history of CD clubs The music-by-mail business was born on August 1, 1955, when the Columbia Record Club sent out 6000 packets to record retailers announcing a service it hoped would increase LP sales in rural areas. There were other clubs around, notably the Book-of-the-Month Club, but it was only now that Americans were starting to bring home phonographs for the family room.
In its mailing, Columbia explained how its club would work. Each retailer would receive a 20 percent commission on sales to members that he recruited. To reassure the owners that the club wouldn't steal their counter business, Columbia stated that no record would be offered in its catalog until six months after release (a policy that survives to this day, although the period has dropped to three months). For its part, Columbia would fund an advertising campaign to emphasize the joy of listening to music at home. The initial offer to members was buy four records, get one free.
The city of Terre Haute, Indiana, was chosen for distribution operations. Columbia's parent company, CBS, was making LPs there, and Terre Haute's Midwestern location and train lines made it an ideal spot for shipping. As membership grew (during its first year, the club signed up 128,000 people), Columbia House added warehouses near each coast.
In 1988, Sony Corp. bought the CBS Records Division, including the lucrative Columbia House (it was grossing $500 million annually) and the accounts of its six million members. Of these, most were video or record club members; only about 100,000 were buying newfangled compact discs. That would soon change.
Because Sony already owned the Digital Audio Disc Corporation plant in Terre Haute, it saw the purchase of Columbia House as a natural marriage. DADC today manufactures 90 percent of the CDs that Columbia House sells.
In 1991, the media giant Time Warner (in the form of its Warner Music Group) became a partner with Sony in Columbia House. Today the club has about eight million members (12 million if you count its video club and other divisions) and controls 60 percent of the club market. Its Indiana distribution operation employs thousands of people and the last time someone counted was receiving six tons of mail weekly (it has its own post office). The club also sends out about 350 million solicitations and 70 million parcels annually, and has a $210 million postage bill.
Headquartered in Indianapolis, rival BMG Music Service has grown rapidly since the early Nineties. The company was known as the RCA Music Service until 1986. That's when the German media conglomerate Bertelsmann AG bought RCA Records from General Electric and made it part of its New York-based Bertelsmann Music Group (BMG). Based in Munich, Bertelsmann is the third largest media company in the world behind Time Warner and Disney. Its music division, which includes the CD club, RCA Records, Arista Records and Zoo Entertainment, earns upwards of $3 billion annually.
Between 1991 and 1995, BMG doubled the size of its membership to where it now rivals Columbia House at close to eight million, with annual sales estimated at $400 million. The company receives 800,000 pieces of mail and ships 900,000 packages and letters each day. Much of this growth was due to the efforts of marketing whiz Joan Stamler, formerly of Doubleday Book Club and Columbia House, who took BMG to the masses by placing advertisements in dozens of magazines and by flooding the mails with tens of millions of direct solicitations. She also had the BMG catalog re-vamped to include color and commentary.
BMG made its name with what are often seen as unbelievable offers: Choose 12 CDs free and then buy one at full price and you're done. The best Columbia House could offer involved a commitment to buy five CDs. It launched CDHQ to go head-to-head with BMG's introductory offers but which offers a limited selection.
The clubs have had a rough go of it since the boom years in the mid-1990s. Their market share has dropped by half, and layoffs and cutbacks have followed. In 2005, BMG and Columbia House finally merged.