It's the battle of the boy bands.
A simmering rivalry between 'N Sync and Backstreet Boys, two hot-selling teen groups, has erupted into one of the music industry's biggest and most complex brawls. It involves two record companies and a pop-music impresario. And beneath the din of screaming teens, control of the two bands and millions of dollars in profits from their red-hot albums are up for grabs.Battling over rights to 'N Sync are Bertelsmann AG's BMG Entertainment, the world's second-biggest record company, and Zomba Recording Corp., the biggest independent music company. Until now, the two have been tight. Bertelsmann owns 20 percent of Zomba, distributes its records in North America and counts on Zomba for nearly a third of BMG's market share of current albums.
In the middle of it all is Louis J. Pearlman, chairman and chief executive of Trans Continental Records Inc., the man who founded 'N Sync and Backstreet Boys. At various times over the past 18 months, he has been locked in struggles with both bands over money issues.
The battle started to heat up this past summer, when 'N Sync and Mr. Pearlman were arguing over his take of the band's revenue. In 1996, Mr. Pearlman had signed the band to a recording deal, and his company, Trans Continental, then signed a worldwide distribution contract with a Bertelsmann subsidiary in Germany to deliver five albums.
With Mr. Pearlman quarreling with the band, BMG worried about that record deal, and the band's possible defection from its RCA label. So on a steamy weekday in mid-July, Strauss Zelnick, BMG's chief executive, spent several hours in a Times Square hotel room with the five young members of 'N Sync and Mr. Pearlman, trying to smooth over their financial differences. But a few weeks later, the band ended up signing a new recording deal with Jive, a Zomba Records label.
That presented BMG's Mr. Zelnick with a new problem: A knockdown fight with Zomba to keep 'N Sync could end up damaging another important relationship the two companies had. Specifically, BMG has been Zomba's North American distributor for years, but Zomba can terminate the distribution deal next year. Angering Zomba over 'N Sync could thus cause BMG to also lose lucrative distribution rights to the rest of Zomba's lineup, which includes stars like Britney Spears.
On top of that, the move of 'N Sync to Jive has prompted the Backstreet Boys to try to terminate their own deal with the label, music industry executives say. The Backstreet Boys, who are known to regard 'N Sync as a knockoff band, worry that Jive simply won't be able to provide the same attention and promotion it did before it added 'N Sync, the executives add.
Both quintets croon the same type of syrupy tunes that light up wide-eyed girls and CD sales. The Backstreet Boys' eponymous debut album has sold 8.6 million copies, and its second album, Millennium, has sold 6.2 million copies since May. 'N Sync has sold nearly seven million copies of its first album, released last year, Soundscan estimates.
As the fight escalates, the record companies both claim to have 'N Sync currently signed. A spokeswoman for Zomba wouldn't comment on the dispute but said that 'N Sync has indeed joined the Jive label, which will provide "priority treatment" for both groups. Jeff Kwatinetz, a co-manager of the Backstreet Boys, declined to comment.
Bertelsmann declined to comment, other than to say that 'N Sync "is a BMG act and we protect our rights vigorously." BMG and Zomba are currently in negotiations to head off litigation, say several people with knowledge of the situation.
Zomba has quietly become a major power in the music industry since its founding 20 years ago by South African-born Clive Calder. The Zomba chairman and chief executive built up Jive by acquiring low-profile labels and signing hit artists.
While its growth has benefited Bertelsmann, Zomba has gradually been taking back more control of its business. Until 1996, for instance, Bertelsmann had handled much of Zomba's international distribution, a business Zomba has since regained.
How these multiple conflicts will be resolved isn't clear. For BMG, one potential solution is to let Zomba keep 'N Sync in exchange for extending Zomba's distribution deal with BMG. But distributing another company's music would garner BMG much less money than releasing an album through a fully-owned label.
Though Zomba won't comment, some in the industry believe Mr. Calder may hope to use the dispute to find some way to buy back Bertelsmann's 20 percent stake in Zomba. Or he may simply have his eyes on the profits expected from the next 'N Sync album, now being recorded. The band's eponymous first album, with 6.9 million copies sold, made it one of the biggest acts on Bertelsmann's RCA label. And the next album is expected to be another huge hit, though its release date is unclear.
Meanwhile, Mr. Pearlman himself has issues to work out with 'N Sync, much as he did with the BackStreet Boys. Last October, Mr. Pearlman's Trans Continental settled a lawsuit filed by the Backstreet Boys that claimed the company took too big a share of its revenue. As part of the settlement, however, Mr. Pearlman's company continues to earn a percentage of the band's revenue.
The deal signed by Trans Continental with 'N Sync gave the company a share of the band's recording, merchandising and music publishing revenue, as well as management commissions -- totaling about two-thirds of the band's revenue, according to a person familiar with the situation.
Trans Continental paid for the group's dance lessons and housing and even "gave them grocery money to live on," said Michael Friedman, Trans Continental's attorney, acknowledging that the company gets "reimbursement on their extraordinary expenses" in developing the group.
Three months after the Backstreet Boys settled their lawsuit against Trans Continental, 'N Sync's members, who range in age from the late teens to the early 20s, hired a lawyer to look over their agreements with Trans Continental. Several months of negotiations followed without resolution.
In May, 'N Sync's lawyer, Adam Ritholtz, told Trans Continental that he was terminating the agreements, according to people familiar with the discussions. Mr. Ritholtz claimed the company hadn't fulfilled its obligation to get the group a U.S. record deal, and argued that the deal with a Bertelsmann subsidiary of Germany didn't qualify as a U.S. record deal. People familiar with the discussions say Mr. Ritholtz argued that because Trans Continental hadn't fulfilled its obligations, the band had the right to sign a new deal with Zomba's Jive label.
"Its absolutely absurd," counters Mr. Friedman, the Trans Continental attorney. "You are talking about a group that became one of the best and most successful groups in the world through the efforts of Trans Continental, BMG and RCA." He adds, "You can't get rich and famous and then say, 'I'm finished with it' and say, 'I'm walking away.' "