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Mail-Order Music Madness

Record clubs offer deep discounts, but threaten artist’s and retailer’s profit

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Eleven albums for the price of one? This might seem about right for a surplus of Bobby Sherman or Uriah Heep cutouts. Yet many of the 25 best-selling albums, as well as recent top 10 Godzillas from Joan Osborne and Alanis Morissette, are currently available at this bargain-basement rate. Where? Not at your local record shop, that’s for sure. This rock-bottom price is the sole domain of mail-order record clubs.

For consumers, the math appears too good to be true. It’s not. Factoring in introductory offers and minimum purchase requirements, club members pay an average of only $5.50 a disc.

For recording artists and music retailers, apparent victims of decades-old deals between labels and the clubs, the numbers approach the Kafkaesque. Record-club sales account for nearly 3 million of the 13 million units sold of Hootie & the Blowfish’s Cracked Rear View. Yet the band’s contract, like most standard recording contracts, stipulates they’ll receive only half their regular royalty rate from record-club sales and nothing for discs sold through the clubs’ ”special offers.” It came as no surprise, then, when Hootie used its clout to withhold Rear View‘s follow-up, Fairweather Johnson, from the clubs for a year.

Music retailers are also taking a stand against what they perceive as unfair trade practices. Members of the National Association of Recording Merchandisers (NARM) met last week to discuss possible legal action. Their concerns are twofold: Record clubs, they feel, are diminishing the perceived value of music product with their lowball pricing. ”When consumers walk into a store and see something selling for $15 that they can get for [a fraction of the price],” says Larry King, a retail buyer for Tower Records, ”they think they’re getting ripped off by the retailer.”

NARM is also concerned that record companies (several of which own record clubs) give mail-order operations excessive discounts. In fact, it works this way: Record clubs pay record labels to license their product, including CD masters and artwork. The clubs then manufacture their own CDs at a cost of around $4, less than half of what retailers have to pay record companies for the same disc. Record-club execs insist that the cost of advertising and direct-mail marketing offsets whatever price advantages they might enjoy.

What may have inspired retailers to finally cry foul is a recent study conducted by the RIAA. It showed that combined sales from the two dominant mail-order clubs, BMG Music and Columbia House (jointly owned by Sony and Time Warner, which also owns ENTERTAINMENT WEEKLY), add up to a $1.5 billion-a-year industry and account for 15 percent of the domestic record market — an increase of 40 percent from 1991 to 1994. Such figures enrage retailers who, having experienced a 17 percent sales drop in that same period, blame clubs for ”cannibalizing” their turf. ”The marketplace the clubs were developed to service was areas where the nearest record store was 60 miles away,” says NARM president Pamela Horovitz. ”That marketplace doesn’t really exist anymore.”