POP MUSIC : Rock ‘n’ Roll Revolutionaries : SoundScan’s Mike Shalett and Mike Fine have shaken up the record industry with a radical concept: accurate sales figures

What do these people have in common?

Elvis Presley and Chuck Berry.

John Lennon and Paul McCartney.

Bob Dylan and Jimi Hendrix.

Prince and Madonna.

As you roll through the decades of rock, it’s not hard to identify the real revolutionaries in the music business.

Now add the names Mike Shalett and Mike Fine.

Shalett and Fine?

These two marketing analysts from New York can’t carry a tune, but their SoundScan company has turned the music industry on its ear in the last six months by bringing a “shocking” new element to the weekly sales charts: accuracy.

For the last 30 years, Billboard magazine, the nation’s leading pop trade publication, relied on record store employee estimates as the basis for its weekly album charts. The problem is those estimates were open to manipulation and error.

Record companies, eager to hype their latest product, often found ways to influence employee estimates. At the same time, many of the employees took the Billboard chart divisions too literally. They reported, say, country and R&B; sales only on the country and R&B; charts--instead of also including them on the wider and more influential pop charts.

SoundScan’s system takes the human element out of the loop by using a computerized system that registers a sale every time an album is passed through the bar code scanner at a check-out stand. The company tracks an estimated 5 million transactions per week in about 9,000 retail outlets--more than 50% of the records sold in the United States. The data is transmitted to SoundScan’s offices and tabulated each week and then sold to music industry businesses.

The new system has resulted in some remarkable changes in the pop charts--and produced some eye-opening data for record company executives, radio programmers and concert promoters, all of whom rely on the charts to help them determine which acts to push.

Among the most dramatic discoveries since SoundScan was instituted: There is far more fan support around the country for non-mainstream acts--including country sensation Garth Brooks, gangsta rappers N.W.A and various metal bands--than was believed in the industry previously.

Given this information, the ultimate result of SoundScan may well be a dramatic change in what records we hear on the radio and even what acts are signed by record companies.

Jimmy Bowen, president of Capitol Records’ Nashville operation, believes the SoundScan information is giving record companies and radio programmers a truer picture than ever about what kind of music American consumers want to buy.

“SoundScan is the best thing that’s happened to the music business in 37 years,” he says. “The real statistics that these two guys give the industry have completely overhauled America’s perception of what a pop hit is.”

In designing SoundScan, Fine and Shalett felt their raw data, which tracks the sales of hundreds of albums on a city-by-city basis, would be so invaluable to record companies--who used to have to literally guess at what their records were selling each week--that the firms would pay big bucks for the information.

And sure enough, the men signed contracts last summer with three of the nation’s largest record distributors--Sony Music Distribution, Bertelsmann Music Group and PolyGram Group Distribution--to supply this data. The price tag for each company: about $800,000 per year.

Though the remaining major companies were quite outspoken in their opposition to this new computerized system, all three--CEMA (which markets Capitol and EMI Records), MCA (MCA and Geffen) and WEA (Warner Bros., Elektra, Atlantic and Virgin)--will reportedly sign similar deals within the next two months.

And Fine and Shalett are now going beyond the record companies to sign up other subscribers.

* Radio: SoundScan signed an agreement in October with ABC Radio Networks to distribute regional weekly chart rankings of the top-selling singles and albums to more than 1,500 of the nation’s 10,000 radio stations. Jeff Pollack, chief executive of the Los Angeles-based Pollack Media Group, a leading worldwide radio consulting firm, thinks the ABC pact may be reflected in changes in what is played on the air.

“These guys have managed to put the credibility back into retail sales numbers and as a result, programmers are being forced to pay attention to Nirvana and other unknown bands that are proven sellers,” he said.

* Concerts: Last month, 12 of the nation’s largest concert promoters signed contracts with SoundScan to obtain regional sales figures on the top-selling acts in the markets where they put on shows. Cost: about $5,000 a year per company. Brian Murphy, president of Los Angeles-based Avalon Attractions, believes that SoundScan’s precise sales data gives promoters an edge in negotiating fees with touring acts.

“I now have the ability to make decisions based on how an artist’s album is selling this week, not what he was selling the last time he went on tour,” says Murphy, whose company produces about 350 major concerts a year on the West Coast. “I believe SoundScan may have the potential to change the entire ballgame.”

* Talent: Several major artists’ managers, including the New York-based McGhee Entertainment and C-Prime, have jumped on the SoundScan bandwagon too. Such talent agencies as William Morris have also recently expressed interest, as has Dick Clark, who just signed a deal with Shalett and Fine to help determine nominees for the 19th annual American Music Awards, scheduled to be broadcast Jan. 27 on ABC-TV.

“The numbers don’t lie,” Capitol’s Bowen says. “Take country music for instance. Garth’s domination of the pop charts is changing the status of country in the industry as a whole. All of a sudden, all these pop music record executives see Garth sitting on top of the charts ahead of Prince and Mellencamp for eight weeks straight and they’re saying to themselves, ‘Hey, I got to get me a guy like that.’ ”

This might be the year of SoundScan, but the idea of more comprehensive sales information began brewing in Mike Shalett’s mind at least four years ago.

As a radio programmer and record company promotion man in the ‘70s and early ‘80s, Shalett was fascinated by the charts--and how important they were in all facets of the record business.

Realizing the pitfalls in old charts, Shalett, 39, joined Fine, 48, a research analyst, in 1987 to form Sound Data, a marketing service that would provide insights into the buying habits of Americans. All of the major record companies and MTV subscribed to the system which told them such things as, say, the average age and sex of a Van Halen buyer.

The two men began discusing the idea for a computerized sales data system with record manufacturers and retailers in the fall of 1989.

“The TV and movie and clothing and grocery industries have taken this kind of information for granted for years,” says Fine, the president of a 60-year-old research firm that has conducted presidential election polls for CBS-TV for more than two decades. “We realized that there had never been an accurate method in the music business to track actual sales and we figured the time was ripe for change.”

In October, 1990, Shalett and Fine presented a plan to the record labels, offering to provide the industry with an exclusive computerized management system, but the labels balked at SoundScan’s hefty $7-million industrywide price tag. In an effort to encourage companies to subscribe, Shalett and Fine offered to provide the service free for a trial period.

SoundScan signed a deal with Billboard in March to license chart information to the trade journal for an undisclosed fee. After Billboard introduced the revamped pop album chart in May, SoundScan met with officials at the six major distributors and reduced the price of their service to less than $5 million.

But since its inception, critics of SoundScan have complained that the sales data provided has been over-priced and inaccurate. Because the figures sampled come almost exclusively from major retail chains and discount stores, companies that typically stock only proven sellers, critics say that albums by new and alternative pop artists--typically carried at independent record dealers--are being excluded from the tally.

Fine and Shalett acknowledged from the beginning that SoundScan’s weak link was its lack of mom and pop stores reporting to the system. To address the problem, they have nearly quadrupled the number of independent retailers reporting from 35 to 123. The firm has also recently signed a deal with Young Systems and Data General to provide data from an additional 270 mom and pop stores by 1993.

Last May MCA Records President Richard Palmese was one of SoundScan’s harshest critics. But Palmese--who trashed the system in May for being “flawed and outrageously priced”--now says his company is prepared to sign on.

“I caved in,” Palmese says. “They are still asking more money than I want to pay, but I must admit they have addressed many of my concerns in the past six months. Plus, the fact is that all my competitors will have access to these numbers before the turn of the year and I can’t be left out in the cold.”

It’s almost funny, some record officials admit now, just how the companies used to try to determine sales. “We’d ship ‘em out and what didn’t come back, we counted as sales,” one insider said. “The problem is it took months sometimes for the returns to start coming in and we often got caught up in our own hype. We thought all those records out there were selling.”

One industry bubble that was quickly burst by SoundScan was the idea that all No. 1 albums are equal.

Once the initial upset over their new Billboard methodology subsided, executives, managers, radio programmers and concert promoters began to see that the real number to watch was no longer No. 1, but the actual number of copies an artist sells during the week.

Whereas some mid-level acts such as Skid Row may creep into the No. 1 spot by selling 100,000 during a slow sales week, superstars such as Metallica and Guns N’ Roses can explode onto the charts with sales exceeding 600,000 in a week.

Epic Records’ multimillion-dollar campaign to promote Michael Jackson’s new “Dangerous” album succeeded in capturing the No. 1 position this week but actual sales for the album during its first week in the stores was only 326,500.

One of the biggest complaints about SoundScan in May was that the system would damage the careers of new and developing artists. But the subsequent chart success of such non-mainstream artists as Brooks, Ice Cube, N.W.A and Motley Crue has silenced most critics.

In fact, officials at successful independent record labels such as Tommy Boy and Priority Records are some of SoundScan’s biggest cheerleaders.

Tom Silverman, chairman of New York-based Tommy Boy Records, whose roster includes such rap stars as Naughty by Nature and Digital Underground, says SoundScan has become an integral tool at his company for initiating local artist development programs, compiling tour support and depicting and tracking local sales trends.

“Even though 20% of our sales come from mom and pop stores that don’t report to SoundScan, I am a major fan of this system,” Silverman says. “It did away with all that mysterious major record label hype. That’s history now. SoundScan allows independent companies like ours a chance to compete on a level playing field with the big guys.”

Silverman believes SoundScan data is indispensable not only because it allows him to target advertising campaigns in the territories where rap sells strongest, but because he thinks it will prove to be a powerful weapon in negotiating contracts with artists.

“Now when an artist’s manager comes to me and says, ‘Hey, I could sell more records on a major label, I can show them the numbers and prove it isn’t true,” Silverman says. “SoundScan has deflated all the hype. Now, when an artist on a small independent company like ours outsells somebody on Sony or Warner Brothers, everybody has the numbers.”

Cliff Burnstein, who with Peter Mensch co-manages Metallica and Def Leppard, believes the system also helps new non-charting artists because it provides management companies with data to pinpoint each transaction as it transpires across the nation. He recently used such sales data to entice MTV to increase video rotation for one of his new acts, the Queens, N.Y.-based White Trash.

“The figures allowed us to show MTV the size and loyalty of White Trash’s audience,” Burnstein says. “Even though they never registered on the charts, national sales of their record rose from 450 to 500 to 1,000 to 2,000 and we could prove it.”

Promotion men at several major labels have begun to use SoundScan sales reports to persuade radio programmers to add new records to their playlist.

“We don’t have to waste our breath any more trying to convince the guy that this is a hot band,” says Rick Bleiweiss, senior vice president of sales and distribution at Arista Records. “The SoundScan data enables us to say, ‘Here it is, check it out, look at these figures. People in this part of town who listen to your station are buying this record.’ ”

Not only are the major labels beginning to circulate SoundScan figures to the heads of promotion and marketing departments to enable them to tune into sales and airplay trends, but some officials predict that manufacturers may soon be able to use the information to reduce record inventory and save the recession-pinched industry millions of dollars a year.

SoundScan’s Fine and Shalett say they’re delighted with the industry’s acceptance of the system.

“We believe that SoundScan has brought the consumer and the record company much closer,” Shalett says. “When 1.3 million Guns N’ Roses fans come out in force to buy a new album, it says something to the industry. When Garth Brooks sells 150,000 copies a week for two months, you can hear the fans talking. Our system reflects the voice of the consumer and I think the industry is finally beginning to listen.”