Columbia House Owner Files For Bankruptcy

At its peak, the mail-order service brought in over $1 billion a year.

The mail-order music company that once tantalized countless broke teenagers by offering popular CDs for pocket change no longer exists.

Filmed Entertainment Inc., the parent company of Columbia House, on Monday filed for Chapter 11 bankruptcy protection and is seeking to sell off the last vestiges of what was once a billion-dollar business.

The Columbia House music club combined with former rival BMG Direct in 2005. It shuttered its music club entirely in 2010 and began selling only movies. FEI acquired the company two years later.

By earlier this year, a third-party service was handling all of Columbia House's operations, and the company had no employees.

Famous for its eight-CDs-for-a-penny deals, Columbia House was at the height of its popularity in the mid-'90s, when it accounted for 15 percent of all CD sales, according to The Boston Phoenix's 2011 profile of the company. Columbia House reached its peak revenue in 1996, raking in roughly $1.4 billion that year. But the company's fortunes have been in a steady two-decade decline, netting just $17 million last year.

"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," FEI Director Glenn Langberg said in court papers, according to The Wall Street Journal.

Despite its popularity and seemingly irresistible deals, Columbia House eventually became reviled for the terms concealed in its fine print: Though members could nab a stack of albums for 1 cent, they had to buy additional albums over time -- at a high markup and with exorbitant shipping rates -- to fulfill the membership agreement.

The company's business model exemplified what is known as the "negative option cycle" which put members on the hook for items sent by the club unless they declined them first.

Though scores of members were burned by Columbia House's fine print in the '90s, one New Jersey man bilked the company out of 26,554 CDs over a five-year span by setting up 2,417 customer accounts at 16 different post office boxes.

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