Parent Company of Columbia House Records files for Bankruptcy

Parent Company of Columbia House Records files for Bankruptcy

Much like A&P supermarkets and that company’s bankruptcy announcement last month, another piece of Americana is close to officially entering its historical enshrinement. Nearly everyone of a certain age has at least once in their life taken advantage/been taken advantage of the Incredible Deal™, 8 cassette tapes or CDs for a penny, by subscribing to the Columbia House music club. The advent of streaming music channels, iTunes, and YouTube however, eventually led the company to focus on DVD’s, exiting the music business altogether in 2010. On Monday however, Columbia House’s parent company Filmed Entertainment filed for Chapter 11 bankruptcy in U.S. Bankruptcy Court in Manhattan. According to director Glenn Langberg, the company, which earned peak revenues of $1.4 billion in 1996, earned a meager $17 million in 2014 on the buy one-get one free DVD club membership promotion it currently offers. The company tested a streaming movie system on its website last year and was also considering a streaming music site as well; however the company ultimately decided that the competition in these markets was too strong, with well-established companies like Netflix and Spotify leading a crowded field. In court papers, Langberg wrote “This decline is directly attributable to a confluence of market factors that substantially altered the manner in which consumers purchase and listen to music, as well as the way consumers purchase and watch movies and television series at home.”

In the bankruptcy filing, Filmed Entertainment lists $2 million in assets and $63 million in liabilities owed to over 250 creditors. While the company has no employees, most of the liabilities involve royalty payments and pensions for former employees, prior to the company outsourcing its operations years ago. Despite the massive setbacks, the company is seeking to maintain its DVD mail-order business until it is put up for auction, operating on its remaining cash reserves. PriceWaterhouseCoopers, who is handling the financial affairs for Filmed Entertainment, has identified 20 potential buyers, and according to court papers, is in discussions with at least one of them. Ownership of the Columbia House brand has been passed around like a basketball in a Princeton offense over the past decade. It was acquired by rival BMG Music Group in 2005, with the company changing its name to BMG Columbia House Inc. After a 2008 sale to Phoenix-based investment firm JMCK Corp, the company changed its name to Direct Brands Inc., with that company winding-down the mail-order music business by mid-2009. BMG sold the Columbia House brand to New York Media investment company, Pride Tree Inc. in 2012, changing the acquired company’s name to Field Entertainment in 2013. Pride Tree itself is not seeking bankruptcy protection.

Indeed, the end of Columbia House may be best described as death by a thousand kicks to the gut, and a microcosm of the music industry itself over the past twenty years. Napster delivered the first blow as the Columbia House reached its earnings peak, offering listeners (albeit in dubious fashion) the chance to download and save music electronically. This essentially eliminated the need, for the first time, for a physical copy of a recording. This was, in addition to the proliferation of Amazon and eBay by the turn of the century, to be swiftly followed by Apple’s iPod player and iTunes online music store. Also not helping Columbia house was the rise of Netflix’s mail-order DVD service, as well as the explosion of large retailers like Walmart and Target. At the same time, the music industry’s largest label Universal Music, declined to renew its license agreement with the company. Langberg also points to research showing the DVD market dropping by 50 percent since 2006, and the Record Industry Association of America noting that the market for CDs peaked at roughly $13 billion in 2000, yet only amounting to $1.85 billion in 2014 as reasons for the bankruptcy. Still, there is a possibility that a buyer may get some mileage out of the remaining DVD mail-order business as court records indicate the DVD club still has 110,000 members.

Founded in 1955 as a division of CBS, the company began selling vinyl records, using a business strategy known as a “negative option cycle.” For example, the company would issue promotion, such as 10 LPs or CDs for 1 cent, as long as the customer agrees to purchase six more at full price over the course of a year. While the full price was usually 10-25 percent higher than in retail stores, many people in the pre-internet age appreciated the convenience of home-delivered music as well as the cumulative savings from the promotion. The catch, however, was a customer would be sent an album selected by the “music club” at full price unless the customer sent back a form declining the selection by a pre-determined deadline. Still, many people have fond memories of the club establishing a teenager’s first record collection, or receiving their first credit “ding” for an unpaid bill. Ultimately however, Columbia House will join a long list of victims from the surge in online media, joining companies like Blockbuster, Circuit City, Tower Records, and others in the annals of nostalgia.

 

Sources:

The Verge – Bryan Bishop

U.S. News and World Report/AP – Marley Jay

Wall Street Journal – Tom Corrigan