January 03, 2003 at 05:00 AM EST

On Dec. 27, 1999, the artist formerly known as Puff Daddy walked into Club New York with movie-star girlfriend Jennifer Lopez and rising rap protege Jamaal ”Shyne” Barrow. Minutes later, gunfire erupted inside the Manhattan club — wounding three people — and Puffy and company dashed for the exits. Pundits said that the criminal charges, trial, and media scrutiny that followed would change his life forever.

They have — but in ways few expected. Three years later, Lopez, now dubbed J. Lo, sits next to Sexiest Man Alive Ben Affleck. Barrow sits in Rikers Island, serving a 10-year sentence for first-degree assault and reckless endangerment in connection with the incident. And despite a nagging perception that he’s lost his touch post-acquittal, a resurgent Sean ”P. Diddy” Combs, 33, sits atop an empire that encompasses Bad Boy Records, the four-year-old Sean John fashion label, MTV’s ”Making the Band 2” series, and Blue Flame Marketing and Advertising. (Clients include Microsoft and Calvin Klein.)

”That was a bad time in my life,” Combs conceded in a recent interview. ”And I think about it every day, but I’m thinking about other things now. I’m in my work mode. I’m turning up the heat.”

Good thing. While his TV and fashion efforts have thrived — ”Band” is MTV’s third-highest-rated show and Sean John sales in 2002 rose an estimated 30 percent to $325 million — the center of Combs’ universe, Bad Boy, could use a flint. In 2002, the label released only one album, the compilation ”We Invented the Remix” (which sold a paltry 1 million copies), and lost its lucrative nine-year partnership with Arista. Both sides claimed the parting was amicable, but some insiders speculate that Arista was tired of Bad Boy’s vast expenses amid diminishing returns. Over the last six months, the industry has buzzed about Bad Boy’s next distribution home, with Def Jam, Elektra, and Clive Davis’ RCA all reportedly in the running. At press time, Combs said a deal was imminent but declined to elaborate.

The uncertainty hasn’t kept Bad Boy from prepping a 2003 comeback that would emulate its 1997 peak, when Puff Daddy’s ”No Way Out” sold 7 million copies and Notorious B.I.G.’s ”Life After Death” moved 10 million. The label plans albums from newly signed artists like the reunited New Edition and Southern rap pioneers 8Ball & MJG. Girl group Dream and rap rookie Loon are set to drop discs in February, followed by a Carl Thomas CD and a Notorious B.I.G. duets album pairing Biggie’s verses with new R&B hooks. ”We’re moving ahead the same way we were when we had a deal with Arista,” says Bad Boy VP Tracey Waples, noting that the label can still release CDs through Arista parent BMG.

Despite the uncertainty over Bad Boy’s future, Diddy has remained a fixture on the airwaves by collaborating with non-label artists like B2K, Baby, and Busta Rhymes. In December, Combs appeared on three of ”Billboard”’s Hot 100 singles. He’s also producing Mary J. Blige’s upcoming ”Love Message,” his first collaboration with the diva he helped discover since producing her 1994 CD, ”My Life.”

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