companies ²⁹.  Lindstrom (1869-1932) controlled a number of labels, including Odeon, Parlophone and in the U.S., Okeh Records.  Later, Sterling acquired the legendary French Pathé-Frères, Pathé-Orient labels and Nipponophone in Japan. ²⁶ 

On March 19, 1931¹⁸, Columbia Graphophone and the Gramophone Company, Ltd. merged to create Electric and Musical Industries Ltd., or "EMI", with Louis Sterling as Managing Director.  By this transaction, RCA ended up owning 30% of EMI, as a result of RCA's 1929 purchase of the Victor Talking Machine Company (which had owned 50% of the Gramophone Company).  In this same 1931 EMI transaction, Columbia Graphophone spun off its US subsidiary, for anti-trust reasons, by giving each of the Columbia Graphophone shareholders a cash dividend, plus fractional shares in the (US) Columbia Phonograph Co. Inc¹⁷.

Louis Sterling became a British subject at some time between September, 1930 and January, 1933, and was knighted in 1937.  Sir Louis retired from EMI in 1939 at age 60.  He died in London on June 2, 1958 at age 79.

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¹  Measuring Worth; Institute for Measurement of Worth. using Consumer Price Index as a conservative measure.

²  page 92-965 Burns, R. W. The Life and Times of A D Blumlein Institution of Engineering and Technology. Herts, UK 2000. ISBN 0-8529677-3-X

³  from New York Passenger Lists, Passenger and Crew Lists of Vessels Arriving at New York, New York, 1897-1957.  Immigration and Naturalization Service.

⁴   December 13, 1922.  New York Times, New York.

⁵  McLean, Donald F. Restoring Baird's Image, Institution of Electrical Engineers IET 2000 ISBN 0-8529-6795-0

⁶   page 117 Burns.  op. cit.

⁷   page 116. Johnson, E. R. Fenimore. His Master's Voice Was Eldridge R. Johnson, A Biography State Media, Inc. Milford, Delaware 1974.

⁸   page 114 Johnson, Fenimore op. cit.

⁹  Rust, Brian Rust, Brian A. L.  Brooks, Tim The Columbia Master Book Discography  1999 Greenwood Publishing Group ISBN: 0-313-308-225

¹⁰  George Blau September 16, 1999. quoted in notes by Steven Schoenherr at the University of San Diego web site.

¹¹   The research and knowledge that Allen Sutton brings to this is demonstrated in his web page mainspringpress.com  with the title: "A Miniature Concert"  - The Earliest Issued Victor Electric."

Allen Sutton states:  "...On Thursday, February 26, 1925, Victor and Western Electric engineers oversaw the first electrical recording session that would produce usable masters for Victor."  This was of a vocal group which performed what was called "Miniature Concert", issued in July, 1925 on Victor 35753,matrix CVE-31874-3 and CVE-31875-4 according to Allen Sutton's research.

Allen Sutton also indicates that he will be publishing a book on the history of these developments which will be titled Recording the 'Twenties: The Birth of the Modern American Recording Industry.  All interested in this fascinating subject eagerly await this book from Allen Sutton and the Mainspring Press of Colorado.

¹²   page 113 Johnson, Fenimore op. cit.

¹³   page 111 Barnum, Frederick O. "His Master's Voice" in America. General Electric Company. 1991

¹⁴   page 112  Barnum, Frederic O.  op. cit.

¹⁵   page 115 Adams, Stephen B. and Butler, Orville R. Manufacturing the Future: A History of Western Electric. Cambridge University Press. Cambridge, UK. 1999

¹⁶   Benjamin. L. Aldridge in his excellent "The Victor Talking Machine Company"  states on pages 85 and 86:

"The Victor Talking Machine Company In 1924, business followed the normal seasonal cycle until September when, for the first time in Victor's history, sales to the public failed to materialize as anticipated. By this time, materials had been fabricated to the point where the cost of completion would be (p. 86) relatively small and the management decided that it would be better to liquidate complete instruments than materials in process. Sales were subnormal all Fall, and even at Christmas there were heavy inventories everywhere-dealer, distributor, factory. For the factory, it was the first time in the company's history."

¹⁷  Time Magazine, March 30, 1931 issue.

¹⁸   page 19.  San Antonio Express San Antonio TX. March 20, 1931.

¹⁹   New York Herald, March 11, 1925

²⁰   page xiii.  Bolig, John R.  The Victor Black Label Discography 18000-19000 Series.  Mainspring Press, LLC.  Denver. 2008.  ISBN 978-0-9772735-9-1.

²¹  Sooy, Raymond.  Memoirs of my Recording and Traveling Experiences for the Victor Talking Machine Company. Manuscript, not dated, but ending with events of 1931.  An important contribution to the history of recording, the David Sarnoff Library edited and reproduced these memoires on their website. http://www.davidsarnoff.org/soo-maintext.html

²²   Allen Sutton at mainspringpress

²³   Sooy, Harry O.  Memoir of my Career at Victor Talking Machine Company 1898-1925.  Manuscript, not dated, but ending with events of 1925.  Another important record of the history of recording, on the David Sarnoff Library website: 

²⁴   Source: United States Federal Census 1900-1930.  On-line data located in Provo, Utah.

²⁵   Biography of Sir Louis Saul Sterling.  Senate House Library, University of London. London. 2007.

²⁶   page 57.  Chanan, Michael.  Repeated Takes: A Short History of Recording and Its Effects on Music. Verso. New York, 1995.  ISBN 1-85984-0124

²⁷   page 187.  Welch, Walter L. and Burt, Leah Brodbeck Stenzel.  From Tinfoil to Stereo: The Acoustic Years of the Recording Industry 1877-1929.  University Press of Florida. Gainsville. 1976.  ISBN 0-8130-1317-8

²⁸   Joseph Maxfield Oral History.  Joseph Maxfield, an oral history conducted in 1973 by Frank A. Polkinghorn, IEEE History Center, Rutgers University, New Brunswick, NJ, USA.  IEEE Global History Network.

²⁹   Associated Press.   Phonograph Companies in Big Merger.  Daily Independent, Murphysboro Illinois.  October 24, 1925.

³⁰   Robb, Inez.  Interview with Louis Sterling: The Common Man Who Became a Knight.  Times Record, Troy, New York.  June 6, 1958 (published following Sterling's death).

³¹   page 1.  Bridgeport Telegram.  Bridgeport, CN.  March 7, 1925.

³²   page 12.  Salt Lake Tribune.  Salt Lake City, UT.  October 18, 1923.

³³   page 1067.   Frank W. Hoffmann, Frank W.,  Ferstler, Howard  Encyclopedia of Recorded Sound. Routledge October 2004.  ISBN-13: 978-0415938358 

³⁴   Arnold, Claude Graveley, C.S.B.  The Orchestra on Record, 1896 - 1926, An Encyclopedia of Orchestral Recordings Made by the Acoustical Process. Discographies, Number 73, Greenwood Press, Westport Connecticut. 1997. ISBN 0-313-30099-2.

³⁵   pages 110, 111.  Adams, Stephen B. and Butler, Orville R. Manufacturing the Future: A History of Western Electric .  Cambridge University Press.  Cambridge, UK.  1999  ISBN 0-521-65118-2.

³⁶  Moore, Jerrold Northrop.  pages 239-251  Sound Revolutions, A Biography of Fred Gaisberg, Founding Father of Commercial Sound Recordings.  Sanctuary Publishing Ltd.  London. 1999.  ISBN 1-86074-235-1.