Mutual Broadcasting System scandal
The Mutual Broadcasting System (MBS) scandal refers to a series of financial and ethical issues that plagued the cooperative radio network during the late 1950s. Founded in 1934, MBS was initially a successful joint venture among East Coast radio stations, distinguishing itself from traditional networks by allowing affiliates to share ownership and programming costs. However, as the network transitioned to corporate ownership in the postwar era, it struggled to maintain its competitive edge against major broadcasters like NBC and CBS.
The scandal intensified in 1958 when Alexander Guterma, the president of MBS, faced indictment for fraud and securities violations, including failing to report stock transactions to the SEC. This situation escalated with allegations that Guterma and other executives accepted bribes from Dominican officials to broadcast political propaganda disguised as news, raising significant ethical concerns. These scandals not only contributed to MBS's financial decline, leading to its bankruptcy in 1959, but also eroded public trust in the broadcast industry at large. Ultimately, the MBS was sold to the 3M company and continued operations into the 1990s before being absorbed by CBS/Viacom, never fully recovering its former reputation in the broadcasting landscape.
Mutual Broadcasting System scandal
The Event Radio executives accused of illegal activities
Date 1958-1959
The Mutual Broadcasting System scandal, involving financial and ethical improprieties of network executives, was one of several high-profile scandals that plagued the broadcast industry during the late 1950’s.
The Mutual Broadcasting System (MBS) was established in 1934 as a joint venture among several large East Coast radio stations. Unlike a traditional broadcasting network in which programming was sold to subscribing affiliates, the MBS operated as a cooperative in which each affiliate held an equal share in the network and shared programming and operational costs. Moreover, unlike previous attempts at establishing broadcasting cooperatives, MBS built a successful network that competed with the giants of early network radio—NBC and CBS. Some of the most popular radio programs of the 1930’s and 1940’s, such as The Lone Ranger, The Shadow, and Amos and Andy were broadcast on MBS.
The culture of mutual ownership that characterized the network in its early years began to unravel in the postwar era as the initial partners sold their shares in the cooperative. By 1950, one company, General Tire and Rubber, owned the majority of the network’s stock. The company was reorganized into a more traditional network, producing programming and distributing it to affiliates for a fee. Mutual’s ratings, always a distant fourth to those of its major competitors, declined steadily during the 1950’s as several of its popular programs went off the air.
Scandal
Throughout the 1950’s, ownership of MBS passed through a series of large corporations. In 1958, the struggling network was purchased by Hal Roach Studios, a subsidiary of the Scranton Corporation. Alexander Guterma, controlling stockholder in the Scranton Corporation, soon assumed the presidency of the network. During his term as president, Guterma was indicted on a variety of fraud charges and securities offenses, including failure to report stock transactions to the Securities and Exchange Commission (SEC). Guterma resigned from Mutual in February, 1959, and sold his shares in the network to its chief executive, Hal Roach, Jr.
The scandal intensified in September, 1959, after a federal grand jury charged that Guterma, Roach, and another Mutual official accepted $750,000 from high-level officials of the Dominican Republic in exchange for the promise that Mutual would broadcast political propaganda disguised as news on behalf of the Dominican government. Whether the network ever actually broadcast such propaganda is uncertain; however, the scandal exacerbated the network’s already precarious financial state. The Mutual Broadcasting System declared bankruptcy in 1959 and was purchased by the 3M company in 1960.
Impact
The Guterma scandal and resultant financial difficulties were the final episodes in the steady decline of the Mutual Broadcasting System during the 1950’s. The network that had once exemplified cooperative ownership of the airwaves had become a corporate subsidiary, its financial and organizational instability rendered vulnerable to corrupt management that had not only committed financial indiscretions but also compromised the network’s integrity by accepting bribes to broadcast propaganda for a foreign country. This incident, along with the “payola” and quiz show scandals, weakened public confidence in the broadcast industry as a whole during the late 1950’s.
Subsequent Events
Guterma was convicted of securities fraud and in 1960 was sentenced to a three-year prison term. He died in 1977. The Mutual Broadcasting System continued to operate into the 1990’s, but never fully regained its former prestige. In 1999, the network was purchase by CBS/Viacom and ceased operating under the Mutual name.
Bibliography
Brooks, John. The Go-Go Years: The Drama and Crashing Finale of Wall Street’s Bullish Sixties. New York: Wiley, 1999. Provides some information on Guterma and the impact of his activities upon the U.S. stock market.
Hillard, Robert L. The Broadcast Century and Beyond: A Biography of American Broadcasting. 3d ed. Boston: Focal Press, 2001. An informal history of the broadcast industry that traces the early development of the Mutual Broadcasting System.