CBS Inc.

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CBS Inc.

51 West 52nd Street
New York, New York 10019
U.S.A.
(212) 975-4321

Public Company
Incorporated: 1927 as United Independent Broadcasters, Inc.
Sales: $2.78 billion
Employees: 6,500
Stock Index: New York Pacific

CBS, the world’s second-oldest broadcasting network, has a strong tradition of innovative programming and technological contributions. The company’s reputation was built on the pioneering work done by CBS’s news division and on the stable of celebrities the company acquired over the years. In recent decades, however, the network has de-emphasized news, and programming has suffered from cost-cutting measures and attempts to lure less-mature viewers.

In the late 1920s, Arthur Judson, the impresario of the Philadelphia and New York Philharmonic orchestras, approached the Radio Corporation of America’s National Broadcasting Company (NBC), then the only radio broadcaster in the United States, with an idea to promote classical music by broadcasting orchestra performances. NBC declined. Undaunted, in 1927 Judson founded his own broadcasting company, which he called United Independent Broadcasters, Inc., or UIB.

Lacking the strong capital base NBC had in its parent, RCA, UIB struggled to stay afloat for several months. That summer, however, Judson found a rich partner in Columbia Phonograph, a leader in the phonograph record business. For $163,000 Columbia Phonograph bought UIB’s operating rights. The new company was named the Columbia Phonograph Broadcasting System.

Columbia Phonograph sold UIB’s operating rights back to the broadcasting company in 1928 however, apparently because the phonograph company was frustrated by a lack of advertiser loyalty. The broadcasting company’s name was then shortened to the Columbia Broadcasting System (CBS) and its finances were greatly enhanced that year when William Paley invested $400,000 in its stock.

Paley was the son of a Russian immigrant who owned a cigar company. It was assumed that Paley would take over his father’s business, but he was drawn to the broadcasting business. Quite early in its history CBS began to earn a reputation as the network with class—a reputation often attributed to Paley’s influence.

At the time of Paley’s CBS stock purchase, the company consisted of only 16 affiliated radio stations and possessed no stations of it own. Paley, who was quickly elected president of the company, tripled earnings in his first year. This success was accomplished by offering prospective affiliates the network’s entire unsponsored schedule at no cost, in contrast to NBC, which charged affiliates for all programs. In return for free programs, affiliates gave CBS airtime for sponsored broadcasts, allowing CBS to assure contracted sponsors that airtime would be available. Within a decade, CBS added almost 100 stations to its network. Since the number of affiliates a network has determines the number of people it can reach, which in turn determines what a sponsor is charged, CBS was soon on firm financial footing. By 1930, CBS had 300 employees and total sales of $7.2 million.

Although CBS fared well, NBC continued to dominate the entertainment-oriented broadcasting industry. Paley therefore decided to explore the potential for network news. Paley viewed news and public affairs as a quick way for CBS to gain respectability. In 1930 he hired Ed Klauber to establish a news and public affairs section and in 1933 the Columbia News Service, the first radio network news operation, was formed. By 1935 CBS had become the largest radio network in the United States.

In 1938 Edward R. Murrow began his career at CBS as head of the network’s European division. The first international radio news broadcast was established later that year with Murrow reporting from Vienna, William L. Shirer reporting from London, and others reporting from Paris, Berlin, and Rome. With these broadcasts CBS began the practice of preempting regular programming. These interruptions were planned for prime listening time—8:55 to 9:00 p.m. — and were intended to give the network a “statesmanlike” image.

CBS entered the record business in 1938 with the purchase of the American Record Corporation. Later called the Columbia Recording Corporation, it soon became an industry powerhouse.

By the beginning of World War II CBS employed more than 2,000 people, had annual sales of some $36 million, and had more than 100 affiliate stations throughout the United States. In 1940 the world’s first experimental color-television broadcast was made from a CBS transmitter atop the Chrysler Building in New York City and received in the CBS Building at 485 Madison Avenue. And in 1941 CBS began weekly broadcasts of black-and-white television programs. That year the government also ordered NBC to divest itself of one of its two networks, which eventually gave rise to the American Broadcasting Company (ABC).

After the war CBS embarked on a raid of NBC stars. Though CBS continued to expand, NBC was still the industry leader. Under Paley’s direction, CBS lured stars away from NBC by devising a plan in which the stars could be taxed as companies rather than as individuals, greatly reducing their taxes. Jack Benny was the first major star to leave NBC for CBS; soon Edgar Bergen and Charlie McCarthy, Amos ’n Andy, Red Skelton, and George Burns and Grade Allen followed. Within a year CBS took the lead from NBC in programming, advertising revenues, and profits—a lead it maintained as the two networks expanded into television.

In 1946 CBS submitted its color-television broadcasting system to the Federal Communications Commission (FCC) for approval. CBS was confident that its color system would be approved, even though existing black-and-white sets could not receive CBS’s color CBS broadcasts, because there were fewer than 25,000 TV sets in the United States. The FCC, however, did not approve the system, calling it “premature.” In the meantime, RCA had developed a color system that was compatible with existing television sets. The CBS system produced a better picture, however, and in 1950, when both CBS and RCA submitted their systems to the FCC for approval, only the CBS system was approved. But RCA appealed the decision, preventing CBS from marketing its system and gaining time to improve the quality of its own system. In 1953 the FCC reversed and ruled in favor of the RCA system since more than 12 million black-and-white TV sets had been sold by that time, making compatibility a more important issue.

During the 1950s censorship became an issue in the broadcasting industry. The networks have always been sensitive to censorship pressure because the FCC can revoke a station’s license if it does not serve the “public interest responsibly”. In addition, advertisers may refuse to sponsor a program which they find offensive, and network affiliates can pressure the network into discontinuing a controversial program. Censorship surfaced at all the networks during the early 1950s as Senator Joseph McCarthy’s anticommunist campaign pressured networks and sponsors to blacklist certain actors and writers who were suspected of having left-wing associations. Though CBS was considered the most liberal of the networks, it required 2,500 employees to sign a “loyalty oath” which stated that they “neither belonged to nor sympathized with” any communist organization. In 1954 two CBS News commentators began to expose McCarthy’s unethical behavior on the television show “See It Now.” These broadcasts helped to discredit the communist paranoia, but proved so controversial themselves that CBS eventually canceled the program.

By this time there were 32 million television sets in the United States, and television had become the biggest advertising medium in the world. The period was marred, however, by a 1956 TV quiz scandal in which CBS’s “$64,000 Question” was shown to be rigged.

In late 1950s Paley hired James Aubrey as president of CBS. Aubrey, who purportedly thought that television programming had become too “highbrow,” introduced such shows as “The Beverly Hillbillies,” “Mr. Ed,” and “The Munsters.” These shows were extremely popular; in his first two years with CBS, Aubrey doubled the network’s profits.

During the early 1960s, CBS embarked on a diverse acquisitions campaign. Before 1964 CBS had made only two acquisitions in its history, but from that year on, the company made acquisitions almost every year. In 1964 the network purchased an 80% interest in the New York Yankees baseball team, which it sold ten years later. Acquisitions in the fields of musical instruments, book publishing, and children’s toys were made throughout the 1960s.

By the end of the decade CBS had 22,000 employees and net profits of over $64 million. The network’s most notable programming innovation of the decade came in 1968 with the debut of “60 Minutes,” a television news magazine. The 1970s were a period of innovative primetime programming. In 1971 “All In The Family” debuted on CBS and in 1972 both “M*A*S*H” and “The Waltons” debuted. But it was a decade of managerial turmoil.

In 1971 Charles T. Ireland became the president of CBS. He was replaced a year later by Arthur Taylor, who held the position for four years. Taylor was relieved of his duties when the network placed second in the Nielsen ratings for the first time in 21 years, and was replaced by John D. Backe, who had been president of the CBS publishing division since 1973.

Meanwhile, in 1976 CBS relieved reporter Daniel Schorr of all duties after he leaked a secret House Intelligence Committee report on the Central Intelligence Agency to the Village Voice. He resigned from CBS several months later. And in April, 1979 in a case involving CBS and two employees—correspondent Mike Wallace and producer Barry Lando—the Supreme Court ruled that journalists accused of libel may be forced to answer questions about their “state of mind” or about conversations with colleagues during the editorial process. The ruling was a victory for former Lieutenant Colonel Anthony E. Herbert, who contended that he was libeled in a “60 Minutes” broadcast that aired in 1973.

In 1979 CBS finally began to divest itself of some of its diverse holdings, selling at least one business every year for the next few years. A year later CBS regained dominance in the prime-time TV ratings, a position held by ABC since 1976. However, one week after CBS took this lead President Backe was forced to resign. He was replaced by Thomas H. Wyman, who had been a vice president at Pillsbury.

CBS went to court again in 1982 after it aired the documentary “The Uncounted Enemy: A Vietnam Deception,” which began a long-running battle with retired army General William Westmoreland, who filed a $120 million libel suit against the network. This fight ended several years later when Westmoreland withdrew his suit on a promise from CBS that the network would publicly attempt to restore his character.

By the early 1980s CBS operations fell into six main divisions: the broadcast group, which was concerned with programming and production of shows for the network, theaters, home video, and cable TV; the records group; the publishing group; the toys division; the technology center, which was responsible for research and development of new technologies; and various corporate joint ventures, including CBS/FOX Company, a joint venture with Twentieth Century Fox to manufacture and distribute videocassettes and videodiscs. In 1986 CBS sold its book-publishing business to Harcourt Brace Jovanovich, Inc. for $500 million, and that same year the company sold all of its toy businesses.

In 1983 CBS, Columbia Pictures, and Home Box Office joined forces to form Tri-Star Pictures, a motion picture production and distribution company. By 1984 Tri-Star had released 17 full-length motion pictures, nine of its own production. But in 1985 CBS sold its interest in Tri-Star Pictures. Another experiment was Trintex, a commercial electronic service that allowed people access to news, weather, and sports information; financial and educational data; and home shopping and banking from a personal computer terminal. This service, initiated in 1984, was the combined effort of CBS, IBM, and Sears, Roebuck. Yet again, CBS withdrew from the venture, in 1986.

In 1985 Ted Turner, owner of Turner Broadcasting System, announced his intention to take over CBS. In order to prevent this CBS swallowed a $954.8 million poison pill by purchasing 21% of its own outstanding stock.

In September, 1986 Larry Tisch replaced Tom Wyman as CEO of CBS. Tisch was the chairman of Loew’s Corporation, which owned about 25% of CBS stock at the time. Following a power struggle between Tisch and Wyman, who had remained as president, William S. Paley returned as chairman of the board and Wyman was forced to resign.

Although Tisch was originally to serve only as interim CEO, within four months it was clear that the job was his. He immediately began cutting costs at the network. Tisch cut $30 million from the news division budget, tried to reduce programming costs, cut hundreds of jobs, and sold a number of CBS publishing concerns. He also sold CBS Records to the Sony Corporation in 1987 for $2 billion, even though the subsidiary, which boasted top stars like Michael Jackson and Bruce Springsteen, had been a perennial money-maker for the company.

Tisch was roundly criticized for selling the number-one record company in the industry when the music business appeared to be healthy, and for trying to cut television-programming costs at a time when cable TV and other pay services were seducing viewers by offering a broader and higher-quality selection. CBS’s prime-time hits were getting old; in 1987 the network came in last in the Nielsen ratings. To make matters worse, CBS viewers tended to be older than the heavy-spending audience advertisers look for.

In 1988 Tisch, under fire from the CBS board and from affiliate stations for lacking any long-term strategy, appointed 38-year-old Kim LeMasters to head the network’s entertainment division. LeMasters’ task was to find new programming that would appeal to younger audiences.

CBS continues the struggle to turn around its ratings slump. But it remains to be seen whether the network can win back large audiences, or whether it can remain independent in this era of mergers in the entertainment industry.

Principal Subsidiaries

Aspenfair Music Inc.; Cadisco Inc.; CBS/Australia Pty. Limited; CBS Broadcast International of Canada Limited; CBS Columbia C.A. (Venezuela); CBS/Columbia Inernacional, S.A. (Mexico); CBS Dischi S.p.A. (Italy); CBS Discos del Peru S.A.; CBS Epic (Thailand) Limited (60%); CBS FMX Stereo Inc.; CBS/FOX Company (50%); CBS United Kingdom Limited; CBS Urban Renewal Corporation; CJG Productions, Inc.; Columbia Television, Inc.; Discos CBS Industria e Comercio Ltda. (Brazil); Discos CBS International de Puerto Rico Inc.; Discos CBS S.A.I.C.F. (Argentina); Discos CBS, S.A. (Colombia); Filmvision Inc.; Houston Motion Picture Entertainment, Inc.; Mainstream Communications Corp. (50%); Vista Marketing Inc.; Winter-land Concessions Company (50%).