The Negative Option

In the 1980s and 1990s, Columbia House could do no wrong—it was a great way to get 12 CDs for a penny. But its business model kind of set the stage for a lot of bad e-commerce.

Today in Tedium: No matter how hard you try, disruption comes for you. It might be slow and gradual, or it may be fast and brutal. But eventually, you will find yourself at the end of your line, attempting to hold on to the past with the thinnest of threads. That, friends, is the state Columbia House finds itself in after a solid 71 years of existence. At one point in the 1980s and 1990s, it was a dominant way many people acquired music. But as the music industry left it in the dust, it was forced to switch to distributing movies via the mail, a business that even Netflix gave up three years ago. But now, it said, as a mere whisper caught by a YouTuber about a week ago, that it was shutting down. Today’s Tedium, in an update/complete rewrite of its 2015 piece on the fate of Columbia House, assesses the disruption. — Ernie @ Tedium

Columbia House: A company built around carrots and sticks

There was a time when Columbia House was everywhere, the most mainstream of services, comparable to Time-Life or K-Tel in sheer saturation of our media channels. (And yes, to AOL, probably the most comparable business of its era from a marketing perspective—so much so that, naturally, they worked together.) But like those once-dominant mass-media marketing plays, it disappeared quickly.

In fact, when I first wrote this piece, it was because a younger millennial coworker of mine had never heard of it and I wanted to explain what the deal was.

“The deal” was a huge part of the appeal, of course. At a time when digital downloads were years away, the Sony-owned Columbia House (along with its similar competitor BMG) offered an opportunity to fill up a music library with music for only pennies on the dollar. In fact, in some cases, a literal penny that you included with the mailer.

Columbia House was very widely advertised, showing up in basically every mass-market consumer magazine and on every cable channel under the sun, especially if was MTV, BET, or VH1. Considering what it sold, its advertising was reliably square, not exactly hip with the kids. It’s more like the viral Sizzler promo, honestly.

How successful was this? Well, it was one factor in the rise of Hootie & The Blowfish in 1994. One widely shared fact about these record clubs, first revealed by the Boston Phoenix in 2011, is that they were single-handedly responsible for getting Cracked Rear View, the South Carolina band’s dominant debut, in the hands of 3 million people.

Unfortunately, Darius Rucker and the gang never saw much in the way of profits from those 3 million copies, even if they did sell 10 million other records. One might argue that, by super-charging its presence in popular culture, it helped the band sell more records in the long run. (That’s, after all, how artists might think of deals like this in the modern era.) But they also had to give away a hell of a lot of their product for a loss-leader that their label created.

Put another way, it was an innovation with a carrot and a stick for the artists who benefited from the extra exposure. Musicians were arguably used to it, as anyone who read that Steve Albini essay can attest.

But the offering also came with a carrot for consumers … and the corresponding stick was particularly ugly.

“Most times when you’re trying to get somebody to buy something, you are actively trying to get them to go and buy the thing, even if now it’s clicking or subscribing and subscription. Columbia House had this brilliant, perverse method which was [that] you sign up and then all you have to do is tell us not to send you things, and if you don’t remember that, we are going to sell you something and you have to pay for. And enough people will like that? Okay. And it was a profitable business. Could you ever get anyone to do that again?”

— Sasha Frere-Jones, the former New Yorker music writer, discussing the Columbia House business model in an A.V. Club piece. Frere-Jones was intimately familiar with the company’s model, having worked at Columbia House in the early 1990s. He spent his days working at the mail-order company, while boning up his music-journalism chops at night, writing for various zines. (Worked out for him.) Want to get a better idea of what it was like to work at Columbia House? Read the A.V. Club piece, and watch The Target Shoots First, a first-person documentary on the life of a Columbia House manager.

Five reasons Columbia House was able to give away records so cheaply

1. Degraded audio quality. In 1994, Stereophile magazine published a feature analyzing whether the quality of the Columbia House or BMG CDs was actually much lower than one could find in a traditional record store. The belief—which hasn’t been confirmed—was that the service was using lower quality master tapes, and on high-quality equipment, one could tell the difference.
2. Lack of royalty payments. Mental Floss notes that those free CDs generally cost Columbia House $1.50 each to create, a fairly low amount of overhead in those days. The reason it was so low? Well, they didn’t have to pay royalties on the giveaways and made the money back on the margins. In other words, that Nirvana album you got for free from Columbia House netted Kurt Cobain a grand total of $0.
3. A sketchy business model. The model that the company used relied on customers essentially forgetting that they had subscribed to the service—and sending random CDs or cassette tapes to people that haven’t asked for them, along with a bill. Not exactly a way to make friends.
4. High profits after the freebies run out. After you got those cassettes and discs shipped your way, the company charged high amounts to consumers—but they also kept most of the profits on the albums sold. Mental Floss suggests that the company made as much as $7.50 on each album shipped.
5. Aggressive bill-collection tactics. Ripoff Report has long had a report page on the service and its collection agency, Trident Asset Management, that go back for miles. And in 2017, the Federal Trade Commission settled with Columbia House for its repeated violations of the Do-Not-Call rule. If you haven’t paid for those CDs you got back in the ‘90s, they’re probably still trying to shake you down for your money.

The scheme that Columbia House used to actually make money from its for-a-penny business model

Don’t think about Columbia House as a mail-order business for a second. Instead, think of it the same way you might think of a SaaS business. That business relies on your subscription in exchange for its services.

These services annoy the hell out of people. Just last night John Oliver was on HBO calling out the fact that subscription services are so hard to cancel.

It’s an innovation that arguably dates back to the days of Columbia House and its longtime competitor BMG. There was one big difference, though: It had to try to make this model work with checks, credit-card numbers over the phone, and the ever-awkward mail system. So what’s a company to do?

If you thought the answer to that not-so-rhetorical question is “something sketchy,” you’re on the money. Essentially Columbia House and similar “of-the-month clubs” utilized a technique called “negative-option marketing,” where you were essentially sent a product with a bill, even if you didn’t ask for it. The free CDs were a lead magnet targeted at middle America, and they worked extremely well.

But here’s the thing about negative-option marketing in the case of mail-order goods: You never signed a contract when Columbia House sent you that random country album that you weren’t interested in. And as a 2009 Federal Trade Commission report made clear:

Negative option marketing can pose serious financial risks to consumers if appropriate disclosures are not made and consumers are billed for goods or services without their consent. With the explosion of Internet marketing over the past ten years, negative option offers are as much a fixture of online advertising as in any other advertising media.

Obviously, this kind of marketing has become even more of a problem online. (If a service charges you for a full year of service without warning you, it’s the same concept.) But fortunately, you have some legal precedent in your favor. For one thing, you don’t have to pay for unsolicited merchandise according to federal law.

An example of this is a book service with a similar model, Bottom Line Books, which renamed itself a few years ago. In 2012, Consumer Affairs reporter Mark Huffman wrote about situation where a reader of theirs received a book they didn’t ask for, along with a bill. He recommended sending Bottom Line Books and similar companies a letter.

“While you are not obligated to send a letter to the company stating your intention to keep the merchandise as a free gift, it’s usually a good idea to do so,” he explained at the time. “Your letter may stop the company from sending you repeated bills, and if it’s simply an honest mistake, the letter may help clear the air. You should send the letter by certified mail and keep the return receipt and a copy for your files.”

That story is a bit old at this point, and the modern internet basically has a thousand examples of similar things sitting in your inbox. But it nonetheless reflects the scene that Columbia House swam in.

Over the years, I’ve touched on a lot of mail-ordery things like this, whether infomercial junk, schemes to get kids to sell greeting cards, or the rise of the catalog.

The thread that connected these schemes is that they all had their crassly commercial edges to varying degrees.

But few of these things were quite as sketchy as negative option billing. Columbia House carries warm memories with consumers because its advertising was so prevalent. But the business itself actually has a bigger, darker shadow. It was one of the scraps of the pre-internet era of mail-order that carried over into the modern day.

Every SaaS model that you’ve ever hated—whether the sketchy cancel strategies of Adobe or the Bending Spoonsification of every mature SaaS app on the internet—has roots in the Columbia House model. That model offered a very attractive starting point, and likely proved a starter for numerous CD and cassette collections nationwide. But it normalized aggressive, misleading behavior by large, mainstream companies.

Columbia House isn’t owned by the same people it once was; for the past few years, it’s been managed by a company called Direct Brands. (At one point, it also managed BookSpan, the direct descendant of the Book of the Month Club.) As I noted when I originally touched on this topic in 2015, it was having a bit of a slow death. Now, rigor mortis is clearly creeping in. The Direct Brands website, https certificate left non-renewed, just forwards to Columbia House.

That we’re looking down, staring at its corpse like we’re fascinated by a dead body because we’ve never seen one before, doesn’t make that right. Nostalgia doesn’t make up for decades of extremely sketchy business practices.

If I have one request as they close up shop, it’s this: Pay Darius Rucker for all those copies of Cracked Rear View you gave away.

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