Option agreements are the stuff of author dreams. We all want our books to go to screen or theatre or TV or any other number of exciting opportunities. This is the magic of copyright. But what is an option agreement, what do you need to watch out for and what should you consider? Today, the Alliance of Independent Authors welcomes and thanks Silvia Schimdt for her contribution to The Ultimate Guide to Option Agreements.
Silvia Schmidt studied Law and French at Trinity College Dublin, Sciences Po Paris and University College London. Following her studies, she trained as a solicitor in London. Silvia then specialised in media and entertainment law and has worked in a media law firm, as well as in-house. She currently works as a legal consultant and when she is not drafting and reviewing media contracts, she can be found with her own camera filming short documentaries. Find out more about Silvia on her website.
Option Agreements: What Are They and What Do You Need to Think About?
First things first: should you save the legal costs and do it yourself?
Whether you have an agent, an experienced mentor or hire a lawyer: it’s always good to have a second pair of eyes when you negotiate an option agreement. Option agreements are among the trickiest contracts to negotiate in the entertainment business, because they try to regulate not only the further development of a film or tv project but also the transfer of rights from the writer to the producer, as well as most of the potential revenue shares.
With or without a lawyer, there are things that both parties to an option agreement need to think about. I’ve made a handy checklist which you can use when you start negotiating the commercial terms of your option agreement – get in touch with me at www.silviaschmidt.org for a copy of the checklist.
What Is an Option Agreement?
In a nutshell, an option agreement does two things:
- It gives the producer the exclusive right to try to adapt a story, usually in the form of a book or a script, for release as a film, TV or SVOD programme, series or even computer game. This is called the “option period”. So, if you are a writer and you enter into an option agreement with a producer, then, for the duration of the option period, neither you nor any other producer may try and adapt your work for film or tv. Some options will allow you keep some of the rights, i.e. you may grant a producer the exclusive right to develop and produce a TV series, but you may keep, for example, radio rights. In exchange for taking some or all of the rights “off the market” for the duration of the option period, the producer pays the writer the “option fee”.
- It also regulates the financial terms on which the rights will be transferred by the author to the producer once the producer has secured financing for the project and is ready to start shooting. This needs to happen prior to the end of the option period. The fee which is paid by the producer at this point is called the “purchase price”. If the producer doesn’t manage to secure financing, then the option expires and all rights are automatically transferred back to the writer.
What Can Be Optioned?
Most of the time, producers option scripts or books, but the producer could also option a cartoon, news article, a short story or any other exciting material that the producer thinks would look great on a big or small screen.
If the producer options something that has been published before – like a book – the producer will need to know that the entity which holds the rights to that publication owns no rights that could prevent the producer from developing, producing or distributing the project the producer is working on. Typically, the producer would want to see the contracts relating to the previous publication, such as a redacted version of the publishing agreement. To be on the safe side, the producer may also ask for a ‘quitclaim’ from the company holding the previous publication rights. This is a document in which the publishing house essentially promises that it holds no rights in the film or TV adaptation of the project and that it will not stop the producer from developing, producing and distributing the project in any way. The producer is likely to ask the author for help liaising with the publishing house. If the author is self-published, the producer may want to see evidence that the author owns the publishing rights to the work.
What Can the Writer Still Do With the Underlying Rights?
It’s important for the writer to think about what they want to do with the original work. The rights in the original work or often referred to as ‘underlying rights’. Some writers are happy for a producer to option all rights in the work. That would mean that the producer can do what they want with the rights, i.e. develop and produce it in all types of media and in all formats. Some authors will want to keep certain rights, such as the right to adapt the work for a stage adaptation, or a radio play. Part of the negotiations between the producer and the author will consist in discussing what the writer and producer each plan to do with the underlying rights. Both parties should be clear on what may happen with the project in the future.
What I’ve seen in recent years is that option agreements are getting more fluid. Producers used to ask for options that were specifically for either cinema or TV. With the advent of streaming services, some producers have started to care a little bit less about which screen the project will end up on – as long as the adapted work gets shown on any screen. This can be reflected in the option agreement by allowing the producer to develop the project for any type of audio-visual release. Equally, a lot of producers are asking for either all rights or most of the adaptation rights. This is because it’s becoming more common for a work to first be exploited on, for example, screen and, if the format is successful, the work may be further adapted for the stage or a podcast series.
Now that we’ve got the basics out of the way, I’ve put together a list of 10 things to think about before starting to negotiate an option agreement.
10 Things Authors Should Think About Before Starting to Negotiate an Option Agreement
One: Nature of the Underlying Work
The option could be for a short story, a book, a script or screenplay, a cartoon, a news article – or any other work you have written. Whatever it is, you should think about whether it’s all original to you or whether you took some materials from, for example, publicly available sources – if that’s the case, then you should note this is in the option agreement.
If the producer wants to publish work that you have already published through a publisher
- They will likely ask you for a (redacted) copy of your agreement with the publishing house
- Ask before sharing, as there may be a confidentiality clause in your agreement
- The producer may also want to enter into a quitclaim with the publisher
- If you are self-published, the producer might want to see evidence that you hold the publishing rights to your work
Two: the Producer’s Plans with the Option
The producer can option the rights for TV, SVOD (subscription video on demand), theatrical, computer game or any other form of adaptation the producer can think of. In addition to the right to create a first production based on the underlying rights, the producer will also insist on the right to create sequels, prequels or other spin-offs based on the first project. And if the project is the right fit, merchandise can also be addressed in the option agreement.
If the producer options a book, in some cases the producer will also want the right to create a book based on the project they developed – this book would of course be different to the original book as the new book would be based on the final script for the project. Of course, in some cases, the author will insist that this ‘novelisation right’ should be granted to the author.
All of the rights that are granted to the producer will carry with it a share in the royalties or net profits – see point 9 below.
Three: Your Plans With the Underlying Work
Typically, an author will want to at least ‘reserve’ (i.e. not grant to the producer) certain rights, for example, the right to write further books or stories based on the original. If the producer thinks that these reserved rights could lead to a competing adaptation of the underlying work and therefore potentially take away revenue from the producer, the producer will want to ask for a ‘holdback’ period, which means that the author may not exploit the reserved rights for an agreed period of time.
Four: Role of the Author as the Underlying Rights-holder
Some authors want to stay on board as executive producers or story consultants. In reality, this is very unlikely to give you any real decision-making powers, as the producer will typically insist on having the exclusive right to develop and produce. This is because, from the point of view of the producer, they will need to know that they will be able to do what is required to develop and produce the project – and thereby making sure that the time and money they’re investing in the project will have been worth it. However, being an executive producer or story consultant would at least give you a seat at the table and you may be a little more involved in the creative process than you would normally be. Depending on the author-producer relationship, this might or might not be something that the producer may agree to.
Five: Option Period
Option periods, i.e. the amount of time the producer has the exclusive rights to develop the project and start principal photography, vary in length. A lot of option periods have an initial option period of around 12-18 months. This can usually be extended for a second option period for a second option fee, which could be another 12-18 months. Some option agreements provide for a third option period and third option fee or that ‘the parties may negotiate the duration and fee for a third option in good faith’ – you could also stipulate that you will only entertain the extension if the producer manages so show you evidence that they have, for example, secured at least some funding or can show other evidence that they are actively working on and progressing this project. You wouldn’t want your work to gather dust instead of being actively taken through to production.
The producer will want a long option period, to maximise their chances of raising the finances required to start production. This is because production will need to start during the course of the option period. Of course, you as the author or scriptwriter would want to limit the option period – after all, if the producer doesn’t manage to produce a film based on your work, then you would want the rights back to be free to option the rights to another producer.
At the end of the day, it’s about finding a middle ground – an amount of time that’s long enough for the producer to find the financing for the project and that’s short enough for you as the author to take the project to more producers should the current option expire.
Six: Option Fee
There are no hard and fast rules about how expensive an option is. An option fee could be as low as $1 if you are keen to be involved in the project, if you have confidence in the producer or if you negotiate a higher Purchase Price or net profit participation in return for accepting a low option fee. What is often the case is that the first option fee is lower than the second option fee. This is because by the time of the extension of the option, the producer should be confident that the project has a good chance of progressing to production. On the other hand, for you as the author this means that your work will be off the market for a further period of time, so you would probably want to be remunerated for that.
If the option fee is not $1, it tends to be around $500 – $2000 per option period, but these fees can vary a lot depending on the context. For example, if you wrote a book that has already been published (either by you as a self-publishing author or through a publishing house) and is attracting some attention, then you would be able to ask for a higher option fee, as you might think that there would be more than just one producer who is keen to take this forward. Equally, even if your work has already been published successfully, you could still agree a lower option fee if the producer has experience with this type of content and you want to give them room in the budget to focus on other items.
One further thing to consider is whether the second option fee is ‘on account of’ the Purchase Price. This means that if the option is exercised during the second option period, the second option fee would be deducted from the Purchase Price.
Seven: Exercise of the Option
Before the end of the last option period, the producer has the opportunity to ‘exercise’ the option. Typically, this is done by the producer sending a notice in writing to the author that the producer is exercising the option. Some option agreements also require payment of the Purchase Price (see below) at the same time as the option is exercised. For you as the author, the ideal position is that that Purchase Price is payable at the same time as the option is exercised. The producer would want to pay the Purchase Price on the first day of principal photography. In practice, if you and the producer agree that the Purchase Price is payable on the first day of principal photography, the option is likely only going to be exercised the day before the first day of principal photography. This is because many financiers will only release their funding around the first day of principal photography, so that producer is unlikely to have enough money in the budget to pay you any earlier than that.
Eight: Purchase Price
The amount of Purchase Price varies hugely depending on context, the budget of the project, the (perceived) value of the underlying work and the bargaining power of both parties. Agreeing the Purchase Price is tricky because the parties are agreeing a fee at a time before the producer knows how big the budget for the project will be.
Each party should think about how they want the Purchase Price to be defined. It can be expressed as a total fee, or as a percentage of the final budget. It can also be expressed as having a floor (i.e. at least x amount) and a ceiling (at most x amount). If a percentage of the budget is agreed as the Purchase Price, this could also vary, depending on the budget (i.e. 2% if the budget is more than x or 3% if the budget is less than y). In the negotiations, you might also agree to a lower Purchase Price in return for getting a bigger share in net receipts (see below).
If the Purchase Price is for a series, there will also be an episodic fee. This could be due on top of the Purchase Price – i.e. the producer will pay x amount as the Purchase Price and then another x amount per episode.
Nine: Net Profit Participation
As the rightsholder you will also be entitled to a share in net profits. Again, this varies – if you agreed a lower Purchase Price, you might want a bigger net profit participation. I’ve seen anything between 2% to 15%, depending on the context.
You will also want a share in the success of any spin-offs, as they’ll still be based, at least to some degree, on your original work. Depending on the potential spin-offs, the share in net profits owed to you tends to be lower than the initial net profits. If there is any merchandise, you should also get a share in any net receipts. This also varies, but it tends to be around 20% – 35 % for books and scripts that don’t involve cartoons or character rights.
I've seen a lot of time being spent fighting about credits, so make sure you agree them at the very beginning! If you’re the scriptwriter, then you would of course want a ‘written by’ credit. If the project is based on your book, you would also want a ‘based on a book by’ credit. But what if the producer brings another scriptwriter on board? Will you share the scriptwriting credit? Whatever it is, start talking about it at the very beginning, as part of the overall deal.
Need help drafting and negotiating your option agreement for film or TV? Get in touch!
After many years of negotiating option agreements for producers and rightsholders, as well as reviewing option agreements from the point of view of a financier, I have learned one thing: option agreements can be difficult to draft but even more difficult to negotiate. Each project is different, so experience is priceless in ensuring that you are getting a good deal. There are so many unknown variables that parties can easily get lots in the jungle of licences, assignments, rights and net profit participations.
I hope this blog has helped clarify the process a little – I’ve also drafted a handy checklist for both parties to an option agreement to follow along during their negotiations. If you would like a copy of that checklist or have any further questions, please do get in touch with me at www.silviaschmidt.org.
Apart from the handy checklist, I also offer a free initial consultation. Once we have talked about your project, I will provide you with a quote for drafting and helping you negotiate the option agreement. I will make sure to use my experience of working for financiers, producers and writers, to guide you through the negotiations as best as I can. You can read more about my experience and services on my website.