The controversy over cut-out records in the 1960s

How soon do dealers close out slow-selling albums? Billboard, 1966

 

In the 1960s, the only people who liked cut-out records were the so-called "graveyard merchants" who sold them and the bargain hunters who bought them. Most record labels and regular record stores hated them, and a heated debate over what to do about cut-outs raged throughout the '60s.

In the book industry, deleted titles are remaindered or stripped. In the record industry, deleted titles became cut-outs. Cut-outs took their name from the physical cut on the album cover that indicates that they are deleted titles. Over time, manufacturers also identified cut-outs by drilling holes in records, stamping a message on the covers, or cutting off a corner of the album cover. Cut-out 45 RPM singles often were randomly repackaged in baggies of three and sold for cheap on racks or at point-of-purchase displays. 

Cut-out marks on LP covers

Cut-outs were sometimes called "dump" merchandise, because record labels wanted to dump this overstock on someone else. In order to dump their merchandise, labels either distributed their cut-outs to retailers along with their regular-priced titles or sold them to the dump merchants or graveyard dealers that specialized in selling out-of-print and overstock records. These dealers often sold cut-outs through nontraditional channels, such as supermarkets and truck stops. 

Why were cut-outs controversial? Cut-outs created headaches for record labels and record stores alike and provided abundant fodder for conspiracy theories and allegations of unfair trade practices.

One source of confusion for retailers was that cut-outs were sometimes indistinguishable from regular merchandise. Despite their name, cut-outs weren't always cut or otherwise marked as such. In 1961, New Jersey record retailers became angry when a distributor in Newark refused to accept returns of EPs that it said were cut-outs. The EPs weren't marked as cut-outs, prompting one dealer to ask, "How is a dealer to know which are cut-outs and which are not?" The distributor unhelpfully replied that retailers needed to cross-reference all their titles with a catalog (which the distribuor sold to retailers for $10 a year) to see which titles were current.

Cut-out ads from 1980

Retailers also felt that cut-outs confused record buyers, because the cut-outs were so much cheaper than the regular-priced records. And they believed that cut-outs detracted from the sales of regular-priced merchandise by providing a low-priced alternative to newer records. 

It's true that cut-outs could be very cheap. In 1960, Capitol Records offered a deal in which retailers got a free cut-out for every cut-out bought at wholesale. (That same year, Capitol Records also claimed that it destroyed all of its cut-out merchandise. Label policies on cut-outs were constantly changing.) Some retailers claimed that cut-out pricing amounted to unfair trade practices, because retailers who had paid full price for a given record were unfairly undersold by retailers who later paid the cut-out price.

Some retailers alleged that the cut-out market allowed the labels to engage in pricing shenanigans, such as offering temporary price cuts for alleged cut-outs that were actually stock titles. One industry critic said in 1964, "It seems to me some manufacturers are manufacturing cut-outs the whole year-round." This conspiracy theory persisted, and retailers alleged throughout the '60s that the record labels would press more titles of a particular cut-out if a cut-out merchant requested more. This allegation might seem ridiculous at first, because it doesn't seem like a profitable scheme, but artists received no royalties from the sale of cut-outs, so for manufacturers, the cost of selling cut-outs was much lower than the cost of selling new titles. Similarly, artists received no royalties from the sale of records through record clubs like Columbia House and BMG Music Service. If labels could profit from selling royalty-free music dirt cheap through record clubs, then it's at least conceivable that they could profit from selling royalty-free music dirt cheap through cut-out distributors.

Many retailers didn't want to sell cut-outs at all but felt that they had to sell them to compete with the "rack jobbers," the dealers who supplied records to businesses that weren't primarily in the record business, like the aforementioned truck stops and supermarkets. Some rack jobbers sold a small assortment of new product too, but many sold cut-outs and budget titles exclusively.

Record labels complained that the rack jobbers who sold new product turned everything that wasn't a current hit into a cut-out, because the rack jobbers' limited inventory led them to stock only the best-selling titles. 

Record labels also didn't like to compete with the graveyard merchants when the labels tried to sell their own cut-outs. The labels wanted to have their cake and eat it too; they wanted to recoup some of their losses and get rid of overstock by selling cut-outs for pennies to cut-out dealers but then complained when the cut-out dealers sold the cut-outs for less than the labels sold their own cut-outs directly. The whole situation was pretty ridiculous and reared its head at practically every industry meeting, such as the annual National Association of Record Merchandisers (NARM) conference.

Even if you didn't take into account the small inventories of the rack jobbers, who were a marginal force in the music industry (Billboard market research in the '60s showed that most music buyers weren't even aware that some supermarkets sold records), the shelf life of a record was brief in the 1960s. The chart at the top of this page, which was created from Billboard market research data in 1966, shows that nearly half of all retailers closed out slow-selling titles within six months, and many retailers closed out slow sellers even sooner than that. 

In 1963, Columbia Records ran a test for nine months in which it destroyed all of its discontinued product instead of dumping it on the cut-out market. As a result of the test, Columbia claimed that the value of its current offerings had increased. Columbia also said that the absence of cut-outs eliminated the competition to its full-priced offerings and bolstered Columbia's "firm price image." Epic Records, a Columbia subsidiary, announced that it would follow Columbia's lead in destroying cut-outs.

1995 ad from a latter-day "graveyard merchant"

The plan to destroy discontinued records didn't catch on or last for very long, though, and cut-outs have continued to be available to the present day. In the 1990s, I used to drive an hour to Indianapolis to browse the cut-out bins at the record store in the Castleton Mall (Coconuts?), because it had the biggest selection of cut-out CDs and laserdiscs I'd ever seen. For a while, the store devoted a lot of shelf space to cut-outs. In 1999, the now-defunct Cyber Music Plus started as the first online store devoted to cut-outs and deleted product. Some outlet malls had music retailers that, like the rack jobbers of old, stocked a lot of budget and cut-out titles alongside a smaller selection of new titles. Even today, if you see Amazon.com directly selling a major-label CD for dirt cheap, it's probably a discontinued or overstock title even though it won't have a cut-out mark.

In recent years, labels started avoiding the overstock problem by pressing fewer copies of CDs and LPs and then repressing the titles as needed. Print-on-demand technology eliminates the possibility of cut-outs altogether. And streaming is a record label's dream come true, from an inventory standpoint, because a title can sell as much or as little as the market demands without incurring any additional manufacturing cost or leaving behind any pesky unsold merchandise.