As a producer, you spend a lot of time negotiating options for a book or screenplay. The option agreement is often one of the first agreements to be signed when you start developing a film or series. It is therefore very important to do everything correctly.
In this post, to keep it simple, I'll walk you through some of the key points to consider when negotiating an option agreement. I also created one practical checklist What an option agreement should contain can be used alongside this article to make sure your basics are covered.
Existing rights in an option agreement: Find out what rights you need to secure
Research the book or script you want to select as an option. If you try to select a book as an option, you should receive a "quitclaim" from the publisher confirming that you have no objection to your project. Let a lawyer check the notice period. If you try to select a script, the author may want to publish it later as a book. This is fine – just tell your lawyer about the screenwriter's plans, as the option agreement "reserves" these rights for the screenwriter.
Next you can find out what rights you need from the author for your project. Are you planning a one-off show, a series for TV or a streaming service or a cinema release with subsequent licensing for TV or SVOD? If you are not sure, the option agreement can offer some flexibility. Most writers and agents will understand that you may not yet know. However, a detailed plan shows that you have thoroughly evaluated their content and are serious about making a film or series based on it.
You also need to think about ancillary rights. What do you plan to do with this project after the completion of your film or series? You may want to develop a stage play or create amazing goods. You at least want the freedom to develop spin-offs, including sequels and prequels. It is worth finding out before you contact the rights holder so that you can justify what you are asking for.
Cover your back: Negotiate the role of the author or screenwriter
Some authors and screenwriters are understandably reluctant to separate audiovisual adaptation rights for their project. One way to sweeten the deal is to offer the author an advisory role. If it makes them happier, it could also be portrayed as an executive producer position. I would not offer this in advance, but only if the author is about to leave. When negotiating this role, make sure that the author cannot interfere with your project: he is there for you and you should not need your consent for anything other than granting you the option yourself.
In some cases, you may actually want the rights holder to be more involved. For example, you might want the original author of a book to write the script or act as a second author or script consultant.
If you negotiate a second role for the author or screenwriter – in addition to the option that gives you the option – you can include it in the option agreement itself, but I personally prefer to set additional roles in a separate agreement. This is because two agreements make it clear that they are two separate roles and negotiations. Option agreements are already quite complex and incorporating the second role of the author could make them more complicated. Before you start negotiating, I would ask your lawyer about his preference and how and whether the second role of the author affects the fees you pay for drafting the option agreement.
It's all about money: the option fee and purchase price in the option agreement are explained
There is no hard and fast rule for fees payable on an option agreement. With regard to the fee structure, you first pay an "option fee" for the "option period". This is the money you pay for the exclusive right to develop your project based on the content of the author for a certain period, the option period. It is difficult to give baseball numbers because they vary from store to store.
Typically there are two option fees and periods, i. H. The first option is the X amount for Y months, with the option to extend the X amount for another Y months. These are usually referred to as the “second option fee” for the “second option period”. You have until the end of the last option period to exercise the option. This usually happens when you've got all the funding together and everyone is ready to shoot.
The purchase price is a one-time payment to the original rights holder, which is likely part of the budget you spend on making the film. Payment is usually made on the first day of main photography. The difficulty for you as a manufacturer is that when you negotiate an option agreement, you don't know how much you can pay the rights holder. Therefore, the purchase price is often expressed as a percentage of the final budget – often with an "upper limit" and a "lower limit", which ensure that the author receives a certain amount, but not more than the agreed upper limit. This is often expressed as: "corresponds to % of the budget if the purchase price is at least X and at most Y".
More money: net sales and profits
The rights holder is also entitled to a percentage of the film's net profit. This varies from store to store and can be used as a negotiating point. You may be able to negotiate a lower option fee if you offer them a higher net profit sharing.
You also need to think back to the secondary rights that we talked about earlier. If you create a spin-off of your project, the author would also like to share some of these profits. The net profit sharing from these side projects is usually lower than the net profit sharing from the original. It is crucial to reach agreement on this at the beginning. The same applies to all other ancillary rights that you acquire, since most authors insist that they participate in all ancillary projects.
Last but not least: think of the credits
It is impossible to talk about anything in the film industry without mentioning credits! Typically, a book author receives a "based on a story from" credit, and screenwriters receive a "written by" credit. If you have agreed on an advisory role for the author, the credit that he receives for this must also be agreed. To avoid later complications, the credit should always be agreed in advance with the store's terms and conditions.
About Silvia Schmidt
Silvia Schmidt is a media law attorney who advises content creators in England and Wales. She has a passion for independent films and if she doesn't give advice, she works on her own documentary projects. You can find them on their website or on LinkedIn.