Rap Battle: Deal Making Puts Two Labels at Odds

Lyor Cohen and Steve Gottlieb found themselves in uncomfortably close quarters last summer in the cabin of a seaplane on the way to the Hamptons from Manhattan.

Cohen, chairman of Universal Music Group’s Island Def Jam division, engaged in a bit of industry gossip with Gottlieb, owner of an independent label. Gottlieb, however, was eager to raise another topic: his plan to release an album featuring rap star Ja Rule, one of Cohen’s marquee acts.

The Universal executive begged off business talk, saying the plane ride was too bumpy. But later that weekend, when the two met up again at a baseball field where Cohen’s son was playing in a game, Cohen was ready to lay out his position: He would not give Gottlieb’s TVT Records permission to release the album, even though Gottlieb had spent about $1 million on recording and marketing.

The ensuing legal turbulence landed Cohen in what he called “the nastiest, most negative place I’ve been in, in a very long time” -- a Manhattan federal courtroom, where a jury last month found Cohen and Island Def Jam liable for fraud and wrongful interference with a contract in connection with TVT’s planned album.

Jurors are scheduled to meet Monday to begin deciding damages. TVT is expected to seek a judgment in the tens of millions of dollars.

The case stands out as an anomaly in the insular record industry. Major labels typically choose to settle even the most fractious financial disputes to avoid public trials that could put executives on the spot. The testimony and documents in TVT Records vs. Island Def Jam Music Group provide a rare and unusually detailed look at deal making in a business in which players flirt with, and sometimes poach, their rivals’ prime artists.

The trial and verdict dealt a heavy blow to Cohen. The judge in the case later ruled that jurors reasonably could have discredited some of Cohen’s contentions based on “inconsistencies” in his testimony. The courtroom defeat comes at a time when his flagship Def Jam Recordings is on track to post its worst sales quarter since Universal Music acquired it four years ago. Once a powerful engine for Universal, Def Jam has just a 2.1% share of current U.S. sales so far this quarter.

In court, Cohen testified that he rebuffed Gottlieb on the Ja Rule album to protect Island Def Jam from a raid on its talent. Yet Cohen himself hasn’t been shy about fishing for acts committed to someone else.

In fact, Cohen invited Ja Rule to a meeting when the rapper was still under contract to TVT in the mid-1990s, court records show. And Sean “P. Diddy” Combs has accused Cohen of underhandedly luring R&B; act 112 from his Bad Boy label.

Asked whether he had stolen 112 from Combs -- who eventually reached a profit-split deal with Universal for the act -- Cohen told the Financial Times last year: “It depends on the definition of stealing. I’m a carnivore, I’m not a vegan. I’m a predator.... All I’ll say to Bad Boy is if you haven’t nailed it down, expect for it to be taken.”

Hooked on Rap

Standing 6 feet 5, with close-cropped hair and ice-blue eyes, the 43-year-old Cohen is considered one of the most aggressive players in the $30-billion global music industry. The American-born son of Israeli parents, he spent his early childhood in Israel; once in Los Angeles, he started his music career as a club promoter and got hooked on rap.

Entrepreneur Russell Simmons hired him as road manager for rappers Run-DMC in the mid-1980s and later made him a partner at his fledgling Def Jam label. There, they pioneered new strategies for promoting underground records, plastering the urban world with posters and other come-ons, before selling the label to Universal Music for more than $100 million four years ago.

Gottlieb attended Harvard Law School, ditching his legal career in favor of the music business. His first record, a mail- order compilation of TV show themes, launched his Tee Vee Toons label -- known as TVT -- which later discovered industrial rockers Nine Inch Nails and today generates tens of millions of dollars a year in sales. The ponytailed Gottlieb, 46, is known as a litigious and fiercely independent executive.

Ja Rule, whose real name is Jeffrey Atkins, had been signed to Gottlieb’s TVT label in 1994 as part of a rap trio called Cash Money Click. (It has no relation to Cash Money Millionaires, another rap act).

Cash Money Click’s career went sideways when one member went to prison. TVT dropped Ja Rule from its roster. Irv Gotti, then a TVT-affiliated producer, steered the rapper to Def Jam, where Ja Rule became a star and generated three hit albums before the recent lawsuit -- with the third selling an estimated 3.6 million copies.

And Gotti’s success in scouting talent persuaded Def Jam to finance his start-up label, Murder Inc.; Def Jam owns a 50% stake in the label, where Gotti is chief executive and Cohen sits on the board, according to court records.

(Murder Inc. is the subject of a federal investigation of alleged financial ties between the label and a convicted drug kingpin.)

In 2001, TVT thought it was time to revive Cash Money with an album featuring new material from Ja Rule. Because Ja Rule had an exclusive deal with Def Jam, TVT needed the bigger label’s approval.

Cohen said in court that he hated the idea from the start. But the usually decisive boss said he decided not to dismiss it outright, to keep from offending either Ja Rule, who wanted to perform on the album as a favor to his former partners, or producer Gotti, who planned to work on it.

‘A High-Wire Act’

Island Def Jam was then entering talks to renew its joint-venture deal with Murder Inc. and was approaching a new contract negotiation with Ja Rule. So TVT’s pursuit “had put me in a position where I had to perform a high-wire act,” Cohen said in court papers.

One part of the act: Knowing TVT planned to advance Gotti $200,000 for the other Cash Money artists once an album deal was in place, Cohen paid that sum to Gotti directly to relieve the “pressure” Gotti was feeling to sign the deal.

Cohen went so far as to allow Def Jam lawyers to discuss a profit-sharing deal for the Cash Money album with TVT. In the summer of 2001, lawyers for the two labels hammered out the terms: TVT would receive 40%, Def Jam 30% and Gotti and Ja Rule 30%. By September 2001, drafts of the contract were flowing off fax machines.

Gottlieb testified that Cohen called him just before Labor Day and, after a final discussion about the terms, agreed on the phone to the deal. Days later, Gottlieb said, he ran into Cohen at an MTV awards show and thanked Cohen for his consent.

Cohen acknowledged having a discussion with Gottlieb to finalize terms but denied ever saying they had a deal.

In October, Island Def Jam’s head of business and legal affairs, Jeffrey Kempler, signed the profit-sharing contract -- though the company never sent a signed copy to TVT. But the independent label sent Def Jam a letter saying it was relying on “assurances” that the deal was done and advanced Gotti $400,000 to start work.

By mid-November, Def Jam had nearly completed the accord to extend its venture with Murder Inc. for five years.

Once that pact was sealed, Jonathan Lieberman, an in-house Def Jam attorney, asked Cohen whether he should also “close the TVT deal” so Def Jam could recoup the $200,000 it had advanced to Gotti.

Cohen responded with a terse e-mail: “No ... wait.” At the time, Def Jam was entering months of negotiations with Ja Rule over delivery of his fourth album.

On the stand, Cohen said he was waiting to see whether Gotti might lose interest in the Cash Money album, or whether Gottlieb might abandon it -- neither of which happened.

All along, TVT was spending money on the Cash Money project, which it anticipated releasing in November. A photo shoot in early 2002, for example, cost about $100,000. Even Def Jam took steps that seemed supportive of the project.

Cohen said that, to him, the prospect of a Cash Money album seemed to evaporate, although an internal Def Jam e-mail produced in court indicated that he was inquiring about the TVT deal in mid-April.

Material From TVT

The Cash Money album was advertised on a CD from singer Ashanti, one of Cohen’s biggest sellers of the year. And Def Jam and Murder Inc. released an Irv Gotti CD and DVD that included a new Cash Money song and a TVT-financed music video from the act’s earlier days -- material TVT said it wouldn’t have contributed if it knew Def Jam would reject Ja Rule’s participation in the Cash Money album.

During the trial in Manhattan, Gottlieb said he approached Cohen on the seaplane to the Hamptons last summer because he had heard through a TVT executive that Cohen was planning to say no.

Gottlieb said what he heard from Cohen on the plane was worse: Def Jam was planning to release a Ja Rule album.

“I told him, you know, we have a deal -- we had a deal -- and you can’t do this,” Gottlieb said.

Cohen testified that he didn’t recall the specifics but remembered telling Gottlieb, “Don’t spend any advertising. You are not going to release it.” He said Gottlieb’s response was to threaten to distribute its old Cash Money recordings, which Cohen said would have damaged Ja Rule’s image. Gottlieb denies making such a threat.

In mid-August, Cohen’s label wrapped up its contract talks with Ja Rule to secure the fourth album. The deal included a provision in which Def Jam agreed to reduce the number of albums the rapper was required to record if he could obtain rights to the Cash Money recordings and deliver them to Def Jam.

Within days, Def Jam sent TVT a letter to “confirm” that it wouldn’t waive rights to the rapper, officially blocking the Cash Money release.

Gottlieb filed suit a few days later.

Cohen insisted in court that there was no connection between Def Jam’s closing its Ja Rule contract and its formal rejection of the Cash Money arrangement.

“None whatsoever, totally irrelevant,” he said.

Def Jam and Murder Inc. threw their machinery into gear to crank out new music from the rap star. In September, Gotti camped out in the studio, completing the album in just two weeks. He intended to include three songs recorded for TVT’s Cash Money album, but that plan was scrapped as the legal dispute boiled.

Def Jam released the album, “The Last Temptation,” on Nov. 19. According to Nielsen SoundScan, it has sold about 1.4 million copies -- solid for most artists but disappointing given Ja Rule’s previous sales and Gotti’s expectations. The rapper recently accused Def Jam of failing to promote him properly.

As for the Gottlieb-Cohen dispute, Gotti called it “a David and Goliath thing.”

“I would like it if it wasn’t like that,” he said. “If they could have just sat down and worked something out.”