Option-purchase agreements are used in many situations to acquire rights to literary property (i.e. books, screenplays, stage plays, magazine articles, etc.). For instance, producers (and studios) often use option-purchase agreements to obtain the right to make a movie based on a writer’s screenplay. That is, producers use this agreement to obtain permission from the writer to use the desired literary property.
A full discussion of optioning literary property is not within the scope of this article. However, this article will briefly address a few of the material terms negotiated in the option purchase agreement. In particular, the article will address: 1) The scope of rights 2) The option fee 3) The option period 4) The purchase price; and 5) The writer’s credit.
The Scope of Rights
Typically, when a producer seeks to obtain movie rights based on a writer’s screenplay, the producer will also negotiate television rights and the right to release it in ancillary markets such as home video and new media.
Experienced producers always attempt to acquire all the rights. In the event that the movie is successful, the producer wants the rights to also make sequel and remakes.
Conversely, smart writers reserve certain rights: publication rights, stage rights, radio rights, rights to characters (for a sequel book), music publishing rights, etc.
The Option Fee
The option fee is used to secure exclusive rights in the literary property for a specified period of time. The producer pays the writer a small down payment, the option fee, in exchange for the exclusive right to develop the property by attaching actors, finding a director and arranging financing.
At this point, the producer has not actually purchased the rights to the property, but rather, has secured the exclusive right to purchase the negotiated rights for a certain period into the future.
It is a smart way for the producer to secure rights in the property by paying a fraction of the purchase price while developing it and thereby avoiding having to pay the full purchase price until going into principal photography (shooting the film).
For example, let’s say you, the producer, read a screenplay written by the writer and you want to make a movie out of it. Rather than buying the rights by paying the full purchase price of let’s say $50,000 (before you are sure you have the actors, director and financing), you offer the writer a negotiated fee of $5,000 for a one year option to obtain exclusive rights to the property. Often the option fee is 10% of the purchase price and sometimes the option fee is free. Overall, the option fee is highly negotiable.
The Option Period
The initial option period is usually for one year (it could be more or less). Frequently, the producer wants an extension for two, or more additional one year options, allowing more time if needed to develop the project.
The option extension must be exercised before the proceeding option period expires. If the producer fails to extend the option or actually purchase the rights, the writer retains all the option money and all the negotiated rights.
The Purchase Price
When the producer is confident that the project is going into principal photography, the producer (or studio) exercises the option to buy the writer’s screenplay. This means that the producer pays the purchase price to the writer to transfer the negotiated rights to the producer.
The purchase price depends on whether the agreement is subject to WGA terms. A project is subject to WGA terms if the writer is a member of the WGA or if the producer is a signatory of the WGA (see www.wga.org).
If the agreement is not subject to WGA terms, the general practice is to pay 1.5%-5% of the budget of the film for all the rights needed to make the movie. Many times the purchase price will have a “floor” (the minimum amount) and a “cap” (the maximum amount) in order to keep the price within a reasonable range.
If the agreement is a WGA deal, it’s simple, the WGA will determine the writer’s credit. The WGA agreement states that the writer’s credit will be the same size as the director’s credit on the screen. Furthermore, the writer’s credit will appear immediately before the director’s credit in the main titles and will appear in all paid ads except specific negotiated exclusions.
If the agreement is not subject to WGA terms, the writer’s credit is negotiable. Writers should negotiate a deal that parallels the terms and conditions in the WGA agreement, even if the writer is not a WGA member and the producer is not a signatory of the WGA, to protect the writer’s credit position.
This article is only a preliminary overview at the myriad of potential terms and issues triggered when negotiating an option-purchase agreement. It is essential that all the key terms and issues of the option-purchase deal be negotiated and put in writing. Therefore, it is important to seek advice and guidance from experienced legal counsel before negotiating and signing an option-purchase agreement.