NEW YORK -- The company that once offered to sell you eight CDs for 1 cent has filed for Chapter 11 bankruptcy protection after almost 20 years of falling sales.
The parent of the Columbia House music and DVD clubs said Monday it plans to sell its Columbia House DVD Club business, which sells recorded movies and TV series directly to consumers, through a bankruptcy auction.
The reasons for the bankruptcy read like a history of the changes that have swept through the entertainment industry and retail over the last two decades.
In the late 1990s, the mail-order Columbia House Music Club was damaged by Napster, the first major site that allowed people to share their music for free, followed by Napster's rivals and successors. Then came Apple's iPod and iTunes music store, which let consumers buy music and download it almost instantly while making it more portable than ever.
Around the same time, online marketplaces like Amazon.com and eBay were taking off and Netflix offered unlimited DVD rentals through the mail. Big retailers like Wal-Mart, Target and Costco were also expanding rapidly. Universal Music, the largest recorded music company, also decided not to renew a license agreement with Columbia House.
Within a few years, Apple and Amazon and Netflix would unveil streaming options that did away with physical media entirely. Citing market research, Columbia House's parent says the DVD market has shrunk by about half since 2006.
The New York-based parent company, Filmed Entertainment, says its revenue rose to $1.4 billion in 1996 and fell almost every year after that. In 2014, its revenue totalled about $17 million, barely 1% of its peak figure.
The Columbia House music club ended in 2010. By then Columbia House had combined with former rival BMG Direct. Filmed Entertainment says it tested a streaming option for movies on its website last year and considered a digital streaming service for music, but says competition in both areas would be fierce.
Columbia House was founded in 1955 and it initially sold vinyl records. Over the years its music club offered deals like eight CDs for a penny or 13 records or cassette tapes for $1.
The company's business model uses a method called the "negative option cycle." Once you're a club member, Columbia House periodically selects DVDs for you. If you don't decline the selection in time, it's shipped to you and you're billed for it. People who stay members are also required to buy a set number of full-priced DVDs over a certain period of time and can only end their membership after they fulfil that obligation.
The Columbia House website says new members have to buy one full-priced DVD and they get a second one for free. They also have to pay for shipping.
According to forms filed with the U.S. Bankruptcy Court for Southern District of New York, 110,000 people have bought a product from the Columbia House DVD Club within the last year.
Columbia House has no employees, as its owners sourced its operations to third parties several years ago to cut costs. It reports about $2 million in assets and $63 million in liabilities like pension and royalty costs.
