Compositional separation (CS) has been observed to occur in Co-Cr based alloy thin films producing fine, Co-enriched, strongly ferromagnetic regions within the crystal grains. This CS exhibits a strong correlation with film magnetic properties and may hold the potential for engineering a "particulate type" magnetic microstructure suitable for high density magnetic recording. In this study, we first investigated the effect on CS of varying several growth parameters, with the aim of better understanding how to control the compositional and magnetic microstructures. In particular, reduction in film thickness was found to be very effective for enhancing CS and producing finer in-grain ferromagnetic regions with less coalescence. We therefore proceeded to perform point magnetic recording in Co-Cr films of various thicknesses and found that, although thinner films do support smaller bits, further studies on control of CS and promotion of magnetic isolation of Co-enriched, ferromagnetic regions will be necessary in order to utilize the full potential of cs.