I don't think "back there in Madrid" makes sense unless the speaker is no longer in Madrid. If the speaker is in another place, "back there" can refer to a past location. (For example, I used to live in Phoenix, and sometimes when I talk about the past, I say "back in Phoenix..." This could be interpreted as meaning either "back then, when I lived in Phoenix" or "back there in the Phoenix, where I used to live.") The example in Soul is a bit different, though. We do sometimes use "back there" to refer to a very *recent* past moment in time. By contrast, "back then" usually refers to something that happened a long time ago (usually years ago, or at least several months). "Back there" or just "there" can mean something like "a moment ago" or "just now." For example: "Sorry, I got distracted for a second there." "I didn't quite hear you there. Could you repeat that?" It's fairly common to use "there" this way, if something significant has changed between the past moment and the present. (For example, Joe Gardner was "zoned out" a moment ago, but he's NOT zoned out now. I was distracted for a second "there," but I'm not distracted now.) I don't think it's as common to use "back there." The sentence you quoted from Soul sounds perfectly normal to me, but I can't think of any other examples where "back there" would make sense purely as a time reference, without any reference to location.

Use back then when you are referring to a time in the distant past. Use back there when referring to a location that you’re no longer at.

“Back then” usually references an era. We wore Addidas attire to look like Run DMC back then. Or Back then (or back in the day) it was safe to play all day from sun up until sundown. Looking at the photos, our parents were truly smitten with each other back then.

I guess they can be interchangeable sometimes (both are fine). However, at other times, one is used and not the other. 'Then' does usually refer to time, and 'there' to a location. 'Back there' is often used to refer to the recent past, so that's why Joe Gardner said "I zoned out a little back there." 'Back then' might be used for the more distant past. This is very vague, so I wouldn't worry about the use too much. 'Then' and 'there' are used differently when you want to connect a sentence. 'I left the house, then went to the park.' You can't use 'there' for this. Also, 'there' can mean 'exist' or 'to be', in that case, you can't use 'then'. 'There are 2 chairs beside the table.' 'I had a great childhood back there/then in Madrid'. Either word is fine, but it's just whether you want to emphasise the location or the time more. 'There' suggests that Madrid is the most important part. 'Then' suggests that your childhood was great at that time and you just so happened to be in Madrid.