April 15, 2016
We launched this blog series by identifying when a filmmaker should consult with a qualified entertainment attorney. Over the next several months, we will examine the life of a film (development, pre-production, production, post and distribution) and discuss the important legal issues a filmmaker may encounter along the way.
First up, development. During this stage, a filmmaker acquires the material to produce into a film. Whether purchasing an original screenplay or the film rights to a book, a filmmaker may desire to "option" the material for a period of time rather than purchase the material upfront.
Why spend $25,000 on the purchase of the film rights to a YA novel only to find out no one is interested in getting the movie made? An option allows the parties to share the risk. Through the option process, the rights holder grants the filmmaker the exclusive right to buy the material (e.g. an article, a screenplay, someone's life story rights) in the future. Here are some key terms found in an Option Agreement and some helpful negotiating tips:
- Option Price: This number can be a little as a $1.00 or as high as the market will bear. Generally, the option price is 10% of the final purchase price.
- Purchase Price: The number can be a flat rate or a percentage or a combination of both. The ultimate number depends on a wide range of considerations. How popular is the work? Is the writer a well-known commodity or an up and comer? What is the scope of the rights being granted? All of these variables play in to the analysis. The market is constantly evolving so it is important to consult someone knowledgeable in the industry to ensure the price is fair.
- Option Period: Generally, the duration of the option ranges from 12 to 18 months, but extensions or renewals are commonplace.
- Grant of Rights: This term defines the scope of the rights granted to the filmmaker. The broader the scope, the more the purchase price. Filmmakers will always want the broadest grant of rights possible; whereas, the writer will want to âreserveâ as many rights as possible. Common reserved rights include print and electronic book publishing, gaming, dramatic, radio, etc. This is one situation where it's not wise to âdownloadâ a form off the internet. If the form was written for the benefit of the rights holder, the filmmaker could unknowingly concede more than necessary.
- Renewal Rights: A renewal right allows the filmmaker to renew or extend the option for an additional term. An option is renewed by giving written notice to the rights holder (prior to the expiration of the initial term) of the intent to extend the initial term. Sometimes an additional payment is made to the rights holder at the time of the extension.
- Expiration of Option: If the option expires without being exercised, the rights holder keeps the option payment and all intellectual property rights to the optioned material. The parties essentially walk away. The rights holder is not entitled to any further compensation and the filmmaker has no further right to exclusively shop the material.
- Exercise of Option: If the filmmaker exercises the option, she receives all of the granted rights in exchange for payment of the purchase price to the rights holder. Sometimes the option (and renewal) payments are offset against the purchase price meaning the filmmaker subtracts the amount of the option payment from the ultimate purchase price.
- Always negotiate the acquisition agreement at the time you negotiate the option agreement (attach it as an exhibit or incorporate the terms within the four corners of the option agreement). As the filmmaker, you do not want to exercise the option and be left not with the rights to the underlying property, but the right to negotiate the purchase of the property. Structure the option so that once it is exercised, the purchase terms are automatically invoked.
Final thoughts: An option agreement is a useful tool to have in a filmmaker's toolkit. It allows you to share risk and shop the material prior to purchase. Always negotiate the purchase terms at the same time you negotiate the option terms.
Stacey will be a guest on Seed&Spark's Twitter Chat on May 10, 2016 at 11:00PST.