BMG Loses as ‘N Sync Fans Buy, Buy, Buy

Bertelsmann made music history today with the record-busting debut of ‘N Sync’s “No Strings Attached” album.

The album sold a whopping 2 million copies during its first week out--twice as many as any other recording since SoundScan began monitoring music sales 10 years ago.

But obliterating the industry standard must seem like a Pyrrhic victory for the German conglomerate. Bertelsmann Music Group, which originally controlled the pop group’s fortunes, has been reduced to merely a distributor of this recording. BMG stands to lose more than $30 million in profit on the album.

Bertelsmann Music Group was forced to relinquish control of ‘N Sync’s career last year after a court rejected its attempt to stop the group from breaking its contract with BMG’s RCA division. ‘N Sync left BMG to sign with Zomba Group’s Jive Records label.

The legal battle ended in an out-of-court settlement that cost BMG about $4 in profit for every ‘N Sync album sold in the U.S. and about $7 per album overseas, sources said. ‘N Sync’s last album sold more than 10 million copies globally.

Under the out-of-court settlement, Zomba agreed to pay BMG a mere 70 cents per album, sources said. Zomba will also pay BMG $1 per record to distribute ‘N Sync’s music in the U.S. (In exchange for the out-of-court settlement, Zomba agreed to extend its previous arrangement with BMG to distribute all of Zomba recordings in the U.S. until January, sources said).

Music executives at BMG and RCA were unavailable Tuesday. Keith Estabrook, vice president of corporate communications for BMG, said the conglomerate was glad to put the legal dispute behind it.

“The situation in the past may not have been a pleasant one, but the resolution is fine,” Estabrook said. “As the distributor for Jive, ‘N Sync’s record-breaking sales are highly profitable for BMG, and we’re very happy about it.”

Not everyone is so ecstatic. Employees at BMG’s RCA division, who helped market ‘N Sync’s previous album and set up “No Strings Attached” were said to be “in mourning” about losing the group. The mood at RCA turned particularly sour last Tuesday after ‘N Sync fans started lining up for the group’s launch party at the Virgin Megastore on Broadway directly below RCA’s New York headquarters.

“We could hear the fans screaming outside the window all day and night as they blocked traffic in the street below,” said one RCA employee. “It was like a knife twisting in our hearts.”

RCA’s relationship with ‘N Sync began deteriorating eight months ago after the pop group had a falling out with the management at its original label, Trans Continental, which had signed a distribution and licensing deal with BMG.

BMG global music chief Strauss Zelnick stepped in last July to help, but apparently upset ‘N Sync by making several comments that the group felt were insulting, sources said. In August, RCA and BMG deepened the dispute by encouraging ‘N Sync to speed up delivery of “No Strings” so the album could be released during the holiday season.

As a result, the group began taking meetings with BMG’s rivals and signed a deal with Zomba several months later. After BMG threatened to sue Zomba, the company’s founder, Clive Calder, proposed a deal under which BMG and Zomba would share profits from the next two albums in the U.S. BMG would also gain the licensing rights to ‘N Sync product overseas, sources said.

But Zelnick rejected the offer, and BMG sued Zomba and the band, claiming breach of contract. Zelnick began scrambling to mend his relationship with Zomba, however, after a court rejected a motion by BMG to stop ‘N Sync from performing under its name and from releasing its next album on Zomba before the case went to trial. BMG backed off its hard-line stance and began talks to allow Calder to keep ‘N Sync on Zomba’s roster in exchange for a one-year extension of Zomba’s distribution deal with BMG. “No Strings Attached” is projected to sell more than 10 million copies worldwide.