1957 - 1959: On the Edge


THE RADIO NETWORKS - ARE THEY HERE TO STAY?

That was the question “Broadcasting-Telecasting” magazine asked in its November 26, 1956 issue. The answer to that, and other questions, came from a questionnaire sent to all 3000-plus commercial radio stations operating in the U.S. (except those owned and operated by the networks). More than 1,250 responded, 234 of them Mutual affiliates.

Among the things B-T wanted to know was how affiliates of all networks felt about a suggestion that the current network operation of mainly entertainment programming be replaced by a so-called “press association” service, which would provide programs to station subscribers on a fee basis in the same manner as the Associated Press and United Press. Fully one-half of the Mutual affiliates responding said that they would prefer this service if MBS offered it to them.

Years later, Robert F. Hurleigh would cite that survey as a crucial part of his presentation to persuade Mutual management to switch from its traditional network to one that provided primarily news, sports and special events coverage. With MBS ordered by Tom O'Neil to do something about Mutual's mounting red ink, it didn't take much prodding to get management to give it a try. Affiliates accepted it without much enthusiasm, for they knew it represented the network's last hope for its continued survival.

It was officially titled “Operation Newsbeat,” but in-house it was known as “The Hurleigh Plan,” and was the most dramatic network retrenchment to that time. Under the new setup which started June 2, 1957, Mutual would broadcast five-minute newscasts every half hour from 7 a.m. to midnight. The bottom of the hour newscast would be reserved for network sale, while affiliates could sell the top of the hour newscasts. The rest of the schedule consisted mainly of recorded music offered free to stations. However, a few stalwarts hung on: commentaries from Fulton Lewis jr. and Gabriel Heatter continued, as did the Sunday six-hour block of paid religious programs, the 8-9 p.m. weeknight mystery strip including "True Detective Mysteries," "Treasury Agent," and "Counterspy"; a relatively new two-hour jazz showcase, "Bandstand USA," on Saturday nights; and the baseball "Game of the Day."

Mutual officials were optimistic, predicting the newscasts on the half-hour would be completely sold out within two months, as would be the 28-second IDs which followed the newscasts. Sales were so good, in fact, that the network's owner (General Tire & Rubber) couldn't get the time it wanted for its weekday "General Sports Time with Harry Wismer."

But barely six weeks into the new format, Tom O'Neil had had enough.

O'Neil had been slowly buying out the stakes of the other MBS shareholding stations over the previous year. Now, with the vast majority of the MBS stock, O'Neil threw in the towel, for the network - although not profitable - wasn't losing enough to justify keeping it as a tax write-off. O'Neil talked with businessmen from Chicago, New York and New England, as well as a New York syndicate; one of them talked about turning Mutual into a sports network. Meanwhile, MBS President John Poor sounded out ABC executives (to no avail) about shifting MBS accounts to ABC if Mutual folded.

The asking price for the network was $550,000, plus assurances of at least a half-million more to maintain operations. Within two weeks, O'Neil found his buyer: a group headed by Paul Roberts, a Los Angeles FM station operator. Joining him was Roy Roberts (no relation), a California realtor and oil operator; and Dr. Armand Hammer, the head of Occidental Petroleum, who was reported to have put up $850,000 in the takeover. The group promised to beef up the sales effort and add top news personalities to the talent roster.

At first, things went well: by the end of 1957, MBS' five minute newscasts were sold out, new sponsors were lining up for 1958 (Colgate, Kreml, Serutan, L&M cigarettes and Bristol-Myers), and new programs were being added to the schedule, including a new Kate Smith daytime entry, and late night talk shows with New York personalities Long John Nebel and Barry Gray. A $680,000 loss from January to July of 1957 had turned to a $24,000 profit from September to the end of the year, and the new owners were riding high.

But things quickly fell apart as 1958 started, with the network losing $100,000 in January. By March (and with a national recession taking hold), the hourly newscasts were only 65% sold; the "Kate Smith Show" was 40% sold, and the Nebel and Gray shows were having trouble getting much interest from either stations or sponsors. A tug-of-war erupted among the new management: Hammer thought Roberts was veering too much from the news-sports-music concept, and wanted him to limit his future projects. In a surprise move, Roberts resigned, and Hammer took over, promising a return to the basic "Hurleigh Plan."

But the network continued to bleed money with Hammer at the helm, and lost another $790,000 from January to July 1958. However, Hammer was able to interest Alexander L. Guterma, chairman of the board of auto parts manufacturer F. L. Jacobs Co., and Hal Roach, Jr., in buying it. Roach owned some profitable radio and TV properties (Hal Roach Studios was a Jacobs subsidiary); he talked of using Mutual as the nucleus of a radio-TV combination for medium-sized advertisers. So in September 1958, Hammer & Co. sold MBS to Hal Roach Studios for between $500,000 and $900,000.

Guterma became president of the network. He was optimistic: he considered broadcasting a "depression-proof" business, and added, "Mutual has a newscasting staff that can't be improved on. What it needs is strong guidance."

But Guterma was out less than six months later, charged by the Securities and Exchange Commission with stock fraud. Roach took over as MBS president. The network was running deeper into the red, losing $100,000 a month. Stations and talent hadn't been paid; affiliates alone were owed at least $100,000 in compensation, with some of them threatening to disaffiliate if they weren't paid soon. On top of that, advertisers were getting leery, too. Roach tried to sell the network to Max Factor & Co., but the deal fell through, reportedly because the cosmetics giant couldn't figure out how to get a tax advantage.

Then, in early March 1959, came perhaps the final blow: AT&T threatened to unplug its lines to MBS stations unless an overdue bill of around $400,000 was paid. Roach didn't have the money, and Mutual teetered on the edge.

That's when Bob Hurleigh went to work - again.

Hurleigh had been in radio since the early 1930s in a succession of newscasting and news director positions (while at WFBR Baltimore in 1940, he organized the Radio Correspondents Association, the predecessor of the Radio-TV News Directors Association). He joined WGN in 1944 as news director, and became news director of WGN-TV when it went on the air in 1948. That same year, Hurleigh was named Mutual's midwest news chief. He moved to Washington DC in 1955 to head MBS' operation there, and was named national news and special events director in 1957. While his duties at Mutual had become increasingly administrative, Hurleigh still thought of himself as a working newsman, and said he looked forward each day to his morning newscast, a 9 a.m. staple since 1949. Hurleigh had tremendous loyalty to the network, and felt his fellow newscasters, including Fulton Lewis jr., Gabriel Heatter, and Cedric Foster, would stick, too.

Hurleigh obtained from Roach a free, one-day option to purchase the network. With it, he quickly called on longtime political contacts in Washington to intercede for him at AT&T, who agreed to a week's grace. He then hammered out a 30-day option with Roach and used the weekend to make frantic - but futile - calls to anyone who might be interested in purchasing the network. Aiding Hurleigh in his search were not only Lewis, but MBS executive vice president Blair Walliser, network controller James Gladstone, and Vic Diehm, chair of the Mutual Affiliates Advisory Committee.

AT&T then issued a notice that Mutual lines would be pulled that Sunday night. The end seemed at hand. However, in midweek, Hurleigh had been introduced to Malcolm Smith, head of a successful mail-order company (Harrison Home Products handled Addiator, a hand-held adding machine imported from Germany; Smith was also involved in a number of record companies). Smith said he was interested in Mutual.

That Friday, Hurleigh, MBS attorneys, Smith and AT&T officials met in a New York hotel, pounding out an agreement. At day's end, Smith received a week's option to buy MBS, and wrote two checks - each for $25,000. One went to AT&T; the other went into Mutual's coffers to keep it running for another week.

The option was later extended for another week to give Smith time to discuss the deal with an associate. In mid-March 1959, Smith agreed to take over Mutual, and hopes soared that the new team might be able to pull it through.

But their troubles were only beginning.

In February 1959, Mutual newscasters had noticed a flood of news releases, all neatly red-penciled to accent the key phrases, plugging the Dominican Republic and its dictator, Generalissimo Rafael Trujillo. Many were tossed in the wastebasket, but others made it on the air.

The next month, Hurleigh heard rumbles that Alexander Guterma (remember him?) had made a secret deal with the Trujillo government. So when Hurleigh received an invitation for a Dominican government celebration, he promptly accepted. It was at a palace reception that Hurleigh first heard from a Trujillo aide that Guterma had signed a contract with the Trujillo government to propagandize it on MBS. Hurleigh was also told that Guterma had even passed MBS stock as collateral for the deal - although Hurleigh said the network's stock was locked in a New York vault.

Hurleigh raced back to New York with the story. He got in touch with Smith, later with the SEC and the Justice Department, who later that year indicted Guterma and Roach for failing to register as agents of a foreign government.

Here's the story Justice pieced together: Guterma and Roach were filming in Cuba in January 1959 when the Batista government crumbled. The two looked for a more favorable filming site, when they met a Dominican Republic ambassador who suggested that Trujillo would welcome their presence.

Guterma and Roach went to the island, and wound up with an even bigger deal. They agreed to use Mutual as a Dominican propaganda vehicle: for $750,000, MBS would broadcast a "monthly maximum of 425 minutes of news and commentary regarding the Dominican Republic." The money (a sackful of United States currency) changed hands in early February; the flood of news releases and several telephone calls from Guterma with "must" news on the Trujillo regime followed.

(The Trujillo government later tried to get its money back, claiming that Mutual reneged on the deal, but the claim was ruled invalid because Mutual hadn't been involved, and that Guterma had set up a dummy corporation to pull it off.)

But that wasn't the only trouble: longtime regional affiliates were starting to look elsewhere. The Intermountain Network - a group of 41 stations covering Idaho, Montana, Utah, Nevada, Colorado and Wyoming that had taken Mutual programs since 1940 (and had signed a five-year extension only a year earlier) - decided to end their affiliation and take 40 of their stations to ABC effective the end of March. At the time, MBS didn't seem to take the matter seriously, maintaining that at worst Mutual would become dual affiliates with ABC, with MBS getting the lion's share of the time. Intermountain took the unusual step of issuing a closed-circuit message to its affiliates disavowing Mutual's report. Intermountain president Lynn Meyer told Broadcasting, "Mutual apparently refuses to believe that we have disaffiliated. We are sympathetic to their problem, but we have definitely affiliated with ABC Radio."

But perhaps a more symbolic move came with the word that the Don Lee Network - Mutual's entry to the West Coast 22 years earlier - was cutting ties and also hooking up with ABC. Indeed, radio's largest regional network disappeared at 2 a.m. Sunday April 26, 1959, when ABC took 20 Don Lee stations and added them to its Pacific Coast network.

Meanwhile, Smith was running out of gas, and the dual whammies of the Trujillo scandal and affiliate defections didn't help his peace of mind, either. Within three months, Smith had invested some $250,000 in MBS. Still, the business slide continued, and he didn't have the resources to keep the money flowing.

Hurleigh swung into action again. He called Albert McCarthy Jr., a Tampa, Florida real-estate operator who had expressed interest in Mutual at the time Smith had his option to buy. McCarthy said he would take over MBS, but only if: a) the company went through reorganization; and, b) Hurleigh assumed the presidency and see MBS through it.

So on July 1, 1959, Hurleigh bought the network from Smith for $1, and MBS voluntarily petitioned for bankruptcy. Under the agreement, Hurleigh was "the owner" of Mutual, but McCarthy and his partner, Tampa attorney and businessman Chester Ferguson, would receive Hurleigh's stock when MBS came out of reorganization.

The network listed liabilities of $3,195,607 and assets of $579,607. In another twist, it turned out that Mutual's principal creditor had been associated with McCarthy and Ferguson in various real-estate operations.

The filing was a good public relations move, since forced bankruptcy would probably have caused sponsors and stations to jump ship. As it turned out, only one advertiser dropped off Mutual's list when it went into the courts - and came back a month later. Also, Mutual signed $1.5 million in new business during the last half of 1959 - including Plymouth, Mercury, and American Machine & Foundry - and renewals from companies such as R. J. Reynolds and Sterling Drug.

A creditors' formula was worked out where suppliers accepted a ten-cents-on-the-dollar settlement for the $2.3-million owed them. Talent and guest panelists, owed about $60,000, received 50-cents-on-the-dollar up to $600, and 10 cents for all amounts above that. Holders of a $1.4-million note agreed to a ten-year extension. That note represented money advanced to MBS by Tom O'Neil when he headed the network, and was carried on the books under successive managements.

Mutual emerged from reorganization in December 1959 with essentially a clean slate. By that time, McCarthy and Ferguson had already poured about $600,000 into the network, and estimates had them eventually putting in another $1.5 million to set it right.

MBS did lose four of RKO's five stations as affiliates, although it managed to fill all those markets. It also signed the fifth (WOR) to a new contract as the network's flagship. In all, Mutual went into the 1960s with 454 affiliates, although it had 563 six years earlier.

Hurleigh comes out the hero in all of this, coming through time and again as the chief finder of new money whenever trouble loomed. It was Hurleigh who turned up at the last minute, either with a moneyed savior willing to put capital into the network, or using his contacts and influence to keep AT&T and other creditors at bay while looking for the white knight.

Mutual became the first company put in troubled waters by Guterma to actually emerge from the reorganization mill. In his brief stay, Guterma saddled the network with almost insurmountable debts, embarrassment, and the shame of being a pawn in international intrigue (news of the Trujillo deal became public after McCarthy & Co. took over MBS). In his defense, though, it should be said that the financial erosion was well underway by the time he arrived. In 1960, Guterma was sentenced to almost five years in prison and fined $160,000 for stock fraud; he was released after three years and began building a new financial empire (he and most of his family died in a 1977 plane crash).

Hal Roach Jr. pleaded no contest in 1960 to charges that he failed to register as a foreign agent, and was fined $500.

The events of 1959 were hardly a proper way for the network to celebrate its 25th anniversary. (Incidentally, on July 1, 1959 - the same day MBS voluntarily filed for bankruptcy - the network lost one of its founders: Alfred McCosker, who spent 23 years at WOR and was Mutual's first chairman from 1934 to 1947, died in Miami Beach.)

As the 1960s began, Mutual had a new lease on life. It would soon have yet another new owner.


Information on this page came from "The Image Empire" by Erik Barnouw (1970, Oxford University Press), and various issues of Variety, Broadcasting (also published during this period as Broadcasting-Telecasting) and Business Week magazines.

Text copyright © 2009 Kenneth I. Johannessen.

No challenges to logo, sound or image copyrights are either inferred or implied.


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