A few weeks ago, I wrote about the importance of Option Agreements to a producer who is trying to acquire the rights to a screenplay when raising money for your film.
An option agreement is a contract that gives the filmmaker the exclusive right to buy the screenplay copyright during a defined period of time for a specific amount of money.
Now let’s talk about a mistake that a lot of filmmakers make when negotiating an option agreement with a writer… a mistake may transform your valuable option agreement into a little more than a right to keep negotiating with the writer. The big mistake? Failing to negotiate the purchase price when you negotiate the option.
When you negotiate the option agreement you must, at the same time, also negotiate the purchase price and other key terms of the screenplay sale. A filmmaker who has negotiated the option agreement to a screenplay but not the purchase agreement holds a worthless option. It is worthless because although the filmmaker may exercise the option, the sale terms have not been agreed on and, therefore, the screenwriter is not obligated to sell the script to the filmmaker for a certain price.
In the case of a worthless option, what the filmmaker really has is not a right to buy the script but a right to negotiate for its sale. The screenwriter may demand as much money for the script as he or she wants and the only choice the filmmaker has is either to agree to pay it or not to buy the script.
“Example: Wendy Writer has written a script called King Axolotl, a monster flick about a giant fire-breathing aquatic salamander, which Petra Producer is very interested in making. Suppose Petra didn’t negotiate a purchase agreement when she negotiated the option agreement for the script. It’s now six months later, and Petra has a backer interested in funding the picture. Petra tells Wendy that she wants to buy the script for $65,000. Wendy, knowing that Petra has an interested financier whom she doesn’t want to lose, decides to hold out for a higher purchase price—$100,000. After all, Wendy figures, she is not obligated to sell the script to Petra at any certain price, so she might as well hold out for a higher price. Petra has lost her leverage over bargaining for the purchase price. Without a purchase agreement tied to an option, the option is pretty much worthless. At best, it’s a shopping agreement – the right to show the script around without the right to buy it at a certain price.”
The most common reason a filmmaker fails to negotiate the purchase terms is that it the purchase terms is the trickiest part of the option/purchase agreement. It’s often a bit overwhelming and easier to just “kick that part down the road.” How much should you offer to pay for the script? What contract clauses do you need? What rights do you need and what rights should the writer keep?
However, the reality is this: few investors outside the “bank of mom and dad” will give you money for a project when you can’t promise that you can purchase the rights to the screenplay for a predetermined price.
The good news is that these are things you can learn. I spend a whole chapter in The Pocket Lawyer for Filmmakers walking you through some of the key deal points in option/purchase agreements. Even if you don’t own my book, this is an area where partnering with an experienced production attorney can provide you with the certainty your investors need in order to finance your film.
For more on the deal points of an option/purchase agreement, see The Pocket Lawyer for Filmmakers .
Parts of this blog been excerpted from The Pocket Lawyer for Filmmakers.
© 2017 Thomas A. Crowell, Esq.
Thomas A. Crowell, Esq. (tcrowell@lanesash.com) is a partner at the law firm of Lane Sash & Larrabee, LLP. He focuses his practice on intellectual property and media law.
NOT LEGAL ADVICE