It's official: Meet pop music's new Dream Team. Jive Records' lineup of sluggers, already anchored by the Backstreet Boys and Britney Spears (who posted the No. 1 and No. 2 selling albums of 1999, respectively), just landed more firepower. Empowered by a preliminary victory in Orlando federal court last month, `N Sync announced an out-of-court settlement on Wednesday with their old record company, which clears the way for the five boy wonders to join Jive's roster of pinup stars. (Terms of the deal were not disclosed, but the agreement rules out a full-blown, tug-of-war trial over the group.) Combined, the three mega-platinum acts of `N Sync, BSB and Britney are among the biggest in the business. And all three plan on releasing new Jive albums next year. First up will be `N Sync's latest, No Strings Attached, due in stores on March 7.

It was the release of that record, and the contentious battle over which label would profit it from it, that set off the music industry's nastiest legal skirmishes in years. The showdown featured `N Sync and Jive up against the group's former business partners, Trans Continental Records and its larger worldwide partner BMG (owners of RCA Records). The boys claimed that they had been exploited and betrayed. Their counterparts insisted that the five `N Sync members were ungrateful and greedy, arrogantly walking away from a binding contract. As one of the many lawyers involved summed it up in court, "This case is about nothing, nothing but money."

For fans to fully understand the nearly year-long behind-the-scenes battle, they have to go back to the early spring when `N Sync, coming off sales of nearly ten million albums in America and generating $300 million in revenue worldwide, began renegotiations discussions with their record company, Trans Continental. The wrangling limped along for months until the increasingly frustrated members of `N Sync -- Justin Timberlake, Joey Fatone, Lance Bass, Chris Kirkpatrick and J.C. Chasez -- decided to terminate their Trans Con deal and sign on with Jive.

"They got to the end of renegotiations, they didn't like what they were getting, so they played the termination card," said Trans Con lawyer Michael Friedman, prior to the settlement announcement. He insisted that Trans Con and BMG were more than willing to enrich the group's contract so it reflected their superstar status (i.e. increase their royalty rate, give the group more money up front for each album).

If the talks were a game of chicken, said `N Sync manager Johnny Wright, then Trans Con and BMG executives "didn't think these five [`N Sync] guys had the balls to go through with it."

It seems the brass at Trans and BMG were not alone. `N Sync's move was a stunner for most industry observers, who racked their brains trying to remember the last a time superstar act terminated its label deal and signed on with another. Back in 1991, for instance, Aerosmith announced they were leaving Geffen Records even though they still owed the company two more albums. But after a gaggle of lawyers sat down to hash things out, there was never any doubt the band would fulfill their Geffen deal and then exit for Columbia Records. And that's how the vast majority of record label contractual standoffs are settled: over conference room tables, not inside courtrooms.

Two men doubly stunned by `N Sync's autumn defection were Lou Pearlman and Strauss Zelnick. Pearlman is the founder of Trans Con and the self-styled Berry Gordy of Orlando who helped create and market the Backstreet Boys, `N Sync, LFO, Five, and C-Note. The powerful hitmaker found out through the press that `N Sync had signed to Jive. "That hurt," says Pearlman, who insisted he would have let the boys walk to another label, as he did the Backstreet Boys, as long as he was fairly compensated. "You don't just walk away from a deal." Zelnick is the music boss at BMG who not only stepped in last May in hopes of hammering out an agreement between Pearlman and `N Sync, but also enjoys close business relations with Jive's parent, Zomba Recording Group, the industry's largest independent music company. BMG owns twenty percent of Zomba, and has distributed the company's records in North America. That made news that Jive planned on running off with one of BMG's biggest acts all the more upsetting. "He was furious," says one of Zelnick's colleagues. "On a scale of one to ten, I'd say it was a ten."

Trans Con and BMG soon joined forces and filed a $150 million breach of contract suit and asked a judge for an injunction to stop what BMG attorney Steven Hayes labeled the group's "renegade act, which is wholly improper under the standards of the music business or any business, [and] should be stopped." Hayes argued that if `N Sync were allowed to walk, other recording artists would interpret that it as "open season" and "simply ignore their contractual obligations." (Artists certainly have been paying close attention; after reading about the `N Sync case this summer, pop singer Christina Aguilera made inquiries about the specifics of her BMG deal.) `N Sync's lawyer, Adam Ritholtz, called that claim nonsense. "The fantastic claim that all artists are going to walk away from their deals is ridiculous. The facts are highly unique to this case."

In this complex and messy squabble in which virtually every fact was disputed, from central questions like how much `N Sync members have earned to trivial accounts of who came up with the unique spelling of `N Sync, perhaps the only statement both sides would agree on is that the facts in this case are highly unique.

The basics are that in April of 1996 the five members of `N Sync signed on with Pearlman's Trans Continental, which was essentially a production company. He agreed to secure the boys a label deal. Finding no interest among American record companies (including Jive), Pearlman, as he had done with the young Backstreet Boys, signed a deal with a European company, BMG's German affiliate, Ariola. But beyond those basic facts of the story, both sides have disagreed passionately.

`N Sync claimed their `96 agreement specifically called for Trans Con, within eighteen months of signing the group, to land them an American record deal. That summer Pearlman told members that they had been signed a "superstar" deal with BMG's RCA Records. But although RCA released the groups two albums here, it turns out `N Sync were not actually signed to RCA. Instead, RCA, as is common among multi-national conglomerates, licensed `N Sync's records from its German counterpart, Ariola. Consequently, band members got paid in Deutsche marks and were subject to fluctuations in the currency exchange rate. And because `N Sync were signed internationally, royalty payments were slower in coming than if the group were signed with a U.S. company. It all added up, argued `N Sync's lawyers, to a breach of contract.

On top of that, the boys claimed the group's original contracts with Trans Con were drastically unfair, allocating far too much money and control to Pearlman, and that the group had no choice but to seek relief elsewhere. "The overview, the combination of documents, is just breathtaking in its aggressiveness," says music industry attorney Jill Berliner. She does not represent `N Sync, but she did file court papers on their behalf, arguing, as an expert witness, that the band's Trans Con deals were "classic contracts of adhesion imposed upon an uncounseled and unskilled, highly susceptible group of teenagers." She notes that if `N Sync had been signed directly to an American record label (instead of being licensed through Germany), the Trans Con deals would have been tossed out and rewritten. "No U.S. executive I know would have allowed these contracts to exist," she says.

Specifically, `N Sync claimed Pearlman, through a web of deals, pocketed the group's advances from the record company, took eighty percent of the group's merchandising money, seventy-one percent of the touring money and fifty percent of royalties, while the whole time earning a commission of band profits as their manager. (Typically, managers pocket between ten or twenty percent of their acts' profits. For a manager to earn a portion of royalties on top of that is highly unusual.)

Trans Con's Friedman said hindsight was 20/20. "When you're claiming a deal is unconscionable, you have to evaluate that when `N Sync entered into the agreement nobody wanted to sign this group. This group was shopped around and only one or two companies wanted to invest in them, Trans Con and BMG. Four years later, any label would pay them a fortune because they're at superstar status."

Also, back in November, Pearlman argued that during the group's struggling salad days, "I paid the bills. I gave them a house; I paid their living expenses, for vocal coaches, choreography. I didn't hear anybody talking back then that [the deals] weren't fair. For the next three years they weren't unfair. I was out three million dollars. As soon as the money comes in, 'Oh, we weren't signed two years ago to a U.S. record company.' I mean gimme a break. What were they saying back then? They said they loved BMG."

At the crucial court hearing held the day before Thanksgiving, Trans Con lawyers quickly tried to turn the attention away from Pearlman and his dealings. "We are not asking your honor to decide that Lou Pearlman is a wonderful guy," Barry Brett told Judge Anne Conway. "We think Mr. Pearlman is a very special gentleman who is responsible for these five young men and a lot of other young men having become millionaires." Brett argued that a jury could one day decide whether or not `N Sync's Trans Con contracts were unfair. But until that trial took place, the group should be barred from jumping to Jive.

However, Judge Conway, who peppered Trans Con and BMG lawyers with dozens of questions, seemed very interested in Pearlman's transactions and the amount of money he'd earned off `N Sync, a figure which remains a mystery to this day. After listening to seventy minutes of oral arguments, she declined to issue an injunction against `N Sync. "I don't see any reason as to why the defendants can't go forward," she commented from the bench. "There are just too many questions of fact as to Mr. Pearlman and his dealings with them."

The judge's curiosity about Pearlman was a crucial turning point in the proceedings. Trans Con and BMG argued that `N Sync members have been paid seven million dollars to date, a handsome amount that didn't square with the group's claim that they had been "virtual indentured servants." But how much had the two record companies, along with Pearlman, earned off `N Sync? Ten million? Fifty million? 150 million? That kind of information would put the group's earnings in some perspective.

And perhaps that was one reason Pearlman, who earlier insisted on a full trial to clear his name, eventually settled with Jive out of court. Did Pearlman, who appeared rather uncomfortable in the Orlando courtroom, sitting twenty feet away from the `N Sync members who used to call him "Big Poppa," really want to take the stand and answer pointed questions under cross-examination about his `N Sync bounty. And how would a jury react if earnings dwarfed that of group members?

The judge's comments from the bench sent a clear message to both parties. First, that `N Sync could go ahead with plans for releasing No Strings Attached (get it?) on Jive, and that if Trans Con and BMG wanted to push on for a full trial to determine whether or not Jive unfairly stole the group away, they could. However, she noted that trial might not take place until 2001 or 2002. Instead, she urged the two sides to come to an agreement. On Wednesday, they did. And while neither side is talking specifics, odds are Jive, in exchange for taking `N Sync, will pay Pearlman and BMG some sort of compensation, or make sure they continue to profit in some way from `N Sync's future success.

The mini-courtroom drama, complete with placard-waving `N Sync fans who gathered on the steps of the court house, and a dejected RCA president Bob Jamieson watching from the gallery inside, marked a stunning legal victory not only for the band, but also their record executive in shining armor, Clive Calder. He's the press-shy founder of Zomba Music, and the clear winner in this high-stakes gamble. Over the summer, when none of the other five major labels would touch the group and their controversial contract beefs, Calder boldly signed them to a deal.

"He's not one of the Big Five," notes one influential music industry attorney, explaining how Calder and Zomba's independent status helped him. "He's not in that gentlemen's club. What happens is the Big Five get together and talk to each other and say we need to run the business, not the artists. He's a maverick and he empowered `N Sync." Adds Berliner, "He took a huge risk, and it's going to pay off."

Calder's daring gambit did momentarily threaten Jive's relationship with its cornerstone act, the Backstreet Boys. They were reportedly unhappy sharing the spotlight with `N Sync and threatened to bolt to another label. But in November, when Jive agreed to sweeten the Boys' contract for the second time in less than a year, the squabble, to nobody's surprise, was quietly resolved. ("It was a classic case of posturing," suggests one industry exec.)

As for the BMG and Zomba relationship, their distribution deal was set to expire in early 2000. But as part of the settlement, Zomba will renew its deal with BMG for another year, in return for BMG and Trans Con dropping their lawsuit. The pact is crucial to BMG's bottom line since Zomba is the hottest label in the business right now. And if BMG can't have `N Sync directly, they want to at least profit, however marginally, from distributing the group's records.

Remember what the attorney said in court? "This case is about nothing, nothing but money."

ERIC BOEHLERT
(December 29, 1999)