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How Columbia House Sold 12 CDs For A Penny

– [Reporter] Ever get a whole bunch of CDs for a penny, or even free? ♪ Columbia House, big enough ♪ ♪ to bring you all the
best in entertainment ♪ – [Reporter] Columbia House
and the BMG Music Service both offered amazing deals. About eight CDs at almost no cost to you, then just buy one more
at full retail price and you get three more for free. Sounds too good to be true, right? How could something like this make money? – Remember, it’s our secret, so watch your mail for
this package from Columbia. – You could join these things for a penny, get a bunch of music for almost free as long as you promised to
buy a certain amount of music over the next year or so
at regular club prices. – [Reporter] That’s Larry Miller. He’s an NYU professor
and music industry vet with a podcast about the
industry, Musonomics. – The regular price of the CDs that you would buy was the suggested retail price, which was 17.98, 18.98, 19.98 plus shipping and handling for those CDs. – [Reporter] Those prices and
the shipping costs were key to the club’s success. Columbia House, BMG Music, and other clubs utilized a practice called
negative option billing. – The way that the clubs
offered music to consumers was through a catalog roughly every month. Actually it was a little bit more often and in come cases they were shipping 21 different catalogs every month. And that for every catalog, you would need to send back
a postcard within ten days of your receipt of that catalog indicating that you didn’t want the
selection of the month. If you didn’t do that in
time, or if you just forgot, you would be shipped that record and of course you would be billed for it. – [Reporter] Forget to send the card back and you’d owe the club about $22 for a CD you may not even want. But you still only paid a few bucks shipping on 11 other albums. This still doesn’t seem sustainable, especially when retail shops were selling CDs for $14 and up. – They would license
the actual master tapes and the production files
for the physical media from the major music companies. And they would be able to
manufacture these records at a cost of about $1.50 or so each. In many cases, inferior
pressings on vinyl and CD and you wouldn’t get maybe the full lyrics and you wouldn’t get the
nice inserts and stuff and even the little
booklets that were included in the CD were not quite as nice as the ones that you would
get in the store very often. – [Reporter] By pressing their own albums, the clubs were able to make about $5 to $6 on each unit they actually sold. Even accounting for all the
free albums they sent out. – As it turns out, that
was plenty of margin to operate these businesses which together were generating about a
billion and a half dollars of revenue, or about 15% of
U.S. record industry volume at the peak, which was around 1996 or so for the record clubs. – [Reporter] However, that 1.5 billion wasn’t really going to everybody. – The records that you would
get for a penny counted as free goods and that there were
no royalties on free goods. It’s still unclear today exactly how many of those royalties were paid
through to recording artists. They were only paid on
the purchased goods, and even so it was at three
quarters of the regular rate that they would have been
paid had you bought it in a regular record store. – [Reporter] Most of
the artists and writers didn’t get paid anything
on any of the free albums. – However, the sale of
the records did count in the calculation of gold and
platinum and chart position. – [Reporter] So no money,
but you might wind up with a pretty big trophy. Now the clubs are long gone
and services like Spotify, and Apple Music have taken their place with access to almost
any song you could want for $10 a month. Are those bum deals for the artists, too? – I believe that as streaming takes hold and as smartphone penetration continues to grow the way that it
has and as smart speakers and voice interactivity
begins to take hold that music consumption is going to grow to a level that we just
haven’t experienced before. Even if the amount of money per listen is less than what we were used to getting back in the days of
the CD or vinyl record.

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27 thoughts on “How Columbia House Sold 12 CDs For A Penny

  1. What annoys me is that Spotify has 30 million songs, but Amazon and Deezer has 40 million! That's 25% more music for the same price!

  2. That is why I deeply ponder on why most artists don't go to BandCamp….

  3. I lived in an apartment building back then. Whenever neighbors in other apartments would move out or die, they'd suddenly receive new member shipments from Columbia and BMG. I wonder who ended up with all of those free CDs?? 🤓

  4. I never noticed inferior booklets on BMG/Columbia House pressings. The key was that they didn't have to pay artist royalties and the negative billing component. Shipping was cheap and media mail could be used for all of it.

  5. This is how I built my music taste in the late 90's. Third Eye Blind, Vertical Horizon, Incubus, etc. All came from penny ad.

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