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Compass Point Studios was founded in 1977 by Chris Blackwell, the owner of Island Records. In the late 1970s and mid-1980s, many musical artists from across the world came to the Bahamas to record music at its facilities. Many producers, including Chris Blackwell himself, used the studio to produce recordings. AC/DC's Back In Black, the third highest selling album ever, was just one of the many albums recorded there. Other well-known artists who recorded there include: Emerson, Lake & Palmer, Julio Iglesias, Serge Gainsbourg, The Rolling Stones, Etta James, Colin James, The Tragically Hip, Grace Jones, Lil Kim, Shakira, Celine Dion, U2, Saga, Robert Palmer, Thompson Twins, Tom Tom Club, Talking Heads, Dire Straits, Electric Light Orchestra, Bob Marley, Eric Clapton, James Brown, Iron Maiden, Judas Priest, Roxy Music, Bonnie Tyler, Björk, The B-52's, Lenny Kravitz, Spandau Ballet and David Bowie.
As Chris Blackwell's other business interests steadily increased, he spent less of his time directly looking after the studio. With producer and manager Alex Sadkin's death in 1987, the studio began a period of decline. With no one overseeing the studio, studio equipment began to suffer from lack of proper maintenance and upgrades.
In 1992, Blackwell took action to save the studio by hiring Terry and Sherrie Manning, the owners and operators of a recording studio and video production house in the US. The couple oversaw all aspects of Compass Point Studios. Upon their arrival in late 1992, the Mannings began restoring the two large studios, tearing them apart and completely rewiring them with modern recording equipment.
The Nassau studio was closed in 2010. Because of local crime, it was becoming dangerous for the artists and their families to be in the area. 
Terry Manning announced on a discussion board he had been frequenting that as of September 2010, Compass Point Studios ceased its operations in Nassau due to "a series of incidents which had occurred in the recent past which made it untenable to continue doing business in the Bahamas. All involved agreed that we could no longer bring our friends and clients into an atmosphere that we knew to be threatening. The incidents shall remain private at this time."
According to Manning, "The reason was not one of economics or of a lack of business...in fact at the time, we had most of 2011 booked by very high end artists...All involved in Compass Point Studios will continue to work within the music business, just as always before... simply, not in the Bahamas. Until a final location for operations is decided, musical work will be carried out at personal and third-party locations."