Columbia House

Columbia House

Type	Private
Industry	direct-to-consumer distributor of media products
Founded	1955
Founder	Columbia Records
Headquarters	New York, NY
Area served	United States Canada (until December 2010)
Key people	John Lippman, Blake Orlandi (co-owners)
Products	Movies Music (formerly)
Net income	$250–500 million US
Owner	Najafi Companies
Number of employees	100
Parent	Direct Brands, Incorporated
Website	http://www.columbiahouse.com/

The Columbia House brand was introduced in the early 1970s by the Columbia Records division of CBS, Inc. as an umbrella for its mail-order music clubs, the primary incarnation of which was the Columbia Record Club, established in 1955. It had a significant market presence in the 1980s and early 1990s. In 2005, longtime competitor BMG Direct Marketing, Inc. (formerly the RCA Music Service or RCA Record Club) purchased Columbia House and consolidated operations. In 2008, the company (as well as book club operator Bookspan) was acquired by private investment group Najafi Companies, and its name was changed to Direct Brands, Inc. Although Direct Brands shut down music mail-order operations in mid-2009, it continued to use the Columbia House brand to market videos in the U.S. & Canada, selling DVDs and Blu-ray Discs via the controversial practice of negative option billing. DB Media's Canadian assets ceased operating on December 9, 2010, and all staff were dismissed,^[1] while U.S. operations continue as usual.

History

Rapid growth

Columbia Record Club was formed in 1955 by CBS/Columbia Records as an experiment to market music directly by mail,^[2] spurring sales to rural consumers and heading off competition from mail-order companies from outside the record industry.^[3] New members to the club were enticed with a free record just for joining.^[2] To appease brick-and-mortar retailers, titles in the club's catalog were only made available 6 months (later, 3 months) after retail release, and retailers who helped recruit members got a 20% commission. By the end of that year, the club had 125,175 members who had purchased 700,000 records^[2] ($1.174 million net). The operation grew so quickly, in 1956, it was moved from New York City to a new home base: a distribution center in Terre Haute, Indiana, a railway-accessible city where Columbia had recently opened a manufacturing facility.^[2] Within a year, the club had 687,652 members and had sold 7 million records^[2] ($14.888 million net), and by 1963, it commanded 10% of the recorded music retail market.^[3]

Controversial licensing

In the late 1950s, both RCA and Capitol began licensing programs of their own, but the three record clubs rarely allowed any of their own labels' releases to be marketed by rivals. For example, CBS recordings were not available from the RCA Record Club, and RCA recordings were unavailable through the Columbia Record Club.

In 1958, facing the loss of members who wanted a wider variety of records, the club began manufacturing and marketing records for certain competing labels (including Verve, Mercury, Warner Bros., Kapp, Vanguard, United Artists, and Liberty).^[3] Rival clubs operated by RCA and Capitol offered only their own labels' products at the time. Licensors were guaranteed a minimum number of sales, but were held to exclusive, restrictive contracts, which led to price-fixing allegations against the club in 1962, followed by 7 years of mostly ineffective litigation.^[3] The licensing program continued and expanded in the 1960s as the music industry grew and changed.^[3]

New formats and the rise of the Columbia House brand

The Columbia Record Club began marketing stereo records and equipment in 1959, reel-to-reel recordings (via the Columbia Reel-To-Reel Club) in 1960, 8-track cartridges (via the Columbia Cartridge Club) in 1966, and cassettes (via the Columbia Cassette Club) in 1969.^[2]

The Columbia Record Club was also notable in continuing to issue product in formats no longer available on the commercial market. After the major record labels quit releasing albums on reel to reel tape format, Columbia still continued to make select new titles available on reel tape up until 1984. 1982 was the approximate year the 8 track tape disappeared from record stores yet Columbia continued to release new titles in the format until 1988 and finally after the major record labels abandoned the vinyl LP format in 1989, Columbia issued select new titles on vinyl until 1992. In all three cases, the new releases on the abandoned formats were usually limited to the new Selection of the Month title (although the country music Selection of the Month had never been available on reel tape unless the album had possible crossover appeal to the Pop/Rock or Easy Listening club members).

By the early 1970s, "Columbia House" had become an overarching brand for the various divisions, led by the Columbia Record Club, later renamed the Columbia Record & Tape Club. By 1975, membership was over 3 million.^[2]

In 1982, the CBS Video Club, which had formed the previous year as the CBS Video Library, became part of the Columbia House family.^[2] Also, during that same time period, Columbia House and The Cannon Group founded the UK-exclusive mail-order VHS distribution service Videolog. Sony acquired CBS Records, including Columbia House, in 1988, then at 6 million members. Bertelsmann Music Group acquired RCA that same year, and renamed Columbia House's only surviving rival, RCA Music Service (formerly RCA Record Club), to BMG Music Service.

In 1991, CBS Records was renamed Sony Music Entertainment and Sony sold half of Columbia House to Time Warner and merged in Time-Life's video and music clubs.^[2] Membership was over 10 million at the end of that year.^[2] The influence of Columbia House and other music clubs reached its peak in 1994 accounting for 15.1 percent of all CD sales.^[4] In 1996, club membership was at 16 million. That year, the Columbia House website was launched.^[2]

Meanwhile, a parallel club, the Columbia Record Club of Canada, was operated by the Canadian branch of CBS Records from the late 1950s until membership and financial problems led to its apparent demise in 1977.^[5] It was relaunched in 1979 as the Canadian Music Club, attracting 100,000 members by the end of that year.^[2]

Market decline

In mid-1999, a merger was announced between Columbia House and struggling online retailer CDNow, an independent, publicly owned company which had funding & other partnerships with Columbia House and its owners Sony & Time-Warner. The merger was abandoned in early 2000, with Columbia House's poor finances and stiff competition from online giant Amazon.com cited as factors.^[6][7][8] Within months, CDNow was purchased by Bertelsmann, which partially merged it with BMG Direct into a venture called BeMusic. However, CDNow was taken over and merged into Amazon the following year. By 2001, music clubs accounted for less than 8 percent of all CD sales, coinciding with the ascent of Internet shops and retail outlets such as Amazon and Wal-Mart, which offered music at similar discounts, without subscriptions.

Security breach

In 2001, a security breach in the Columbia House website exposed thousands of customer names, addresses and portions of credit card numbers, leaving private information about customers vulnerable to exploitation.^[9] The issue involved a particular section of the website, which could easily be accessed by deleting a portion of the website address in the address bar, discovered by customer Mark Alway. Upon the discovery of the breach, he emailed the Columbia House staff who were quick to respond to the problem. This event has naturally given rise to concerns over the website's capability of keeping private information safe and secure from hackers or devastating scams. Although no information was reportedly obtained from the temporary breach according to Columbia House, industry professionals were quick to point out that the simple error was the consequence of negligent handling of customer information.

Consolidation and downsizing

In 2002, Sony & Time-Warner sold 85% of Columbia House to The Blackstone Group L.P., a New York-based investment firm. The next year, the possibility of a merger of Columbia House and Blockbuster Inc. was reported in the Wall Street Journal, Associated Press reports, and trade publications. Although the owners were said to be in talks, the merger never materialized.

In 2005, longtime competitor BMG Direct Marketing, Inc., then the current owners of BMG Music Service, acquired Columbia House, renamed the merged company to BMG Columbia House, Inc., and consolidated operations under the BMG Music Service name.^[10][11]

In 2008, the company, including its Canadian branch,^[12] was acquired from Sony BMG by investment firm JMCK Corp., a Najafi Group company based in Phoenix, Arizona, and the name was changed to Direct Brands, Inc.^[10][11] Direct Brands consolidated the remaining facilities, and shut down music mail-order operations on June 30, 2009. However, Direct Brands continued to operate a DVD and Blu-ray Disc club under the Columbia House brand in both the U.S. and Canada.^[11] The Columbia House name is still owned by Sony Music Entertainment, and is used under license.

In December 2010, the Canadian branch went into bankruptcy, and its websites began redirecting visitors to a letter of explanation from the companies' trustees in bankruptcy.^[13][14]

Business practices

Following the sale of Columbia House to BMG and continuing after the sale to Direct Brands, Columbia House has attracted criticism for its business practices, some of which are outlined here:

Membership

Membership constitute an agreement whereby the customer agree to purchase a minimum number of movies at regular list price. To join, or enter a legal obligation, the customer agree to purchase one discounted movie at the beginning, which is sent out as part of a "welcome package." Over the term of the agreement the minimum number of list price movies must be bought. Twenty-one times per year, the company informs each customer of the "Director's Selection" movie. The customer is asked to respond within 10 days whether or not he or she wants to buy this movie, which is offered at a discount provided that the response is received by Columbia House "within the specified time." Failure to respond results in having that movie shipped at full list price. If the customer responds negatively but in time, the idea is that the movie is not sent or charged to the customer's account. In specified circumstances, "memberships" are available, whereby the customer is not required to respond to Director Selection mailings unless he or she wants to buy the movie. When such memberships expire, the old rules return where a response is required in time to prevent shipping of full price movies without customer input. Customers are not reminded when those rules change. The customer also has access to a large variety of other movies, which are advertised by mail and online towards the customer. Only full price purchases deplete that minimum purchase obligation. Purchases are not cumulative, meaning that two movies bought at ten dollars each do not deplete the minimum list price movie purchases by one movie. If the minimum number of movies has not been purchased by the end of the term, the monetary worth of those movies is charged to the customers' accounts. If any purchases have been made using Columbia House's point of sale device, either credit cards or debit cards linked to credit card accounts, then those accounts are automatically debited. The company will either mail or email a reminder notice prior to the commitment expiring, giving the customer the opportunity to purchase the required purchase obligation before they are charged for any commitment or contract charges. Likewise, backordered movies are automatically debited to those accounts when they become available, without further notification to the customers. Failure to clear such purchases result in collections efforts by Columbia House against the customers.

“Fun Cash” and “Dividend Dollars” and "Bonus Points"

Columbia House offers a point system, where movies bought result in “points” or “Fun Cash” (“Dividend Dollars” was the term used when the movies came in VHS format, which is no longer the case). Fun Cash does not transfer from one subscription to another. There are a number of restrictions to the use of Fun Cash, which generally make regular re-enrollment a lower cost and more tangible option for those interested in savings. The current point system being used is called Bonus Points, and works under the same idea as Fun Cash.

Other clubs

Columbia House has made forays into other media besides music and movies. For a few years, Columbia House offered a CD-ROM club, allowing customers to buy computer games. It is now allowing members to buy video games from its site, but thus far has not offered a specific club for this. One can also enter into agreements concerning the regular purchase of "box sets", which are compilations of popular TV series. One agreement, allows customers access to any of Columbia House's products. Everything can be sourced via the company website.

Negative option billing practice

Columbia House practices negative option billing,^[11] a form of commercial distribution in which services are automatically supplied to the consumers until a specific cancellation order is issued. The practice has drawn many complaints from consumers.^[15] The Federal Trade Commission has published information to protect customers against this practice,^[16] specifically referencing a $0.49/video offering.

Alleged fraudulent sale of debt

In December 2008, BMG Music Service (now yourmusic.com) supposedly sold an unknown number of fraudulent debt claims to a collection agency, National Credit Solutions. Supposed delinquents were not made known of their debt and most had not made purchases with the company for at least five years. Victims of the sale of false debt claims were not made known of either their debt or the account opened with National Credit Solutions. Most victims learned of the collections agency account when they were denied for a loan, had credit cards canceled, or checked their credit reports.

Class Action August 4th, 2011

On August 4, 2011, a nationwide class action was filed against Columbia House (Direct Brands Inc.) seeking monetary damages and an injunction stopping Direct Brands Inc. alleged business practices of unauthorized credit card charges, inability to cancel, unwanted products being mailed to homes and several other alleged issues.

Better Business Bureau rating

As of 2010, this business had an unsatisfactory rating with the BBB because of a failure to respond to complaints.^[17][18] This company also has an unsatisfactory record because of a pattern of complaints. Specifically, complainants allege receiving merchandise and/or bills for merchandise from BMG/Columbia House for CDs and/or DVDs that they did not order. Complainants further allege that they did not join BMG/Columbia House and do not know how the company obtained their information and that the company's phone line and website do not provide live customer service representatives to help resolve these issues.

As of 2014 the business has an A+ rating with the BBB.

References

External links

• Official U.S. site
• Consumer Advocate Site
• FCC Citation to Columbia House for violating DO NOT CALL REGISTRY legislation
• Unsatisfactory BBB Rating 1
• Unsatisfactory BBB Rating 2
• Consumer Affairs Article on Complaints against Columbia House
• US District Court Ruling on Sandra L. Pruett vs. The Columbia House Company
• Return To Sender: BMG Music Has Been Discontinued
• "12 For One" CD Deals No More: BMG Music Service Ends In June