Can you ONLY imagine the losses these various clubs took on those thousands [millions?] of dead beats who took those penny CDs and never bought another disc to fulfill their membership obligations? Same goes for the other clubs [DVD, LPs, etc.]
Don't feel sorry for those clubs as they were probably able to take off major write offs on their tax returns conducted by ruthless accountants and I'm sure made out LIKE BANDITS!
Actually, the clubs made money (or at least didn't lose money) on people that that didn't fulfill the commitment to buy more CDs, LPs or tapes. Remember that you had to pay S&H/postage for the "free" items. It didn't cost the companies as much as they were charging to ship them. Plus, the artists & labels had to agree to take lower payments for a title to be in the club. That's the reason they didn't have every title a label produced - some artists or labels would not agree to the lower fees.
For every person that "cheated" the offer, there were 10 more that not only fulfilled their requirement, but continued to buy more titles.
One of the things that made the clubs so profitable was the propensity of humans to be lazy. Remember that the clubs would feature an "album of the month" in several genres. If you didn't send back the card saying you didn't want the featured album in the genre you picked when signing up, it would automatically be shipped and billed to you. They did allow you to send the item back as long as you didn't open it.
But a surprisingly high percentage of people wouldn't do that. First, many would miss the deadline to send the card back, then when they got the album would be too lazy to bother sending it back and just pay for it - promising themselves to be more timely about returning the "no" card. (But they weren't...)
This point was made to me when the company I was working for had the current ZZ Top album. The label wanted to present the group with a platinum record award for the album at an event coming up in just a few weeks. Problem was, it was close, but not past the million selling mark and the RIAA wouldn't allow the seal on the award until we could show sales figures of a million copies. At the time, I had the account that put music (and every other item you can imagine) in U.S. Army and Air Force PXs and BXs around the world. The labels asked me to sell the account an additional 70 - 90k units to get to the million. About an hour later the label called me back and said, "Nevermind. The title has been chosen by club to be the Rock feature title for this month. We'll be fine." "How can you be sure enough people will buy it to hit the number?", I asked. That's when they explained the "lazy human" aspect of the clubs to me.
And they were right. The album was well passed a million sales in time to present the award.
@DaverJ, the E.J.'s are some of the best surround titles out there IMO; hopefully they'll do a re-press at some point 
