Record clubs and royalites

Remember those record clubs where you got a dozen or so albums (or 8-tracks, or cassettes, or later cds) for a penny, but then you had to buy x number of albums in the next three years at regular price (and pay through the nose for shipping, as I recall)? How did they pay the royalties on those first dozen albums?

They bought them?

Same as any other cost model. The profit on your remaing obligations more than covered the cost of the first few “free” albums, especially with “shipping and handling” and generally cutting out the middlemen.

I looked up this article on record clubs. Apparently neither the record label nor the artists received royalties on free product. The only royalties paid were to composers, and even those were at reduced rates.