Offered a Shopping Agreement instead of an option? How Film and TV Producers can Protect their Position
You might be a producer who has approached an author or their agent about optioning a book, only to be told that they will only enter into a shopping agreement. I've written before about the difference between option agreements and shopping agreements. In short, a shopping agreement gives the producer an exclusive period to develop and pitch the project but, unlike an option agreement, it usually doesn't set out the terms on which the producer can acquire the rights at the end of it.
When I act for producers, I'll usually push for an option agreement. When I act for rightsholders, I'll often suggest a shopping agreement. So I see both sides of this negotiation, and a shopping agreement doesn't have to be a bad deal for the producer. This post looks at why rightsholders tend to prefer shopping agreements, how producers can respond, and what they can negotiate to protect their position.
Why the end of the shopping period matters
The main risk for the producer comes at the end of the shopping period. By then, the producer may well have spent a year or more on the project. They might have a broadcaster interested and financing coming together, and be gearing up for pre-production. At that point, the underlying rights may be the only thing still missing.
The rightsholder will know this too, which gives them a lot of negotiating leverage. If I were advising the rightsholder at that stage, I'd suggest asking for a considerably higher purchase price, as the producer is now much more dependent on them agreeing a deal.
Under an option agreement, these terms would already have been agreed, and the producer would simply exercise the option and pay the purchase price that was agreed at the outside, without having to go back to the negotiation table. Under a shopping agreement, the producer has to negotiate terms with the rightsholder while busy with pre-production, and a financier reviewing the chain of title will want to see that the rights have been acquired before any money flows.
First, find out why the rightsholder prefers a shopping agreement
Producers often ask me how hard they should push for an option agreement. My advice is to first find out why the other side prefers a shopping agreement. In my experience, the reasons tend to be:
Negotiating leverage later on. The rightsholder would rather negotiate the purchase price once the value of the project is clearer.
The chance to see how the producer gets on. Particularly with a newer producer, the rightsholder may want to see whether the project is really heading to a broadcaster before agreeing to transfer the rights.
Control. If the rightsholder isn't happy with the financiers or the direction the project has taken, a shopping agreement allows them to decline to transfer the rights. Under an option agreement, once the option has been exercised, that decision is no longer theirs.
Cost. A shopping agreement is shorter and quicker to agree, so it's usually cheaper to negotiate.
If there is an agent involved, it's also worth thinking about how much goodwill you want to spend on this point, as it may be useful in later negotiations.
Two recent examples show why the reason matters:
In one case, the reason was cost. We sent the other side a draft option agreement even though they had indicated that they would prefer a shopping agreement. Their response was that the option fees would be roughly twice as high as the shopping fees. My client, the producer, decided to go with the shopping agreement and the lower fees, knowing what they were giving up.
In another case, the rightsholder was still very involved in the project creatively and wasn't ready to let go of it. We agreed a shopping agreement of around 18 months instead, on the understanding that both parties would discuss an option agreement at the end of the shopping period if the producer had found good partners for the project. In this case the rightsholder really wanted to see the direction that the producer would take with the project. Of course the rightsholder could have stayed on board as a consultant or associated producer in the case of an option agreement, but they preferred to stay more in control of their rights in this case.
In both cases, understanding the reason behind the other side's position meant that we could find a workable solution, whether that was accepting the trade-off, working around the issue or planning for a later negotiation.
Four ways producers can reduce the risk
If the rightsholder is set on a shopping agreement, there are still ways of reducing the risk for the producer:
1. Agree the key acquisition terms upfront. Many shopping agreements simply provide that the parties will negotiate "in good faith" later on. The producer is in a much better position if at least the key commercial terms, such as the purchase price, are already agreed. If the budget isn't clear yet, the purchase price can be set as a percentage of the budget with a floor (i.e., a minimum amount) and a ceiling (i.e., a maximum amount). If the rightsholder resists this, then the producer could already check other key terms: are there any broadcasters or financiers the rightsholder wouldn’t be happy with? What about any other red lines that can be included up front to help the producer take the agreement in the right direction?
2. Ask for a right of first refusal or a matching right. If the rightsholder later receives an offer from another producer, the original producer gets the chance to match it.
3. Agree who owns new development materials. If the producer creates (or pays someone else to create) a new treatment or pitch deck, the agreement should state who owns those materials if the parties stop working together. I've seen this dealt with in different ways: one agreement left revised pitch documents with the writer, whereas another provided that development materials created by the producer belong to the producer.
4. Agree what continues after the shopping period. A producer who has done substantial development work may negotiate a Development Producer credit, as well as repayment of their documented development costs from the production budget if the project is eventually made by someone else.
Rightsholders should look at point 4 carefully: the shopping period might only last six or twelve months, but a credit, repayment right or matching right can remain relevant for much longer.
Before you sign: check what the shopping agreement actually allows
Shopping agreements are far less standardised than option agreements, so two documents called "shopping agreement" can look very different. Some only allow the producer to pitch existing materials for a few months. Others allow the producer to create new development materials and give the producer continuing rights long after the shopping period has ended. It's therefore worth checking what the agreement actually says, rather than relying on what it's called. In particular:
What the producer can develop. One agreement I worked on, for example, allowed the producer to prepare treatments and pitch materials but specifically excluded writing a script unless the parties first entered into an option agreement.
The shopping period, and whether and how it can be extended. Some agreements only allow an extension if the producer can show that they are actively developing the project, so it's worth agreeing what evidence will be sufficient. Genuine negotiations with a broadcaster or financier? A formal submission? Copies of relevant emails?
The shopping fee, if there is one, and whether it's reimbursable or can be deducted from later payments, such as purchase price in case the rights end up moving to the producer following the end of the shopping period. In agreements I've negotiated recently, shopping fees ranged from £1 to £1,250.
The rights. Feature film, series, documentary, podcast, animation: which rights does the producer need, and which ones definitely not?
The rights should come up in the very first conversation. I once negotiated an option agreement for a feature film based on a true story. Late in the negotiations, my client asked whether we could also include the documentary rights. The agent declined, as those rights were already being discussed with another producer. My client then had to negotiate how the two releases would be coordinated, so that they wouldn't compete for the same audience. Had the documentary rights been raised from the start, the negotiations might have looked quite different.
Lastly, make sure the shopping agreement, and any later agreement acquiring the rights, is in writing. Financiers will review your chain of title, and copyright can only be assigned in writing, so an oral agreement won't get you through that review. I've written more about chain of title here.
FAQs
Why would a rightsholder only offer a shopping agreement?
Usually to keep their negotiating leverage, to see how the producer gets on before transferring the rights, to keep control over where the project goes, or because a shopping agreement is quicker and cheaper to negotiate.
Can a producer agree the purchase price in a shopping agreement?
Yes, although this is often not the case. The parties can agree the key acquisition terms upfront, even if the detailed rights agreement is negotiated later. If the budget isn't known yet, the purchase price can be set as a percentage of the budget with a floor and a ceiling.
What happens when a shopping agreement expires?
Usually the rightsholder is free to take the project elsewhere. Depending on what was agreed, the producer may keep some rights, such as a right of first refusal, a Development Producer credit or repayment of documented development costs.
Can a shopping agreement turn into an option agreement?
Yes, if both parties agree. Some parties enter into a shopping agreement on the understanding that they will discuss an option agreement if the project gains traction. Whether or not that happens depends on later negotiations and isn’t guaranteed – this adds more freedom to negotiate on the part of the rightsholder and less leverage on the part of the producer.
Need help with a shopping agreement?
If you're negotiating a shopping or option agreement and would like some help, please feel free to get in touch.
NB: This post is general information, not legal advice. I am qualified to advise on English law, so my legal advice is limited to English-law matters.