Compass records is a small, independent music recording company and co-founded In 1994 by musicians Alison Brown and Garry West. Compass is a new breed of roots-music label: eclectic, sophisticated, and artist-friendly. It Is called “one of the greatest independent labels of the last decade” by Billboard Magazine, Compass Records has provided a thriving haven of creativity for artists and a reliable beacon of quality for music fans. Its 2006 acquisition of the Green Linnet catalog and the 2008 calculation of the seminal Mulligan Records label has made Compass the place o go for Celtic and roots music.
HISTORY Alison Brown a Harvard graduate, record label co-founder and owner, mother, and, the role that most people know her In: banjo virtuoso. An Internationally recognized musician with a wide-reaching and loyal fan base, Brown first came to national prominence when she was asked by Alison Krause to Join her band Union Station in 1989. Brown had already made a name for herself prior to that by performing extensively with fiddler Stuart Duncan, and on occasional pick-up sessions with artists such as Vince Gill, Byron Berliner and John Hickman.
Brown’s Journey to a professional music career took a detour while she attended Harvard, studying history and literature, then UCLA, where she secured an MBA and went to work as an Investment banker. After taking a hiatus to return to composing and recording music, Brown assembled the material for her solo debut, the GRAMMAR nominated Simple Pleasures. A three-year stint with Alison Krause and union Station and a year serving as band leader for Michelle Shocked followed as did bluegrass music’s highest accolade for an instrumentalist: the International Bluegrass Music Association Banjo Player of the Year In 1991.
In 1995 Brown put her financial background to work, founding Compass Records with her husband Garry West. Celebrating its 1 5th anniversary in 2009, the Nashville- based Compass Records Group Is an Internationally recognized label group with a catalog of over 600 roots music releases across the compass Records, Green Linnet, Mulligan Records and Xenophobe catalogs. Compass Records Group is home to artists such as Colic Hay, Cattle Curtis, L;NASA, Solar, Martin Hayes and The Waifs, and has been called “one of the greatest Independent labels of the last decade” by Billboard Magazine.
BUSINESS FUNDAMENTALS Recording contracts were agreements between a record label and an artist whereby the label had the right to promote and market recordings of the artist’s music. Under such contracts, the record company could either license and artist’s finished recordings for a limited period of time or produce the recordings and own them indefinitely. Under a license contract, the record label licensed a work that had already been recorded and packaged. It had the right to exploit that recording only for a predetermined period of time, typically five to seven [ears.
Unlike a contract to produce and own a master, a licensing contract obligated he label to pay the artist and up-front fee which was intended to defray some of the costs the artist had incurred in developing the album. Compass generally negotiated advances of $3,000 to $5,000 and additional costs included updates to the album’s packaging around $500. But, if the company opted to produce and own a master recording, the artist received no payment up-front. Recording contract customarily gave record companies the exclusive right to record an artist during the term of agreement.
If an artist’s failed to fulfill her obligations, most contracts permitted the company to suspend the contract. Royalties and Recruitment Record labels paid royalties to artist for the use and sale their music. The mechanical royalties were paid to songwriters and music publishers for the use of their musicals compositions and recording artist royalties paid to an artist for the recorded performance of those compositions. Many record contracts especially those with artists who were both the songwriter and the recording artist included a controlled composition clause.
The record label did not pay any recording artist royalties until certain cost incurred in making and promoting the album had been scooped. Compass Record for instance often negotiated a 10 song per CD maximum for mechanicals which capped the mechanical expense at $0. 85 per sold CD. Recording artist royalties were not determined statutorily but were negotiated between the artist and the record label and it based on the type of contract. At Compass Record, the average recording artist royalty for an owned master recording was $1. 45 per unit sold whereas the royalty for a licensed recording was around $1. 5 per sold unit. Recording royalties were generally lower for produce and own contacts because the cord label was underwriting the expense of album production. Production and Manufacturing ere cost of producing the recording would depend on the size of the project, the complexity of the recording and the label of perfection desired. Compass Records Incurred production cost that were significantly lower than the major labels and even had an advantage over some other Indies labels because Brown and West had acquired a recording studio in May 2004.
Compass Records might spend between The manufacturing cost with included pressing the CD, Purchasing the standard Lowell case and others was about $0. 70 per unit and $0. 0 as an additional unit cost. Because the manufacturer could turn around an order in three to five days, Brown and West tried to keep very tight control over their inventory. Marking and Distribution Promoting an album depended on obtaining regular airplay on radio stations around the country. Beginning with an album mail-out, provided free copies of the recording to radio stations and music Journalists.
Compass Records focused on local radio programs and record stores in coordination with the performer’s tour schedule. For Compass’s artist, the marketing effort was venue sales at live concerts. To encourage local fans to attend concerts by new artist, Compass usually paid for local print- advertising campaigns ($3,000), posters and press photos ($500), e-card mailings ($1 ,OHO), and the services of an independent radio promoter ($2,500). Compass secured deals with independent distributors to place their album in regional retail outlets. Compass was paid only for the CD units that sold, not for the number shipped.
Because of the returned unsold units to the distributors by the retailers Compass typically manufactured about 30% more units than estimated would actually sell at the retail outlets. Retailers gave an album only about 90 days from it release date to generate meaningful consumer demand. In order to ensure high demand by an album’s release date, sufficient publicity and promotion had to occur months in advance. WORKING CAPITAL * Working capital known as net working capital or NC, is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entity.
Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Working Capital = Current Assets – Current Liabilities * WAC is of particular importance to the small business. With limited access to the long-term capital markets, these firms tend to rely more heavily on owner financing, trade credit and short-term bank loans to finance their needed investment in cash, accounts receivable and inventory. * The success of a firm depends ultimately, on its ability to generate cash receipts in excess of disbursements.
The cash flow problems of many small businesses are exacerbated by poor financial management and in particular the lack of planning cash requirements. * The goal of working UAPITA management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses. QUESTIONS 1) What is the basic nature of the problem in this case? Orion and her husband, Garry West.
In a struggling music industry that was previously dominated by larger record companies, Compass Records has found a way to stay afloat by taking advantage of signing under the radar folk musicians and turning a profit. This case centers on a decision that Brown and West will need to make regarding an up and coming musician named Adair Raccoons. They need to decide whether it is better to license Recommends music for a limited period, or to produce and own her master recording outright. 2) What are the cash flow associated with its licensing?
The qualitative issues that we should address bit not rereflectedn the discounted cash flow (DCDCare: 1 . Sense. The produce and own the recording can generate revenue than licensing. 2. Flexibility. For licensing, there is limited flexibility. While the master recording artist and company has more flexible in the NhManholereative process. 3. Public image. Alison Brown will sign for the best artist licensing, company doesn’t know whether the whole recording process had made the high quality album or not. For licensing, company can Justify and control the whole quality of the album that will make. . Know-how. In licensing, company doesn’t nvinvolven the whole process and don’t know everything that include while recording process. While in produce and own, company have to know how to manage the whole process. 6. Learning. In licensing, there is the chance to wait and see. It means that NeEnave an option whether to continue licensing or not based on artist’s performance. But, in produce and own, company realize that made producing an album more cheaper and also make loss if the artist that company’s produce don’t rerateconomic value. 5) What should Allison Brown do?
In this case Compass Records is trying to decide whether to license or own the music rights to folk up and comer Adair RoRaccoonsAfter giving much thought and analysis we feel that it is in Compass’s best interest to license Adair. By licensing Adair Compass would not be exposed to near as much risk. We must also consider Alison Brown’s expertise in this music field as she only estimates Adair to sell 10,000 albums. Given these most probable scenarios it is a good decision to license Adair as to not expose a very small company to added unnecessary risk.