CD Clubs FAQ
V.4.21, Last Modified: Jul 19, '99
1. Breaking News
2. Introduction
3. Strategies - In Brief
4. Customer Service Information
5. More In-Depth Information
     · Brief Answers To Frequently
       Asked Questions
     · Getting The Most CDs
       For Your $$$
     · Declining The Selection
       Of The Month
     · Available New Membership
       Offers
     · Membership Costs
     · Club Catalogs
     · The Quality Debate
     · Club "Re-Mastering"
       Statements
     · Resale Value
     · Ethical Issues
     · Clubs Collecting Sales Taxes
6. Other
     · Appendix A:
       CD Clubs In Canada
     · CD Club Related Sites
     · About The Maintainer
     · FAQ Disclaimer
Comments, changes, or errors to:
Content: Brad von Haden,
HTML: Brian Wilson
    

Ethical Issues

  1. Join, Fulfill, Quit, Repeat
    Some readers have questioned whether its ethical to use the "join, fulfill, quit, repeat" algorithm, and some have even questioned whether its ethical to publish information about it. While you will of course have to decide for yourself, my view is that it is OK: if the clubs did not want us to do it, they would put a stop to it. BMG has already specifically restricted the use of the algorithm by limiting membership to one, per person, per year.
  2. Economics of club offers
    We make this offer simply because experience has shown that it is a sound, economical way to acquire new friends for the BMG Music Service. Many of our members continue with us for three, five, even ten years. We make a fair profit while you keep on saving.
        - Oren Testa, BMG vice president (circa ?), on the super deals

    I would contend that the clubs make money, or at least break-even, on all deals, except the historical "12 CDs for 1 penny" offer from BMG. Here is an analysis of club CD Costs:

        Free/Bonus
    		   Regular
    Pressing$ 0.60$ 0.60
    Artwork0.400.40
    Royalties - Normal0.001.60-4.00
    Royalties - Mechanical0.26-0.520.26-0.52
    Shipping0.28-0.700.70
    Advertising0.650.65
    Overhead1.001.00
    $ 3.19-3.87
    $ 5.21-7.87


    The above figures, while not necessarily accurate, do have some basis in reality:
    • Pressing costs
      Comes from a BMG press release in which the CEO of BMG Entertainment Storage Media, Uwe Swientek, states the existing cost to its customers for a CD is sixty cents ($0.60).
    • Artwork cost is a plug figure
      $1.00 seems to be the going rate for large press runs of finished CDs including artwork.
    • Royalty costs come from an article in "Billboard" magazine
      ("Record Clubs: An Inside Look At An Evolving Enterprise", 30 March 1996.)
    • Shipping costs
      Come from the USPS's Postal Rate Guide for "Special Standard Mail"; the clubs might have contracted for a lower price.
    • Advertising cost is a guesstimate
      Sales of $1.15 billion divided by average price of $5 per CD equals 230 million club sales; industry estimated advertising of $150 million divided by 230 million sales equals $0.65 per CD.
    • Overhead costs
      The costs of servicing the membership accounts (monthly mailings, staffing, warehouse facilities, web site, etc) -- is another guesstimate. As it is unlikely the clubs are losing money on their 'buy 1, get 3 free' offers, the average CD cost to the clubs needs to be less than $6.61 ((16.99+2.49+2.39+2.29+2.29)/4).
  3. Royalty payments to artists
    Artists do not receive full royalty payments for CDs sold through the clubs. While the percentage of his/her royalty an artist receives on club sales is dependent on the artist's contract with its label, generally an artist will receive no royalties for CDs sold as "free or bonus" selections and only one-half their normal royalty rate for CDs sold as full priced selections. (see Shemel, Syndey. "This Business of Music". 1990. 61)

    An artist, if successful and unhappy with the "club clause" of his/her contract, can renegotiate his/her contract with his/her label to either restrict (certain albums not available or longer time between street and club release) the artists offerings in the clubs or eliminate the artists offerings in the clubs all together.
  4. Direct Mail Marketing
    The clubs make money by selling member's addresses to various junk ... direct mail marketing companies. They call this a "benefit" - giving you the opportunity to order all sorts of neat stuff. To remove your name from the sold lists, contact the club's customer service center and request to be removed from their direct mail list.