Confronting the Mass Market: Thomas Edison and the Entertainment Phonograph Leonard DeGraaf National Park Service Edison National Historic Site Between1880 and 1910the phonograph became a mass-marketedconsumer product.During the late 1870sThomas Edison's tinfoil phonographwas a curiosity of little practicalvalue. By thefirst decadeof the 20th centurythe phonograph,as well as musicalrecords on bothcylinder and discformats were widely availableto consumers.Americans purchased over half a milliontalking machines and over 27 million records in 1914, and this number continued to rise until 1929. Although Thomas Edison played an importantrole in the technical developmentof thephonograph and his firm wasa leadingproducer between 1896 and1908, he experienceda number of problemsin marketinghis talking machines and recordsbetween 1909 and 1929 -- problemsthat led to the failure of his business. During this period Edison was a market follower in the industry, surpassedby the Victor TalkingMachine Company and challenged by suchother competitorsas the Columbia PhonographCompany and Brunswick-Balke- Callender.In 1919Edison produced only 7.2% of the phonographsand ! 1.3% of the recordsmanufactured in the United States [4]. By the end of the 1920s his companycontrolled only 2% of the recordmarket [5]. As one Edisondealer lamentedin 1926,"instead of theEdison being the mostpopular machine it is one of theleast popular. The Edison,the original, the Daddy of themall shouldnot take secondplace for any of them"[7]. This paperexamines the reasons for the failureof the Edisonentertainment phonographbusiness. The traditionalexplanation for Edison'scommercial failures maintainsthat he wasa poorbusiness manager. This view wasinitially expressed by Henry Ford, who called Edison "the world's greatestinventor and worst businessman,"and has subsequently influenced a numberof assessmentsof Edison's businessabilities [ 18]. This interpretationwas often asserted, however, without the benefitof detailedresearch on Edison'scommercial enterprises. This is particularly truefor the phonographindustry, which has received little attentionfrom business historians. While the developmentof the phonographbusiness is a complexstory involvinga varietyof broadeconomic, technical, marketing and culturalforces, specificdecisions made by Edisonand his competitorswere alsocritical factors. At issue here is not whetherEdison was a good or bad manager,but how he BUSINESS AND ECONOMIC HISTORY, Volumetwenty-four, no. 1, Fall 1995. Copyright¸1995 by the BusinessHistory Conference. ISSN 0849-6825. 88 89 respondedto theproblems of designingand marketing sound-recording technology withina rapidlychanging competitive environment. In orderto explainEdison's problemsin the phonographbusiness, this paperexamines the technicaland marketingstrategies he employedand compares those strategies with theapproach of hismore successful competitor, the Victor Talking Machine Company. As this paperargues, Edison's strategies were ill-suited for an emergingmass consumer market. Mass Marketing the Phonograph, 1888-1907 Edison'sfirst attemptto marketthe cylinderphonograph during the late 1880sand early 1890s was unsuccessful. In 1888the North American Phonograph Companywas created in orderto leasethe Edison phonograph and a rival cylinder machinecalled the graphophonefor useas commercialdictating machines. The North Americancompany, however, failed to developa marketfor dictating machinesbecause of a varietyof technicaland marketing problems. The failureof the dictating machinealong with the popularityof coin-operatedamusement phonographsin publicplaces convinced Edison and his associatesto developa homeentertainment talking machine [1, pp.78-87]. By the late 1890sEdison had designeda simpler, spring-drivenphonograph; developed procedures for manufacturingpre-recorded musical cylinders on a largescale; and organized a new firm, the NationalPhonograph Company, to marketthese machines and records. The lowercost of thesemachines, combined with an improvingeconomy enabled the National companyand its principlecylinder competitor, the Columbia PhonographCompany to dramaticallyincrease sales. By 1904 the National companyhad sold over 113,000 machines and seven million records [Table 1]. Table 1. PhonographsManufactured by the National PhonographCo., 1896-1904 Date Spring Motor Electric Motor Total 3/1896-2/1897 774 465 1,239 3/1897-2/1898 4,905 260 5,165 3/1898-2/1899 13,833 422 14,255 3/1899-2/1900 45,827 270 46,097 3/1900-2/1901 41,850 44 41,894 3/1901-2/1902 41,315 66 41,381 3/1902-2/1903 79,980 277 80,257 3/1903-2/1904 112,049 1,102 113,151 Total 340,533 2,906 343.439 Source:Appellant's Brief, New YorkPhonograph Co. v. NationalPhonograph Co., United StatesCircuit Court, Court of Appeals, SecondCircuit, November 14. 1905, p. 218. 90 Edison's National PhonographCompany was able to dominate the phonographbusiness in theearly 1900s,but its positionwas challenged by Eldridge Johnson'sVictor Talking MachineCompany. Johnson,a Camden,New Jersey, machinist,began making spring motors in 1896for the gramophone,a disc talking machineinvented by Emile Berliner in 1887. During the late 1890sJohnson manufacturedgramophones for the Berlinercompany and developed an improved disc recordingprocess. Through a seriesof complexlegal maneuversJohnson obtainedcontrol of the Berlinerpatents and organizedthe Victor companyin October1901 to markethis own line of discmachines and records [2, pp. 17-35]. Salesof Victor gramophonesgrew slowly at first, butJohnson introduced a numberof technicaland designchanges that helpedincrease his shareof the talkingmachine market. In 1903he designeda new tonearm, whichimproved the acousticquality of his machines[20, p. 135]. In 1906 he unveileda new disc machinecalled the Victrola, which featuredan enclosedspeaker horn in a handsomewood cabinet [2, p. 61]. The result,according to an earlyphonograph historian,"was to makethe phonographfor thefirst time a pieceof furniture." [ 17, p. 6]. In 1901 Victor soldapproximately 7600 machines.By 1907 the company had sold over 98,000 machines[Table 2]. Table 2. RecordsManufactured by the National Phonograph Co., 1896-1904 3/1896-2/1897 0 3/1897-2/1898 87,690 3/1898-2/1899 428,310 3/1899-2/1900 1,886,137 3/1900-2/1901 2,080,132 3/1901-2/1902 1,976,645 3/1902-2/1903 4,382,802 3/1903-2/1904 7,633,142 Total 18,474, 858 Source:Appellant's Brief, New YorkPhonograph Co. v. NationalPhonograph Co., United States Circuit Court,Court of Appeals,Second Circuit, November 14, 1905,p. 219. The impressivegrowth enjoyed by the phonographindustry since 1901 endedabruptly in 1907 becauseof the Banker'sPanic. As a resultof the panic, Edisonsuffered a 30% dropin salesin 1908,while Victor's sales declined by almost 40%. Both companiesrecovered from the economicdepression, but Victor grew back at a muchfaster rate, and surpassedEdison's sales in 1909. Edisondid not reachhis pre-1907 level until 1916,when the valueof Victor'ssales was over three timesas h•gh as Edison's[Table 3]. 91 Table 3. Salesof Victor RecordingMachines, 1901-1915 Year Horn Type Cabinet Phonograph Victrolas 1901 7,650 -- 1902 42,110 1903 40,601 -- 1904 47,074 -- 1905 65,591 -- 1906 76,036 506 1907 98,686 3,559 1908 45,473 4,317 1909 56,147 11,764 1910 73,049 21,508 1911 31,106 41,956 1912 21,009 49,224 1913 18,435 115,342 1914 6,179 121,288 1915 3,949 188,725 Source:B.L. Aidridge,The VictorTalking Machine Cotnpany, (RCA, 1964),Appendix IV• What causedthis change in the relativepositions of the Edisonand Victor companies?Given his first entrantadvantages, why wasEdison surpassed by the Victor company?One possibleexplanation for thischange are pricedifferences betweenEdison and Victor products. Although more detailed information about phonographand record prices and how they changed over time is required,there is evidencesuggesting that Victor andother talking machine producers were able to lower the pricesof their productsat a muchfaster rate thanEdison. As Andre Millard hasargued in hisstudy of Edison'sWest Orangelaboratory, "lowering the costsof productionhad become essential in thephonograph business because [the Edisoncompany] faced competition that invariablyundersold it" [1, p. 200]. Price competitionprovides only part of the explanationfor Edison's problemsin the talkingmachine business. Victor's ability to surpassEdison can alsobe attributedto severaltechnical and design advantages of its productsas well as a marketingstrategy consisting of threeimportant elements. Victor machines 92 weremore appealing to consumersbecause their enclosed horns eliminated the need for awkwardexposed horns and becausethey cameencased in attractivewood cabinets. Victor disc records were more durable and easier to store and maintain thanEdison cylinder records and they couldalso be playedlonger, from four to sevenminutes, allowing Victor to recordmusic that would not fit on the two minute Edisoncylinder. Theseproduct advantages complemented Victor's highly effective marketing strategy. The first elementof this strategywas what companyhistorian B.L. Aldridgecalled a "heavy-handedadvertising policy" [2, p. 49]. Victor spentup to 8.2% of itsannual sales on masscirculation newspaper and magazine promotions. The companyrelied on theseads not onlyto promoteits own products,but to create generalconsumer demand for thephonograph as a form of domesticentertainment. The secondcomponent of the Victor strategywas a closerelationship with its jobbersand dealers. Victor dealerswere expected to generatea minimumannual salesof $300.