One of my readers wrote in and wanting to know more about Option Agreements. And, since I am always taking requests, the subject of today’s post centers around the Option Agreement for the film world.
An option agreement is exactly what it sounds like. In plain terms, the option period is the film business’s version of a layaway system. You pay a little upfront in the hopes of buying the entire project at some point in the future. The producer or the production company does not initially want to buy the entire rights to make the underlying work into a film; however, they do want to keep other entities from purchasing the rights to the story and want to test the waters for what might be a great film. Enter the Option Agreement.
In order to secure the option, the production company pays a certain amount of money (some value less than the total it would take to purchase the rights in whole) to the writer or holder of the rights for the underlying work. A producer or a production company then enters into an agreement/contract with a screenwriter usually with a fee attached and a set timeline. During the set timeline, the production company has the exclusive right to exercise the option and purchase the rights of the underlying work as a whole – i.e. the novel, screenplay or book. Generally, the fee that is payable for the option is usually ten percent (10%) of whatever the total would be to purchase the work as a whole. It could be less. The laws of contracts guide these negotiations, terms and interpretation of the agreement. Therefore, it is important to put your agreement in writing, to clearly read all terms and to have a person experienced in these type of agreements to review. In the end, the words on the page will dictate most of the interpretation should their be a dispute.
Let’s look at a completely fictional example to show how this works. There is a new production company in town that just so happens to be called Statute of Ryanne Productions. The producer for this new production company hears that there is a screenplay about the life and times of Jim Henson. Being that the subject of the screenplay is Jim Henson and Statute of Ryanne Productions is a new production company, Statute of Ryanne cannot afford to pay the $100,000 purchase price attached to acquire and own all the rights associated with the screenplay. Also, Statute of Ryanne Productions is not certain she could raise the money needed to make the film. She is also not certain that she would receive distribution. However, Statute of Ryanne Productions loves the subject and loves the screenplay. What is the new production company to do?
Statute of Ryanne Productions should contact their entertainment attorney and ask that an Option Agreement be drafted. In the Option Agreement, Statute of Ryanne Productions would agree to buy to the Jim Henson screenplay owner an “option” for the price of $10,000 (10% of the total price). In exchange for the $10,000 the Jim Henson screenplay owner would give to Statute of Ryanne Productions for a set period of time (usually one year) the exclusive right to buy the rights within the timeframe. This would keep other potential buyers from buying the rights out from under Statute of Ryanne Productions. Also, the Jim Henson screenplay owners could not interfere with Statute of Ryanne Productions ability to purchase all the rights within the timeframe.
If Statute of Ryanne Production did exercise the option and purchase the rights, then the seller of the Jim Henson life story would have no rights and could not sell what he no longer owns. Statute of Ryanne Productions would be the new owner of the Jim Henson screenplay. In the alternative, should Statute of Ryanne Productions not exercise its option to purchase all of the rights within the time frame in the contract, then the money paid by Statute of Ryanne Productions would stay with the seller of the rights. Also, the seller of the rights would still retain all rights associated with the screenplay about Jim Henson and would be free to sell it to others once the option and all renewals expire.
Like most contracts, there are some, quote, “industry standards,” but I implore you to come up with an option agreement that fits your needs. Just because a year is typical or ten percent is typical, does not mean that you or your production company must agree to those terms. You can make the agreement longer, add in a renewal that would allow you to extend the option, negotiate the amount payable for the option or change any number of variables. It should also be noted that while you are negotiating the option purchase you should also negotiate the total price of the property. This seems like a common sense tactic, but if you do not negotiate the total purchase price for the property and when the total would be due after exercising the option – what value does the option agreement have?
Below is a great little tutorial I found on YouTube for the more visual learners. It is pretty helpful.
What has been your experience with Option Agreements? Any tips for other readers of this blog? Take part in the Comment section below.
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