“Puss, you got options. Don’t let anyone make you feel like you don’t have any options . . .” – Tony Soprano
Undoubtedly, it is good to have options in the “waste management” industry. Indeed, options are crucial to the entertainment industry as well. Although we suspect that the option agreement discussed in this article is quite different than what Mr. Soprano was referring to.
In the film/TV industry, it is common that the first legal document concerning a project will be an option agreement whereby a producer options a screenplay or other literary work from a writer and secures the exclusive right, for a stated period of time, to purchase the right to make a new audiovisual work (a “derivative work”) based on the underlying literary piece. By purchasing an option, the producer is able to control the right to make an audiovisual work based on the written work for a period of time for a relatively small amount of money (the “option fee”), and can then use that time to engage in production activities, including securing financing for the production and “attachments” to the project, such as a director, actors, etc. If production financing and/or attachments are secured during the option period, the producer can then exercise the option by paying the full purchase price and proceeding to the production of the film based on the underlying literary work. Of course, if the producer is unable to secure financing and/or attachments during the option period, the project can be abandoned without purchasing, in full, the rights to the underlying work and all that is lost is the option fee. An understanding of option agreements is crucial to anyone involved in, or hoping to get involved in TV or film production.
An option agreement should clearly state the option fee, the option period, and the ultimate purchase price to be paid upon the timely exercise of the option. The option fee buys the exclusive right to try and develop a project based on the author’s content for a certain period of time – the “option period.” The option fee and purchase price will vary greatly, based primarily on the stature of the author of the work being optioned. Thus, the option fee and purchase price for a David Mamet work would be much higher than that for a work by an unknown author. Also impacting the option fee is the length of the option period, for instance, a twelve-month option will likely cost less than a two-year option.
Often, an option agreement will provide for two consecutive option periods. The option purchaser will purchase a first option period for a stated amount, e.g., an 18-month initial option period for $15,000.00. The first option period may be extended by payment of an additional option fee prior to the expiration of the first option period if the producer has not yet decided whether to move forward and needs additional time. If the second option fee is timely paid, the option period will be extended beyond the first option period through the stated second option period. The norm in the entertainment industry is that the payment for the first option period will be credited toward the purchase price of the work, but the payment for the second option period will not be credited toward the purchase price – it’s just additional money to the writer for allowing extra time for the producer to decide whether to move forward. The typical option period is eighteen months, though twelve-month and two-year options are not uncommon.
The producer will have until the end of the option period – whether it is the first option period or the second – to “exercise” the option and purchase the work for the purchase price agreed upon in the option agreement. Typically, in the film/TV industry, once the producer secures the financing to make an audiovisual work based on the optioned property, and perhaps a few “attachments” such as a director and/or actor(s), the producer will then exercise the option and purchase the right to make a film/TV show based on the underlying literary work.
The purchase price is a one-off payment to the original rights-holder, usually the writer. It is to be paid by the date stated in the option agreement, but typically no later than the first day of principal photography. The purchase price may be a set amount stated in the option agreement or an amount expressed as a percentage of the final budget for the anticipated film – often with a “ceiling” and a “floor,” which ensures that the author gets a guaranteed amount, but not more than the agreed cap.
If the option period expires without purchase of the work for the agreed-upon purchase price, the right to make a film or TV show based on the underlying screenplay or other literary work expires and all rights revert to the writer, allowing the writer to proceed as they wish, including granting an option to another party. It is not uncommon for a writer to sell numerous options on a work without ever outright selling the rights to the work.
There are other issues that should be addressed in an option agreement, including, for example, the credit the writer will receive and whether the writer will provide additional writing services to the producer and payment for those services (though, for professional writers, writer credit and payment for additional writing services is addressed in detail by the Writers’ Guild of America’s Basic Agreement). Clear and concise option agreements are crucial to many endeavors in the entertainment industry.
Let’s be honest, we all love to have options. So, if you have questions about option agreements or need assistance in negotiating and drafting an option agreement, please reach out to us at Crown®, LLP. We can help.