Transcription
If you're old enough to remember the pre-streaming musical landscape of the '80s and '90s, you probably remember those eight CDs for a penny record clubs. The business model employed by music clubs like Columbia House and BMG has been described as predatory, shady, unethical, possibly illegal, and downright Kafkaesque. You also probably remember wondering how any company could possibly stay in business while offering a deal like that. Well, today we're going to take a look at how those eight CDs for a penny music clubs actually worked. But before we get started, be sure to subscribe to the Weird History channel, and let us know in the comments below what other music-related topics you would like to hear about. OK, we'd like to offer you this video for a penny. Just wait for some follow-up videos at the end.
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Slick business types always have a trick up their sleeve for making money. For the slick business types that worked at places like BMG and Columbia, that trick was called negative option billing. What this means is that the customer signs up for a service, and the company mails them something, and bills them for it at regular intervals, like once a week, month, or year. According to a former Columbia House employee who spoke with reporters for the AV Club, the entire industry was premised on this negative option model. The employee who described this mode of doing business as creepy and draconian and weird, said that the money was generated by simply filling people's mailboxes with merchandise until they panicked enough to beat the company back. Negative option billing was outlawed in Ontario, Canada in 2005, but it remains legal in the United States in instances where the customer joins a club or a service without reading the fine print. The Federal Trade Commission claims they keep a close eye on companies that use the practice, and they insist that negative option contract terms be clearly stated.
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With BMG and Columbia selling tons of CDs to people across the country, you'd think the record companies would be excited about their efforts, but they weren't. Why not? Well, music clubs like BMG and Columbia House sold albums based on what the law calls an implied license. This means that the distributor pays a lesser fee for a product. And if the payment is accepted, it's assumed that license to sell the product has been granted by the rightsholder. Up until that point, BMG and Columbia House were buying their CDs at incredibly low cost, and then selling them for a huge markup. That is, they sold a ton of albums, but the record companies didn't really see any of that money. When the record companies would complain or threaten legal action over the implied licenses, the music clubs would respond by threatening to stop carrying their products. "I'll just take my ball and go home." A record company shut out by the music clubs would face a distribution disadvantage against their competitors, so they all went along with it. While this scheme didn't quite rise to the level of legal extortion, it was definitely pushing the boundaries of ethical business practices.
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Keeping costs low was a key to the music club business, and muscling record companies into implied licenses wasn't the only trick they had up their sleeve. In many cases, the music clubs would acquire the master tapes of the albums they were selling and simply press their own copies. This means that neither the record company nor the artist would see any profits from the sales of those albums. Pretty cool, guys. The 2000 documentary, The Target Shoots First, from director Chris Wilcha, gives an inside look at the Columbia House production center in Terre Haute, Indiana. The film reveals a full-fledged CD pressing and printing facility that employs a group of local college students who spend their summer mailing out the allegedly "free" CDs.
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Living in an era where every app or a bit of software we use comes with a long, impenetrably legalistic user agreement, it'll be easy for most of us to relate to this next bit. Music clubs like BMG and Columbia also had long, impenetrably legalistic user agreements. And one of the ways they liked to make money was by changing the terms of those agreements without notice, or putting the notice in very small print. The basic user agreement that customers were initially offered said the music club would send you a CD. And if you didn't mail them within 10 days to let them know you didn't want it, you had to pay for it. Pretty much any of the terms of the agreement could then be unilaterally changed at the whims of the clubs, who obviously tended to change things exclusively to their benefit.
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While anyone could order from the music clubs, most of their marketing was directed towards middle America and other rural areas. The reason for this was, at the time, most metropolitan areas already had dense concentrations of record stores and didn't really need this service as much. According to one former Columbia House employee, the company counted on the fact that many of the people receiving the catalogs lived in the middle of nowhere. They had to order their music through the mail because they usually didn't have access to even a single local record store.
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If you're thinking that the music clubs were just hard-working businesses that believed they were giving their customers a great deal, think again. The predatory practices being abused by the industry were well-known to its employees, who knew they made their money charging unsuspecting customers for albums they didn't want. One former music club employee described the industry's business practices as "brilliant" and "perverse." Another told Forbes that while it was fair to criticize the industry for not bringing more attention to the fine print, it was all there.
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If you're one of those people who re-buys Star Wars every time it comes out in a new media format, congratulations, and I'm sorry. You're the music club's favorite type of customer. Indeed, every time a new format came along, whether it was cassette tapes or CDs, or anything else, companies like Columbia House would use the occasion as an excuse to sell customers a new copy of a product they already owned. Yes, despite the fact that their ads typically claimed that they would introduce subscribers to new music, the clubs made their real money reselling entire collections to music fans who were looking to update their libraries to a new format. After all, if you have every Led Zeppelin album on vinyl, why not own them on cassette and CD as well? According to Chris Wilcha's aforementioned documentary, consumers would use the record clubs as a quick, easy way to replace their vinyl or cassette collections with CDs for double, even triple the price.
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The music club business model was not only a scam on its customers, but it was, in essence, an invitation for customers to commit some fraud themselves. Take Professor Jack Hamilton, who wrote a 2015 article for Slate detailing his first foray into crime, which he says came about as a direct result of joining the Columbia House record club when he was just 13 years old. Hamilton explains that he ordered a bunch of albums, never paid for them, and also never canceled his account. This was a common trap for customers to fall into. Like a lot of other young people who ordered albums through BMG and Columbia House, Hamilton's default meant that he was technically on the hook for fraud. But the music clubs had bigger things to worry about, and they weren't about to start taking thousands of teenagers to court. They were willing to call his house a lot, though. Hamilton reports that his father, an attorney, got on the phone with the club and talked them down from some of the more outrageous penalties. Hamilton's father put it out that, technically speaking, 13-year-olds can't sign contracts. And if you sucker a 13-year-old into a business deal, you kind of deserve what you get. He felt that the fact that the club had no mechanisms in place to prevent such a thing made their whole business model legally suspect. Knowing that he had them dead to rights, the club allowed Jack to pay what he had originally owed, without any penalties, and then terminated his membership.
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Teens ordering CDs they knew they couldn't afford was really just the tip of the iceberg. Fraud was, in fact, a massive problem for both Columbia House and BMG. People would often sign up under multiple names using different credit cards. This behavior potentially cheated the clubs out of thousands of dollars. Take, for example, Joseph Parvin. In 2000, the 60-year-old pleaded guilty to fraud after ordering almost 27,000 CDs through nearly 2,500 different accounts over a five-year period. And he wasn't the only one to pull a scam like that. 33-year-old David Russo ordered more than 22,000 CDs he didn't pay for, and then resold them at flea markets. Who's ripping off who now, Columbia House?
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Music clubs were a big, popular business for a long time. But in the 1990s, sales began to level off. Although there are numerous factors involved, one was that their marketing suddenly seemed to be less effective. Both Columbia House and BMG became confused about how to bring in new customers, specifically from those that we now call Generation X. In The Target Shoots First, Chris Wilcha details some of the amusingly oblivious efforts the music clubs made at remaining relevant during this period. He also discusses some of the problems they faced trying to adapt to changing times, including corporate arguments over whether heavy metal is its own genre, and whether Bad Brains counts as a rock band or a rap group.
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By the mid 1990s, major label recording artists were selling millions of albums. Take, for example, a typical band of the era, like Hootie and the Blowfish, who sold 13 million copies of their debut album, Cracked Rear View. 3 million of those sales were made through Columbia House and BMG. Oh, Hootie, say it isn't so. In fact, in the year 1994, an amazing 15% of all CDs sold in the United States were sold through a music club. For the artist, this boost was a bit of a mixed bag. On one hand, those sales counted for RIAA certification, and could help an album go gold or platinum. On the other hand, the artist didn't see any royalties from those sales, which had to sting a little.
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Peer-to-peer file transfer networks like Napster and LimeWire are often cited as the beginning of the end for the physical album market. The truth is, the availability of inexpensive CDs inadvertently became a major part of the changes that eventually brought the record industry to its knees. One former Columbia House employee found it ironic that by flooding the market with CDs, the music clubs were basically giving the people they were scamming the bullets they would later use to destroy the business. Gizmodo writer Adam Clark Estes disagreed, claiming that in Napster's first two years of operation, he spent countless hours uploading tracks from albums he had scammed off Columbia House, and then downloading whatever he wanted. And thus, the great cycle of life and scamming continues. So what do you think? Did you ever get hooked into the music club? Let us know in the comments below. And while you're at it, check out some of these other videos from our Weird History.
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