Columbia Corporate History: The Early 1920s

Columbia Master Book, Volume I, Tim Brooks, ed.

Another strike at the Bridgeport plant, this one lasting for a month, slowed things down in the late summer of 1919. It ended only after the company threatened to move the plant elsewhere. Nevertheless the postwar boom of 1919 and 1920 resulted in banner years for the industry. Columbia reported net income of $7.8 million in 1919 and $7.3 million in 1920.⁵⁶ President Whitten observed in his 1920 report that as a result of the new tax law the company was forced to pay more than 45% of its net profits to the government, hampering its ability to expand, and he called for Congress to change “this unwise law.” If it had, Columbia might have been in a better position to weather the difficult times to come.

Individual hit records, which five years earlier might ship 20,000 copies, were now selling in the 100,000 range, and some did much better than that. The two highest totals I have located during this period were 674,000 copies for “I'm Forever Blowing Bubbles” by Campbell and Burr (A2701), and 832,000 for “Dardanella” by Prince’s Dance Orchestra (A2851).⁵⁷ Sales of phonographs were also strong, and anticipating further expansion in 1921, Columbia placed large orders for phonograph cabinets and other supplies.

Then disaster struck. A major economic downturn hit suddenly in 1921, affecting all segments of the entertainment industry. Columbia saw its total sales plummet from $47 million to $19 million, and net income from a $7.3 million profit to a $2.3 million loss.⁵⁸ This might have been sustainable except that the company was also heavily in debt due to its orders for goods (now unneeded) and plant expansion. There were widespread layoffs and a shakeup in the Board Room. President Whitten moved up to Chairman of the Board in January 1921 and was replaced by Van Horn Ely, President of the American Railways Co. and a member of the Columbia Board.⁵⁹ Ely lasted only a year before being replaced by H. L. Willson, a former Columbia General Manager.

Management scrambled to try to save the company from creditors, who were already circling. In May 1921 Grafonola prices were slashed by as much as one-third to try to stimulate sales, bringing the cheapest table model down to $30.⁶⁰ But there was little improvement, and in February 1922 a number of disgruntled bond holders petitioned the court to force the company into involuntary bankruptcy.⁶¹ A creditors’ committee was formed and the petition was denied, at least for the time being. Continuing drastic cuts in operating expenses were made during the following year, including the termination of many employees. It is perhaps not coincidental that Charles A. Prince, who as a longtime employee was probably making a relatively high salary by this time, left in early 1922.

As if a full-blown depression wasn't enough, competition was proliferating with the expiration (or overturning in court) of the company’s fundamental patents. As a result a price war had broken out. As recently as 1920 Columbia 10” discs had sold for $1 each, but new labels such as Regal (1921) and Cameo (1922) were entering the market with 50¢ discs. In April 1921 Columbia cut the price of its popular 10” discs to 85¢, and in March 1922 cut them again to 75¢. (Victor made similar cuts.) In a desperate effort to raise cash, the British branch was sold in December 1922 to a group of investors led by English Columbia’s General Manager Louis Sterling.⁶² On January 1, 1923 the profitable Dictaphone division, established in 1908, was sold for $1 million.⁶³ January 1923 also saw the introduction of “New Process” records, a laminated disc with a smoother playing surface promoted as “virtually noiseless... music unalloyed by distracting scratch or scrape.”⁶⁴

All of these efforts helped a little, but not enough.

In October 1923 another creditors’ group demanded payment, filing a petition for involuntary bankruptcy. Despite the company’s pleas for patience, the Columbia Graphophone Manufacturing Co. was forced into receivership. Assets were estimated at $18.7 million, and liabilities at $23.9 million. Judge Learned Hand appointed James R Sheffield and Columbia President H. L. Willson to carry on the business under court supervision. Operations continued uninterrupted during the reorganization, with monthly lists of new releases. In December, in fact, a new label design (the “flag” label) was introduced and the disc numbering system changed for the first time since 1908. Ten” popular discs were now numbered from 1-D upwards, and 12” from 50,000-D. Other series were introduced for specialty series; an “F” suffix was used for ethnic releases.

Columbia emerged from receivership in February 1924 as the Columbia Phonograph Company Inc., only to be dealt yet another devastating blow in the form of competition from radio, which was spreading like wildfire. Full price labels were especially hard hit. Why should consumers pay 75¢ for a new Columbia disc when even better sounding music was free on the radio, and if you wanted a record you could get a perfectly good one from one of the minor labels for 35¢ or 50¢? Victor saw its business drop 20% from 1923 to 1924, and another 20% from 1924 to 1925, to the lowest level since 1915 (except for the war year of 1918, when supplies were short).⁶⁵ Columbia’s losses were probably even greater.

Columbia sold off more assets, including its Canadian operation in July 1924, but drastic action was needed in order to stave off utter collapse. Then, out of the blue, a “white knight” arrived. He was none other than Louis Sterling, the Managing Director of the English Columbia Company, which had spun off from the American company in 1922. Through adroit management Sterling had turned the failing British branch around, and he thought he could do the same for the American “mother company.” He also had his eye on the rights to something the American company had access to, that he wanted—a potentially revolutionary electrical recording process. 

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The Columbia Master Book Discography, 4 Volumes, Complied by Brian Rust and Tim Brooks. Reprinted by permission.