Music publishers didn’t love this arrangement, but for decades it was pretty tough to fight back against the mail-order clubs. The clubs argued that since the publishers were cashing their discounted checks, they were submitting to “implied” licenses. Instead, the clubs saved the hassle (and the expense) by paying most publishers 75% of the standard royalties set by copyright law. Until 2006, the record companies had never actually secured written licenses to distribute the records they sent to club members. But even with negative option billing bringing in cash from club members who forgot to return their rejection forms, Columbia House operated on a seemingly tight margin.Ĭolumbia House and BMG had some fairly clever ways to save cash, though. How did Columbia House make any money while giving away so much music?Ĭolumbia House and competitor BMG brought in tons of gross revenue - as late as 2000, the two companies were grossing $1.5 billion a year.
In 2009 it reached a $1 million settlement with the online company Commerce Planet, which had been offering a “free” online auction kit while also signing customers up for a recurring $59.95 “online supplier” program. The FTC really drops the hammer on any company that doesn’t comply with these regulations.
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The Federal Trade Commission requires that any club or service offering a negative option plan must clearly and conspicuously indicate minimum purchase obligations, cancellation procedures, the frequency with which members must reject shipments, and how to eventually cancel a membership when they enroll new members.Ĭolumbia House members filled up their CD shelves fast. Negative option billing has actually been illegal in Ontario since 2005, but it’s still legal in the United States. Basically, once you sign up for a membership in a club or service, you start getting monthly shipments unless you expressly tell the club you don’t want them. The underlying model for Columbia House was a pretty simple setup known as negative option billing. How did the Columbia House business model work? Let’s take a look at a few lingering questions about the music club. Who could turn down the allure of eight compact discs (or 11 record albums or cassette tapes) for just a penny? It would be stupid not to join up! A few months of automatic shipments later, you probably ended up like a lot of members did: as a no-income 14-year-old who owed Columbia House $47 for unwanted Sir Mix-a-Lot CDs. If you grew up in the pre-MP3 era, chances are you had at least one go-round as a member of Columbia House’s mail-order music club.
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