After years of steady sales declines, the mail-order music and movie giant Columbia House is filing for bankruptcy.
The company was once known for its music club service, which hooked in subscribers by offering a stack of CDs for as little as a penny. The catch was that users couldn't quit the service until they purchased several more CDs at full price--usually higher than most record stores--with inflated shipping and handling charges on top. In the meantime, users had to regularly refuse offers of new music by mail, or else they'd be automatically charged for those CDs as well.
It was a twisted system, but it could work in your favor with a certain degree of vigilance. Shrewd users know that even cancelling the service was a type of bargaining tactic; Columbia House (and rival BMG Music Service, which shut down in 2009), had a reputation of offering more lucrative deals to former subscribers over the phone.
Columbia House pulled out of the music business in 2010, and has been focusing on DVDs ever since. But with the rise of streaming video, that business has also dried up. In court papers obtained by the Wall Street Journal, Columbia House directly blamed the decline of optical media for its downfall. At its peak in 1996, Columbia House pulled in annual revenues of $1.4 billion, but sales have declined almost every year since then, falling to just $17 million last year.
Currently, Columbia House values its assets at about $2 million, but it carries roughly $63 million in debt, nearly half of which comes from long-term pension liabilities, the Journal reports. Currently, the company has no employees, and relies on third parties to handle the mail-order service.
Why this matters: If you're one of Columbia House's 110,000 remaining members, the company says it will continue operations through the bankruptcy proceedings, and "continue to service its members and sell DVDs." For everyone else, this is just another milestone in the decline of optical media, and a reminder of what became of one of its biggest purveyors.
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