Do you think 12 CDs for a dollar is too good to be true? Well, in the mid-90s, that supply represented over $ 1.5 billion in sales for the music industry. Larry Miller, professor at New York University, helps to understand how music clubs like Columbia House and BMG Music Service made a lot of money with this model, said to be the default subscription.
Here is a transcript of the video.
Have you ever received stacks of discounted CDs?
Commercial: Columbia House, big enough to give you the best in entertainment
Columbia House and BMG Music Services had incredible deals. about 8 CDs for almost nothing delivered to your home, on condition of buying another, at the public price and you will get three more for free. It’s too good to be true, right? How can such a thing make money?
Commercial: Remember, this is our secret. So watch your mail for this package from Columbia.
Larry Miller: You could subscribe to these offers for a penny, receive lots of music for almost nothing, provided that you promised to buy a certain amount of music in the following year at the normal price charged by the labels.
It’s Larry Miller. He is a professor at New York University and a music industry veteran with an industry podcast, Musonomics.
Larry: The normal price at which you bought the CDs was the retail price, approximately $ 17.98, $ 18.98, $ 19.98 to which you had to add the shipping costs.
These prices and shipping costs were key to the club’s success. Columbia House, BMG Music and other clubs practiced what is known as the default subscription.
Larry: The clubs offered music to consumers through a catalog about every month … In fact it was more often and in some cases, they shipped 21 different catalogs each month. And for each catalog, you had to return a postcard within ten days of receiving this catalog indicating that you did not want the selection of the month. If you didn’t do it on time, or just forget it, you got this disc and, of course, you were billed for it.
If we forgot to return the card, we would have to pay the club about $ 22 for a CD that we didn’t want at the start. But we still only took you a few dollars to send 11 other albums. It still doesn’t seem viable, especially when stores sold CDs starting at $ 14.
Larry: They signed a license agreement with the main record labels to exploit the masters on physical media. And they were able to make these discs at a cost of around $ 1.50 each. In many cases, these were inferior pressings on vinyl and CD and you may not get the full lyrics or the pretty inserts. Even the little booklets included in the CD weren’t as beautiful as the ones you very often find in the store. By pressing their own albums, clubs earned between $ 5 and $ 6 per album sold. Even taking into account all the free albums they sent.
It turned out that this was enough margin to operate these companies which, together, generated about a billion and a half dollars of revenue, or about 15% of the volume of the US record industry at the top around 1996
for clubs. However, that $ 1.5 billion didn’t really go to everyone.
Larry: The CDs you get for a penny counted as free goods or there were no royalties on free goods. It is not yet known today exactly how much of these royalties were paid to the performers. They were only paid for the products purchased, and even there, it was up to three quarters of the regular rate if the disc had been purchased from a record store.
Most artists and composers did not touch anything on these free albums.
Larry: However, the sale of records counted in the calculation of gold and platinum
according to place in the charts.
So no money, but you could end up with a big trophy. Today, clubs of this type have disappeared and services like Spotify and Apple Music have taken their place with access to almost all the songs you want for € 10 per month. are these services also a bad deal for artists?
Larry: I believe that as streaming settles in, smartphone penetration continues to grow as it has and smart speakers and voice interactivity begin to take hold, consumption of music will rise to a level we have never experienced before.
Larry: Even if the amount of money per listening is less than what we used at the time of the CD or vinyl record.
Produced by Matthew Stuart and Clancy Morgan