It's a Steal! How Columbia House Made Money Giving Away Music

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. 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. Let’s take a look at a few lingering questions about the music club.

How did the Columbia House business model work?

The underlying model for Columbia House was a pretty simple setup known as negative option billing. 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. Of course, you also get the bill.

Negative option billing has actually been illegal in Ontario since 2005, but it’s still legal in the United States. There are a few caveats, though. 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.

The FTC really drops the hammer on any company that doesn’t comply with these regulations. 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.

How did Columbia House make any money while giving away so much music?

Columbia House and competitor BMG brought in tons of gross revenue — as late as 2000, the two companies were grossing $1.5 billion a year. 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.

Columbia House and BMG had some fairly clever ways to save cash, though. Until 2006, the record companies had never actually secured written licenses to distribute the records they sent to club members. Instead, the clubs saved the hassle (and the expense) by paying most publishers 75% of the standard royalties set by copyright law. The clubs argued that since the publishers were cashing their discounted checks, they were submitting to “implied” licenses.

Music publishers didn’t love this arrangement, but for decades it was pretty tough to fight back against the mail-order clubs. As some of the biggest pre-Internet retailers, the clubs held enormous power over the music market. According to a 2006 Billboard article, if a publisher complained, the clubs would simply stop carrying their records.

On top of that, the clubs generally weren’t buying their records from labels and then selling them. Instead, the clubs would acquire the master tapes of records and press their own copies on the cheap. Moreover, remember those “bonus” or “free” records you got for signing up for the clubs? The clubs generally didn’t pay any royalties at all on those, which further slashed their costs.

In the end, all these little factors saved a ton of money. In his 2004 book The Recording Industry, Geoffrey P. Hull took a look at the economics of the clubs. He estimated that the cost to the clubs of a “free” disc was only around $1.50, while a disc sold at full price cost the club anywhere from $3.20 to $5.50. Hull did the math and realized that even if only one of every three discs a club distributed sold at the $16 list price, the club would still end up making a margin of around $7.20 on each sold disc. Hull explains that retail stores were hard pressed to make a margin of even $6.50 per sold disc, so it’s easy to see how the clubs stayed afloat even with their massive marketing and advertising costs.

Did anyone really, really take advantage of those introductory offers?

Joseph Parvin of Lawrenceville, NJ, was undoubtedly the patron saint of anyone who ever wanted to stick it to a music club for receiving an unwanted record.

In March 2000, the 60-year-old Parvin admitted that he had used 16 post office boxes and his own home address to fleece Columbia House and BMG out of 26,554 discs during a five-year span in the '90s. He pleaded guilty to a single count of mail fraud.

Oddly, the New York Times story on Parvin’s plea included a story of another scammer who was nearly as prolific. Just five months earlier, David Russo pleaded guilty to stockpiling 22,000 CDs using a similar scheme. He then sold the booty at flea markets.

What about Columbia House’s old rival, BMG?

This may come as a shock to your circa-1994 self, but Columbia House and BMG are part of the same company now. In 2002 Columbia House’s then-owners, Sony and AOL Time Warner, sold a majority stake of the company to the Blackstone Group. (Sony and AOL maintained a 15 percent share between them.)

In 2005, Blackstone again flipped Columbia House to the German media giant Bertelsmann, the owner of BMG, for a reported $400 million. After a series of further transactions, Columbia House is now situated in the portfolio of Direct Brands, Inc., a direct marketer whose other holdings include the Book-of-the-Month Club.

Can I still order music from Columbia House?

You’re a few years too late. The merged version of Columbia House and BMG, the BMG Music Group, quit selling music on June 30, 2009. (Apparently digital music wasn’t just some silly fad.) Direct Brands still operates a business under the Columbia House name, but don’t expect the latest music to show up at your door. The revamped company sells DVDs and Blu-Ray discs.
* * *
Did any of you end up owing way too much money to a music club? Do you remember your first eight CDs?

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Karl Walter, Getty Images
When the FBI Investigated the 'Murder' of Nine Inch Nails's Trent Reznor
Karl Walter, Getty Images
Karl Walter, Getty Images

The two people standing over the body, Michigan State Police detective Paul Wood told the Hard Copy cameras, “had a distinctive-type uniform on. As I recall: black pants, some type of leather jacket with a design on it, and one was wearing combat boots. The other was wearing what looked like patent leather shoes. So if it was a homicide, I was thinking it was possibly a gang-type homicide.”

Wood was describing a puzzling case local police, state police, and eventually the FBI had worked hard to solve for over a year. The mystery began in 1989, when farmer Robert Reed spotted a circular group of objects floating over his farm just outside of rural Burr Oak, Michigan; it turned out to be a cluster of weather balloons attached to a Super 8 camera.

When the camera landed on his property, the surprised farmer didn't develop the footage—he turned it over to the police. Some local farmers had recently gotten into trouble for letting wild marijuana grow on the edges of their properties, and Reed thought the balloons and camera were a possible surveillance technique. But no state or local jurisdictions used such rudimentary methods, so the state police in East Lansing decided to develop the film. What they saw shocked them.

A city street at night; a lifeless male body with a mysterious substance strewn across his face; two black-clad men standing over the body as the camera swirled away up into the sky, with a third individual seen at the edge of the frame running away, seemingly as fast as possible. Michigan police immediately began analyzing the footage for clues, and noticed the lights of Chicago’s elevated train system, which was over 100 miles away.

It was the first clue in what would become a year-long investigation into what they believed was either a cult killing or gang murder. When they solved the “crime” of what they believed was a real-life snuff film, they were more shocked than when the investigation began: The footage was from the music video for “Down In It,” the debut single from industrial rock band Nine Inch Nails, and the supposed dead body was the group's very-much-alive lead singer, Trent Reznor.

 
 

In 1989, Nine Inch Nails was about to release their debut album, Pretty Hate Machine, which would go on to be certified triple platinum in the United States. The record would define the emerging industrial rock sound that Reznor and his rotating cast of bandmates would experiment with throughout the 1990s and even today on albums like The Downward Spiral and The Slip.

The band chose the song “Down In It”—a track with piercing vocals, pulsing electronic drums, sampled sound effects, and twisted nursery rhyme-inspired lyrics—as Pretty Hate Machine's first single. They began working with H-Gun, a Chicago-based multimedia team led by filmmakers Eric Zimmerman and Benjamin Stokes (who had created videos for such bands as Ministry and Revolting Cocks), and sketched out a rough idea for the music video.

Filmed on location among warehouses and parking garages in Chicago, the video was supposed to culminate in a shot with a leather-jacketed Reznor running to the top of a building, while two then-members of the band followed him wearing studded jumpsuits; the video would fade out with an epic floating zoom shot to imply that Reznor's cornstarch-for-blood-covered character had fallen off the building and died in the street. Because the cash-strapped upstarts didn’t have enough money for a fancy crane to achieve the shot for their video, they opted to tie weather balloons to the camera and let it float up from Reznor, who was lying in the street surrounded by his bandmates. They eventually hoped to play the footage backward to get the shot in the final video.

Instead, the Windy City lived up to its name and quickly whisked the balloons and camera away. With Reznor playing dead and his bandmates looking down at him, only one of the filmmakers noticed. He tried to chase down the runaway camera—which captured his pursuit—but it was lost, forcing them to finish shooting the rest of the video and release it without the planned shot from the missing footage in September of 1989.

Meanwhile, unbeknownst to the band, a drama involving their lost camera was unfolding in southwest Michigan. Police there eventually involved the Chicago police, whose detectives determined that the footage had been filmed in an alley in the city's Fulton River District. After Chicago authorities found no homicide reports matching the footage for the neighborhood and that particular time frame, they handed the video over to the FBI, whose pathologists reportedly said that, based on the substance on the individual, the body in the video was rotting.

 
 

The "substance" in question was actually the result of the low-quality film and the color of the cornstarch on the singer’s face, which had also been incorporated into the press photos for Pretty Hate Machine. It was a nod to the band's early live shows, in which Reznor would spew cornstarch and chocolate syrup on his band members and the audience. “It looks really great under the lights, grungey, a sort of anti-Bon Jovi and the whole glamour thing,” Reznor said in a 1991 interview.

With no other easy options, and in order to generate any leads that might help them identify the victim seen in the video, the authorities distributed flyers to Chicago schools asking if anyone knew any details behind the strange “killing.”

The tactic worked. A local art student was watching MTV in 1991 and saw the distinctive video for “Down In It,” which reminded him of one of the flyers he had seen at school. He contacted the Chicago police to tip them off to who their supposed "murder victim" really was. Nine Inch Nails’s manager was notified, and he told Reznor and the filmmakers what had really happened to their lost footage.

“It’s interesting that our top federal agency, the Federal Bureau of [Investigation], couldn’t crack the Super 8 code,” co-director Zimmerman said in an interview. As for Wood and any embarrassment law enforcement had after the investigation: “I thought it was our duty, one way or the other, to determine what was on that film,” he said.

“My initial reaction was that it was really funny that something could be that blown out of proportion with this many people worked up about it,” Reznor said, and later told an interviewer, “There was talk that I would have to appear and talk to prove that I was alive.” Even though—in the eyes of state, local, and federal authorities—he was reportedly dead for over a year, Reznor didn’t seem to be bothered by it: “Somebody at the FBI had been watching too much Hitchcock or David Lynch or something,” he reasoned.

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Courtesy of Park Circus and MGM
West Side Story Is Returning to Theaters This Weekend
Courtesy of Park Circus and MGM
Courtesy of Park Circus and MGM

As Chris Pratt and a gang of prehistoric creatures get ready to face off against some animated superheroes for this weekend’s box office dominance, an old rivalry is brewing once again on Manhattan’s Upper West Side. West Side Story—Robert Wise and Jerome Robbins’s classic big-screen rendering of Leonard Bernstein and Stephen Sondheim’s Broadway musical—is returning to cinemas for the first time in nearly 30 years.

As part of TCM’s Big Screen Classics Series, West Side Story will have special screening engagements at more than 600 theaters across the country on Sunday, June 24 at 2 p.m. and 7 p.m. If you can’t make it this weekend, encores will screen at the same time on Wednesday, June 27. The film—which is being re-released courtesy of TCM, Fathom Events, Park Circus, and Metro Goldwyn Mayer—will be presented in its original widescreen format, and include its original mid-film intermission. (Though its 2.5-hour runtime is practically standard nowadays, that wasn’t the case a half-century ago.) The screening will include an introduction and some post-credit commentary by TCM’s Ben Mankiewicz.

West Side Story, which was named Best Picture of 1961, is a musical retelling of Romeo and Juliet that sees star-crossed lovers Maria (Natalie Wood) and Tony (Richard Beymer) navigate the challenges of immigration, racial tension, and inner-city life in mid-century Manhattan—but with lots of singing and dancing. In addition to being named Best Picture, the beloved film took home another nine Oscars, including Best Director, Best Supporting Actor and Actress (for George Chakiris and Rita Moreno, respectively), and Best Music—obviously.

To find out if West Side Story is screening near you, and to purchase tickets, visit Fathom Events’s website.

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