LOU PEARLMAN The kids should take a step back and say, ‘How did I get here? Who took the risk? Who put up the money? Who is my real Big Papa?’

CHRIS CUOMO (VO) The Backstreet Boys didn’t exist as a group before they met Lou. Three of the teenagers, AJ, Nick and Howie came from Florida. The other two, Kevin and Brian, were raised in Kentucky. In this rare footage, we can see what they looked like before Lou turned them into his first boy band.
What is the touch?

LOU PEARLMAN I think I’m a great cultivator. And these guys are my family. I put the money out to help them where they don’t have to worry about their jobs. They don’t have to worry about school. We provide tutors, we give them choreographers, we give them vocal lessons.

CHRIS CUOMO (VO) Pearlman, an accountant from Queens, New York, belongs to a family that made its fortune chartering jets. Strangely enough, it was a plane charter that introduced Lou to his music business future. In 1991, Pearlman chartered a plane to the hit group New Kids on the Block. The group dazzled him.
Tell me about when you met New Kids on the Block, tell me what went through your mind?

LOU PEARLMAN I didn’t know who they were. And I questioned how could these kids afford an airplane? And I was told these kids did $200 million in record sales and $800 million in touring and merchandising. I was thinking, ‘I’m in the wrong business.’

CHRIS CUOMO So what did you do?

LOU PEARLMAN I said, ‘I think I can do that. I think I can put a group like that together.’

CHRIS CUOMO (VO) It was seven years ago that Lou Pearlman decided to open a finishing school for boy bands in Orlando, Florida. For his part, he put up the money. He paid the boys’ rent. He provided food and clothing allowances. And he provided coaches, working seven days a week, sometimes 12 hours a day. The boys were taught how to dance, harmonize and work the crowd. Finally, Pearlman gave his boys a name, the Backstreet Boys. Initially they fizzled. Record labels allegedly said no thanks after viewing this audition tape of the Backstreet Boys. That was in 1993. But Pearlman was relentless. He took the group to Europe, where they became stars, returning to the US in a blaze of glory. And going on to sell in excess of 50 million records. To me, this sounds like a success story in itself, but Pearlman wanted more. Lots more. He saw the Backstreet Boys as merely the first product to come off the assembly line.

LOU PEARLMAN If you go to General Motors, they have Cadillac, Oldsmobile, Chevy, Pontiac, Buick, all basically similar in certain respects, but different than others.

CHRIS CUOMO (VO) While the Backstreet Boys were on the road, Pearlman was secretly developing another boy band. To their surprise, his sons were about to get some younger brothers. Pearlman’s new brood was called N’Sync. N’Sync’s debut album was a smash hit, selling a whopping 10 million copies. I was very interested in seeing Pearlman in action and was delighted to accept his invitation to visit him in his element.

LOU PEARLMAN Hi, what’s your name?

CHRIS CUOMO (VO) Auditioning young talent for an ABC television series documenting the making of a boy band. Look at how many aspiring pop stars were willing to sleep outside just for the chance to audition for the maestro.
What are you looking for?

LOU PEARLMAN You need to have the young kid that definitely has the cute look, that the young girls are looking for. The older guy, has to have that older image. It’s great to have someone Latino, give some extra flavor to it. Or one guy has to have that GQ look.

CHRIS CUOMO What was your dream in coming here today?

BOURKE FLOYD Lou Pearlman could just, on a whim—on a whim change anyone’s life here.

CHRIS CUOMO It’s going to take somebody like Lou Pearlman to make Bourke Floyd famous.

CHRIS CUOMO Doesn’t sound too promising.

LOU PEARLMAN (VO) OK. Thank you. We’ll keep you posted.
I’d like people to see that the Backstreet Boys weren’t, ‘Poof, you’re the Backstreet Boys.’ ‘And, poof, you’re N’Sync.’ I want people to see how hard it is.

CHRIS CUOMO Billboard magazine’s Chuck Taylor:

CHUCK TAYLOR Pearlman is the guy that ultimately gets the credit for N’Sync and the Backstreet Boys being as world famous as they are. The boy bands are his vehicle. They are his product. That does not mean that they are being fairly paid.

CHRIS CUOMO (VO) Perhaps it is this bands-as-product mentality that led to Lou’s recent trouble. If Lou’s idea was to clone the Backstreet Boys and create a lot of boy bands, his older sons weren’t having it. The Backstreet Boys’ former manager Donna Wright is in her own financial dispute with Lou and says the cloning was a problem.

DONNA WRIGHT The boys were very upset. I mean it got emotional. And they were hurt, you know. They felt that they were being betrayed by bringing in another group just like them to do this.

CHRIS CUOMO (VO) Lou’s cloning opened the Backstreet Boys’ eyes to the fact that a lot of money was coming in but not going to them. When they had their contracts reviewed, they say their worst fears were realized. Big Papa was milking them dry.

JORDAN KELLER, THE BACKSTREET BOYS ATTORNEY I had not seen any contracts in my opinion that were as oppressive to the artist as this overall situation that he created. And it goes beyond the industry’s customs to the point of being absurd.

CHRIS CUOMO Meaning what?

JORDAN KELLER What’s left is these five guys have to divide 25 cents as opposed to dividing 75 cents. So that’s when you start to see that it isn’t fair.

CHRIS CUOMO You may not have exploited them because you gave them an opportunity, but you made sure that you had your hand in every pocket that cash was going to go into.

LOU PEARLMAN I don’t think people understand what we took. We only took what we deserved, and that was from the record side, the touring and merchandising side.

CHRIS CUOMO So what is fair? Music industry practices suggest that a manager like Lou Pearlman is entitled to a commission as much as 25 percent of all money made by a band. Lou Pearlman takes 25 percent. But the band insists this commission was only the beginning.
(VO) N’Sync had learned from their older brothers’ trouble and left Lou after discovering similar problems with their contracts. N’Sync attorney Helene Freeman.
What made N’Sync become suspicious of their situation with Lou Pearlman?

HELENE FREEMAN They had told millions and millions of records.
(VO) They had received, literally, next to no money. Pennies.
So, I mean, as one mother said to me ‘How successful do you have to be in this business before you make money?’

CHRIS CUOMO And how much had they received each?

HELENE FREEMAN With respect to recording, they had each received about $37,500.

CHRIS CUOMO (VO) However, Lou says that’s all they had earned in 1998 before they hit it big.

HELENE FREEMAN (VO) When a dollar came in, if it was a record dollar, he took 25 percent off the top. If it was a merchandise dollar, he took 30 percent off the top.
If it was a touring company, he took 30 percent off the top.
(VO) And then he said, ‘OK, now we’ll go to the formula here that’s in the agreement. And you get 50 cents of what’s left and I get 50 cents of what’s left.’
This is not standard in the industry.

CHRIS CUOMO (VO) And in a move the bands say added insult to injury, Pearlman insisted he was a member of each band. Normally band profit would be split five ways. In these cases, the money was divided into six equal shares. Number six being Lou Pearlman.

DONNA WRIGHT He would be like, I’m the sixth Backstreet Boy. Well, the boys thought it was a buddy thing until they actually saw the work and realized, ‘Oh, OK, we have to split six ways here.’

CHRIS CUOMO (VO) In his defense, Pearlman says his initial investment required him to take enormous risks entitling him to a larger return.

LOU PEARLMAN If the Backstreet Boys didn’t work, I would have eaten the buck. And it was a lot of money that I put up.

CHRIS CUOMO How much?

LOU PEARLMAN By the time I saw dollar one coming back, I had $3 million out.

CHRIS CUOMO (VO) In October 1998, the Backstreet Boys settled with Lou out of court. No terms were disclosed. But Pearlman will continue to receive a portion of their earnings. His older boys have moved on. And his relationship with them has all but ended. And Pearlman’s relationship with N’Sync isn’t much better. In court documents, JC called Lou an “unscrupulous, greedy and sophisticated businessman who posed as an unselfish father figure and took advantage of our trust.”
The things that young man JC of N’Sync said were not respectful or certainly not kind to you.

LOU PEARLMAN JC lived in my house.
(VO) JC and I were very close. Through the whole development.
I remember when all the parents were thanking me for taking them under my wing, spending all the time. And I hope that they still feel that way.

CHRIS CUOMO (VO) The boys families aren’t talking about the controversy, but the fans are. On the Internet, they’ve given Pearlman devil horns. As settlement talks with N’Sync continue, fans have even formed a prayer circle outside of the courthouse.

WOMAN Please be with them today in the court, and please make them really come out victorious. We say this all in Jesus’ name, we pray. Please be with them, amen.

CHRIS CUOMO If your contracts had been fair in the first place none of this would have happened?

LOU PEARLMAN I know, in the industry and so do a lot of people in the industry tell me, that they’re more than fair, these contracts.

CHRIS CUOMO (VO) Fair or not, it seems the party will go on for Lou Pearlman. Even as our interview ended, the controversial music man got an unexpected pizza delivery, with a head shot taped to the box lid. Every day Lou gets hundreds of pictures and tapes from kids hungry for a chance at fame. Perhaps helping Lou Pearlman prove at least to himself that he’s still the Big Papa of pop music.

ELIZABETH VARGAS, ABCNEWS Just last week, Lou Pearlman settled out of court with N’Sync. The terms have not been disclosed, but, as with the Backstreet Boys, Pearlman will continue to get a percentage of the group’s earnings. And if that’s not enough, he has three more boy bands, and a girl band, waiting in the wings.

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