Compass Records

Compass Records

Matthew Kearney, Dhruv Singhal, Emily Hoeft, Crockett Harper

Executive Summary

Compass Records is a small record producer that focuses on folk and roots music genres. Compass was founded 10 years ago by acclaimed musician Alison Brown and her husband Garry west. Most of Compass’s artists sell between 5,000 and 20,000 copies of their records which is too few copies for large record labels to produce. Most recently Compass is in the process of deciding whether or not to sign a new musician, Adair Roscommon. Roscommon has already started to build a following for herself, she was named “Best New Artist of 2004” by an influential Boston folk radio station also Roscommon managed to self-sell 2,500 copies of her album from her van. If Compass decides to sign Roscommon, Compass must decide whether to produce and own her album or simply license it.

Alison Brown estimates that Compass can sell 10,000 units of Roscommon’s new album. If this assumption is correct, Compass will make a profit under either contract but Compass will make $6,500 more by licensing the new album. If Compass can reach the 10,000 unit sales threshold, Compass will earn the option to license a second album from Roscommon. Having the option to produce and license a second album, is invaluable because many artist do not generate a return until their second or third release.

Background

Compass Records was founded by Alison Brown and her husband Garry West 10 years ago. Brown has both a business background and a background as an artist; she was a former investment banker with an MBA and an acclaimed folk musician. Compass has a niche in the folk and roots musical genres and focuses on small releases. The music industry itself had significant growth between 1969 and 1995 when it grew from 2 billion dollars to 40 billion dollars. Unfortunately for Compass Records the music industry has seriously stagnated since then. The industry shrunk to 32...