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For one CFO, the road show features live music. An interview with Alison Brown, CFO, Compass Records.
Edward Teach, CFO Magazine
July 15, 2009
Some CFOs may play a musical instrument, but how many have won a Grammy? Alison Brown has. She's a critically acclaimed banjo virtuoso whose distinctive style blends bluegrass with jazz and other musical genres. She's also finance chief of Compass Records, an independent, artist-run "roots music" label that produces albums ranging from bluegrass, folk, and Celtic music to adult pop and jazz. Brown launched Nashville-based Compass in 1995 with husband Garry West, who plays bass in her quartet. You may not hear Compass artists like Paul Brady or Beth Nielsen Chapman on mainstream radio, but they have nevertheless attracted devoted followings.
Along with her musical prowess Brown brings serious business chops to the CFO job. In the 1980s, after earning an MBA, she spent two years as an investment banker with Smith Barney before leaving to follow her lifelong passion for music. That led to a three-year stint with bluegrass star Alison Krauss and her band, Union Station. Later, Brown recalls, during a European tour with folk rocker Michelle Shocked, she and West "were sitting in a café in Stockholm one morning, and we started to think about what the aspects of a good life would be. We came up with this idea for a record label and a recording studio and a publishing company and live touring."
Today they are living that good life — but it's a busy one, requiring them to balance the demands of making music, running a business, and raising two young children. In June, two months after the release of her latest CD, The Company You Keep, Brown, 46, talked about the challenges of keeping Compass on a profitable course.
Many executives have noncompete clauses, but in your case it affected your musical career — you couldn't record for Compass at first.
I was still under contract with Vanguard; I had signed a four-record deal with them when I was playing with Alison Krauss. But that wasn't a problem, because when we started our company it was just the beginning of the artist-run-label boom, and it was important to us that people not think of Compass as a label that we started for our own music. I've done 6 records for Compass out of the 600 that we have.
Many aspects of the music-industry business model have changed in the past decade, in ways that many CFOs can relate to.
When we started Compass, independent labels went through regional distribution. It was common to have eight distributors that would cover the United States. Also, distributors paid on invoice back then. You shipped some records off and 30 days later you'd get a check from the distributor, whether they had sold the records or not, or even whether they had shipped them out of their warehouse or not. Then retailers and distributors got more savvy about their inventory and everything became computerized, and they switched to a consignment model.
Meaning distributors pay only for what they ship out?
Exactly, and it's very challenging. Anything can come back from retailers at any time. We'll see records come back that maybe shipped 10 years ago. And when they come back the distributor charges a restocking and refurbishment fee. So you never know exactly what your exposure is.
That was one big change. Shortly thereafter, distributors for roots labels got consolidated under a handful of national distributors. Then big-box retailers like Circuit City and Best Buy decided to sell CDs at loss-leader prices to bring people into their stores. All of a sudden the mom-and-pop retailers that had been an important foundation for independent music started going out of business.
And on top of that you have the huge transition to digital files and Internet sales, which caused CD sales to decline. How has the trend affected Compass?
Our demographic is older than kids; I'd say it's ages 25 to 100. In our experience, that demographic still wants physical product. Our artists sell tons of CDs at shows. And Garry always says, "You can't autograph a download." We believe that in our world of roots music, where a lot of it is touring-based and live-performance-based, there's still a place for CDs.
That said, the Internet has made digital sales more important. We started selling through iTunes in 2005, and now our digital business represents about 25% of our total volume. But there's a gap between CDs and digital in terms of cash flow. You got used to a business model of shipping out, say, 200% or 300% more copies of a CD than you were going to sell, and trusting that in return would come a chunk of cash that would help pay for the cost of producing that CD. With digital you don't have that surplus cash. And if all you're doing is netting 70 cents on a digital track or $7 on a full-album download, the business model will have to change.
What's a good sales figure for one of your releases?
It's nothing like the numbers that the major labels deal with. Our most successful records sell between 20,000 and 50,000 units.
How has business been lately?
Our sales last year were the best they've ever been. It was a big release year; we had a lot of our core artists making records. So that skewed the numbers a bit. Even taking that into account, our overall gross revenue has been on an upward trajectory. However, we've seen a downturn starting with the fourth quarter [of 2008]. Retailers' credit is being squeezed like everybody else's, so it's really affecting their willingness to buy records.
How many artists does Compass have under contract?
At any given time we probably have 20 to 30 active artists who are touring. We put out about 20 front-line releases a year and some catalog reissues.
As a finance chief, what's your biggest headache running the company?
It's probably what every small-business owner would say: managing cash flow. That's my biggest day-to-day challenge. My biggest sort of global challenge at the moment is trying to imagine how the business model is going to have to change for record labels, and how we're going to get our music to the consumer.
How do you balance work and life? Or, for that matter, work and work, as a touring musician and a CFO?
I just do the best I can. The way I look at it is that every day is different. There might be a week where we're home in Nashville and I'm in the office, just like a normal CFO. And then there are other days when we're on the road and I'm just a banjo player. I can answer questions on e-mail, and Garry's on the phone all the time, so we're still running the label, but we've got a staff on the ground making sure things go smoothly.
I see you have a BlackBerry handy. Is that your lifeline to the office?
Yes, I'm always hooked up. One thing I love about it is that anytime we get an order it pops up, so I get to watch orders come in. I just like to see what people are buying, and what combination of things they are buying. That's one important distinction between our label and other artist-run labels: ours is truly artist-run, as you can see. [Laughs]