retailers hate the clubs
Although music store owners control 85 percent of the market,
they've begun to fight back against mail-order clubs. For example,
many used music stores refuse to buy or trade club CDs. The retailers
have support from some artists and labels who refuse to license
their products to clubs, mostly because of the lower royalties
they earn. This includes releases from labels like Geffen, MCA,
Virgin and Disney and just about any album by the Beatles, Bob
Dylan, the Rolling Stones, the Who or Pink Floyd. Hootie &
the Blowfish have also joined the ranks, after nearly three million
of 13 million copies of Cracked Rear View were sold through clubs.
That meant half or no royalties on nearly a third of their sales.
The group was smarter the second time around: Fairweather Johnson
was withheld from the clubs for a year. Meat Loaf sued over royalties
on a million copies of Bat Out of Hell, and Pearl Jam lost royalties
on a million "free" copies of Vs.
Retailers are unhappy because
some feel the clubs have an unfair advantage in the marketplace.
A record store must purchase CDs that include full royalties,
which leaves room for $2 to $5 profit on each sale. The clubs,
on the other hand, with their zero or half royalties and in-house
production, have brought their costs down to about $4 per disc,
so they can make more than $12 in profit. Noting that, one Pasadena
music chain offered $6 for any of 50 popular CDs purchased from
record clubs because it was cheaper than buying them from a distributor.
In 1992 the National Association of Recording Merchandisers
(which counts retailers and the clubs among its members), filed
suit to force clubs to stop their freebie offers. The clubs say
the retailers' criticism is unfair. They spend hundreds of millions
of dollars promoting artists and albums each year, they say,
and club sales count toward gold and platinum certification from
the Recording Industry Association of America. In an effort to
ease tensions, BMG launched a "new-artist development program"
designed to entice its members into stores to sample artists
who aren't offered yet by the clubs. For the price of shipping
and handling, BMG offered sampler discs of two cuts from each
of five bands. Included with the disc are $2 Blockbuster Music
coupons. This didn't appease the retailers, and they make noises
every once in a while about more suits over the clubs' "unfair
All the carping back and forth
may be over nothing. Two surveys suggest that clubs help retail
sales. The first, conducted among 2000 adults for BMG, concluded
that clubs encourage people to buy more music in general. A later
survey of 1113 adults by the National Association of Recording
Merchandisers found essentially the same thing. NARM also reported,
however, that Columbia House and BMG members buy fewer CDs from
retailers after they leave the clubs.
Don MacKinnon, president of
the Boston-based Hear Music, doesn't see the clubs as a problem.
Instead, he wonders about the labels. "Most stores are playing
the traditional music business game," he says. "They're
stocking the hits, selling to kids. The record companies put
all their money behind 40 records and do everything they can
to sell those. The job of retailers, as the companies see it,
is to provide slots for those top 40 artists, then alphabetize
"If they're going to
survive, retailers have to help customers expand their tastes,"
he adds. "Most retailers aren't being hurt so much by the
clubs but by the many other ways of selling the commodity. It's
cutthroat. The larger problem facing the retail business than
selling established artists is how to promote new ones."
During the past few years,
retailers have found some breathing room as consumers finish
upgrading their oldies. That has always been a major part of
the clubs' sales the Eagles' Greatest Hits has sold seven
million of 22 million copies since 1994, largely through mail-order.
But today, everyone who's going to replace their LP of Thriller
with the CD version has done so. Sales of catalog records slumped
5 percent in 1996 after jumping 30 percent to 40 percent each
year since the introduction of CD players.
article originally appeared in my fanzine, Chip's Closet Cleaner,
articles on free CD clubs:
(1) Get the Best Deal; (2) Tips
(3) History of the Clubs; (4) Why Retailers Hate the Clubs
© 1994-2011 cc Media, Inc. All rights reserved.
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