10 Things every party to an option agreement for film and tv rights needs to think about
FIRST THINGS FIRST: SHOULD YOU SAVE THE LEGAL COSTS AND DO IT YOURSELF?
Well, clearly, I’m biased. But hear me out. I used to work for one of the UK’s largest independent media investors and it was part of my day-to-day job to review option agreements for projects that were about to get greenlit for financing.
And I can tell you that when an option agreement doesn’t give the financier sufficient comfort, the producer and the writer will have to get back to the option agreement and potentially amend it within a short space of time. If that happens at the 11th hour, there a real risk that the project gets postponed or cancelled altogether. Hiring a lawyer can help you avoid that from happening.
With or without a lawyer, there are things that both parties to an option agreement need to think about. To get you started, I’ve made a list of the most important things you’ll need to consider when thinking about an option agreement, whether you’re a producer or a writer.
1) GET THE PARTIES RIGHT
The option needs to be entered into by all rightsholders – if the option is for a book with two co-authors, they’ll both need to sign the option. Some parties will also contract through loan-out companies, rather than in their personal capacity.
2) NATURE OF THE UNDERLYING WORK
The option could be for a short story, a book, a script or screenplay, a cartoon, a news article – or any other work. If it has already been published, be sure to clear the rights with the publisher. This can be done by reviewing the publisher’s agreement and/or entering into a quitclaim with the publisher.
3) THE PRODUCER’S PLANS WITH THE OPTION
A producer can option for TV, SVOD, cinema, for a film, a tv programme or a series. They should already be thinking about possible adaptations, such as prequels, sequels, and spin-offs. And if the project is the right fit, merchandise can also be addressed in the option agreement.
4) RIGHTSHOLDER’S PLANS WITH THE WORK
Typically, an author will want to at least reserve certain rights, for example, the right to write further books or stories based on the original.
5) ROLE OF THE AUTHOR
Some authors want to stay on board as executive producers or story consultants. Depending on the author-producer relationship, this might or might not be something that works for the producer.
6) OPTION PERIOD
Option periods, i.e. the amount of time the producer will have to develop the project and start principal photography, vary in length. A lot of option periods have an initial option period of around 12-18 months. This can usually be extended for a second option period, which could be another 12-18 months.
7) OPTION FEE
There is no hard and fast rule about how expensive an option is. An option fee could be as low as $1 – but is more likely to be around $500 - $2000 per option period. One further thing to consider is whether the second option fee is ‘on account of’ the Purchase Price. This means that if the option is exercised during the second option period, the second option fee would be deducted from the Purchase Price.
8) PURCHASE PRICE
The Purchase Price varies hugely depending on the value of the work and the bargaining power of both parties.
Each party should think about how they want the Purchase Price to be defined. It can be expressed as a total fee, or as a percentage of the final budget. It can also be expressed as having a floor (at least x amount) and a ceiling (at most x amount). If a percentage fee is agreed, this could also vary, depending on the budget (i.e. 2% if the budget is more than x or 3% if the budget is less than y). The Purchase Price can also be lowered if the original rightsholder gets a bigger share in the net receipts (see below).
If the Purchase Price is for a series, there will also be an episodic fee, which could be due on top of the Purchase Price – i.e. the producer will pay x amount as Purchase Price and then another x amount per episode. As it is heavily dependent on the parties involved, the envisaged budget and the project, I’ve seen a huge variety in Purchase Price- it’s impossible to estimate a figure without knowing about the project.
9) NET PROFIT PARTICIPATION
The rightsholder will also be entitled to share in net profits. Again, this varies – if the writer agreed a lower Purchase Price, they might want a bigger net profit participation. I’ve seen anything between 2% to 15%, depending on the context.
The rightsholder will also want a share in the success of any spin-offs, as they’ll still be based, at least to some degree, on the original content. Depending on the potential spin-offs, the share in net profits owed to the original copyright holder tends to be lower than the initial net profits. If there is any merchandise, the rightsholder will also get a share in any net receipts. This also varies, but tends to be around 20% - 35 % for books and scripts that don’t involve cartoons or character rights.
10) CREDITS
I've seen a lot of time spent fighting about credits, so make sure you agree them at the very beginning! If the option is with the scriptwriter, then they’ll probably get the ‘written by’ credit. But what if the producer brings another scriptwriter on board? Will the two writers share the credit? Whatever it is, start talking about it as part of the overall deal.
Need help drafting and negotiating your option agreement for film or TV? Get in touch!
After many years of negotiating option agreements for producers and rightsholders, as well as reviewing option agreements from the point of view of a financier, I have learned one thing: option agreements can be difficult to draft but even more difficult to negotiate. Each project is different, so experience is priceless in ensuring that you are getting a good deal. There are so many unknown variables that parties can easily get lots in the jungle of licences, assignments, rights and net profit participations.
I hope this has helped clarify the process a little- I’ve also drafted a handy checklist for both parties to an option agreement to follow along during their negotiations. If you have any further questions, or a consultation, please do get in touch with me. I’m here to help you through the jungle!