The Key Deal Points

A) Option Fee
The first deal point to be negotiated is the option fee.  This is the only sum of money that the owner is guaranteed to receive.  If the option period expires unexercised, the owner will retain not only the rights to the property, but the option payment(s) as well.  There is no standard amount for an option fee, as it is subject to negotiation between the parties.  Customarily, the option fee will be in the vicinity of 10% of the purchase price.  In some cases, the writer may be willing to grant the purchaser an option for free in exchange for the producer's efforts in "setting up" the project (such as securing financing, attaching bankable talent, and further developing the property) and "other good and valuable consideration."  Free options are rarely granted on studio deals, where option fees can range from $5,000 to as much as $100,000 for a 12 to 18 month option.  Generally, the following factors come into play when negotiating an option fee (as well as the purchase price):

a. the level of demand for the property;
b. the "heat" on the writer;
c. the relationship of the owner and purchaser;
d. the resources of the purchaser;
e. the length of the option period granted; and
f. the type of project involved (for example, television vs. feature film).

B) Option Period
This is the period of time during which the purchaser may exercise the option (and purchase the property) or forfeit his rights to do so, unless he has negotiated for the right to extend the option period upon payment of an additional fee.  The length of the option period is subject to negotiation and may range from 3 months to 2 years or longer.  Most commonly, the option period is 12-18 months.

C) Applicability of Option Fee vs. Purchase Price
Another point of negotiation is whether or not the option payment(s) will be applicable against (i.e., be deemed an advance against) the purchase price should the option be exercised.  In most cases the producer will require that, at a minimum, the initial option fee be "applied" against the purchase price.  If one or more Extended Option Periods are granted, it is customary that the fees paid for those extensions will not be applied to (i.e., reduce) the purchase price.

D) Set-Up Bonus
In some cases, most often when the option was free or acquired for a relatively modest sum, the owner will request a "set-up bonus." A set up bonus is an additional fee payable when (and if) the purchaser enters into an agreement for the development or production of the property with a studio, financier or production company or, in the case of a television movie or series, a television network.  Sometimes, when the producer agrees to such a bonus, he or she will require that the option period be automatically extended for some specified length of time upon payment of the bonus.  The producer will usually want the bonus to be applicable against the purchase price while the rights holder will resist this position.  The amount is subject to negotiation between the parties and the final terms will vary from deal to deal.

E) Purchase Price
The purchase price is negotiated simultaneous with the option terms and is due and payable upon exercise of the option, if ever.

There is no set formula for determining a purchase price.  The WGA sets minimum purchase prices for original screenplays (currently in the range of $30,000 to $70,000, depending on the anticipated budget of the production).  In some cases, the owner will request that the purchase price of the property be "tied to" the budget of the film.  For example, the owner may request that the purchase price be equal to a percentage (usually between 1.5% and 3%) of the final budget with a floor (i.e., a minimum price).  For example, "Owner will receive 2% of the budget upon exercise of the option, with a floor of $150,000."  The producer will usually request a ceiling (a maximum price) to protect against situations in which the budget spirals out of control (like the budget for the motion picture "Titanic").

F) Contingent Compensation
The owner of a literary property will usually request a profit participation in the eventual production.  Customarily, the purchaser will grant a 'net' (as opposed to gross) profit participation, usually 5% of net proceeds.  In addition, the owner can negotiate to receive box office bonuses payable at such time, if ever, as the picture generates a particular level of theatrical box office gross receipts.  These points are subject to negotiation between the parties and will vary from deal to deal.

G) Credit
If the optioned property is an existing screenplay, the credit will generally be determined in accordance with the WGA Agreement (assuming that the production is subject to WGA jurisdiction).  If the production is non-guild, or the acquired property is not a screenplay (e.g., book, article, play, etc.) all aspects of credit will need to be specifically negotiated.

H) Reserved Rights
In many cases, the owner will attempt to reserve (i.e., retain) certain rights. If the optioned property is a book, the owner will almost always withhold the print publication rights (a must if the book is already published!).  Similarly, if the underlying property is a play, the owner will ask to reserve live stage rights.  Generally, when agreeing to option an original 'spec' screenplay, book, or a play, most owners will negotiate to retain certain customary reserved rights--print publication, live stage, radio and live television.

In any event, if the optioned property is a spec screenplay, and the deal comes under WGA jurisdiction, the Separation of Rights provision of the WGA Agreement will bestow certain reserved rights upon the owner.

I) Reversion
The owner will often request the right to reacquire her property in the event that the purchaser does not produce a motion picture or television film or series (as applicable) based on the property within a certain, negotiated time period (usually between 3 and 7 years from the date the rights were acquired).  That way, the owner can try to set the project up with another producer or studio.  The purchaser may grant a right of reversion subject to the owner repaying the purchaser all sums that had previously been paid to the owner by the purchaser, with interest.  In some cases the studio may request a percentage of future profits as well.  If the property is a screenplay and the owner is entitled to separation of rights under the WGA agreement, she will be entitled to a right of reacquisition.

I) Consultation / Approval Rights
Most owners of literary property will not receive consultation or approval rights over creative aspects of the film or television project (such as the cast, the director or the screenplay) since the purchaser will not want to be restricted in exercising its creative control.  However, certain high level authors such as John Grisham or Tom Clancy may refuse to part with the rights to their books unless they are afforded a certain degree of control over the creative aspects of the film or television production based upon their work.

J) Optioning Books or Stage Plays
In addition to the issues discussed above, certain unique factors come into play when the optioned property is a book or stage play rather than a screenplay.  It is important to note that the WGA does not cover the writing of books, articles or plays, and thus the protections afforded to screenwriters optioning or selling their screenplays to a guild signatory will not apply.

Book authors can also negotiate for Bestseller Bonuses (i.e., additional sums payable if and when the book is listed on the New York Times bestseller list or some other specified list).  Playwrights sometimes negotiate for bonuses based on their winning awards such as the Tony Award.  In addition, renowned book authors or playwrights may be able to negotiate for possessory credit. Examples include "Bram Stroker's Dracula" and "Wes Craven's "Nightmare on Elm Street."

Finally, it is important to note that most purchasers will require that the book option agreement be accompanied by a publisher's release, to be signed by the book's publisher.  This release acknowledges that the publisher does not own the film, television or specified ancillary rights in and to the book and ensures that the purchaser is free to exploit such rights.

Conclusion

The above discussion is meant to be a primer on the option and sale of literary properties.  It is by no means an exhaustive discussion.  For more detail on this subject, please refer to "Hollywood Dealmaking: Negotiating Talent Agreements" available at fine bookstores.

**The authors recommend retaining an entertainment attorney to protect your rights when entering into these types of transactions.

ABOUT THE AUTHORS: Dina Appleton is Vice President, Business Affairs at Writers and Artists Agency in Beverly Hills. Daniel Yankelevits is a Business Affairs Executive at DreamWorks SKG.

The authors conduct seminars through www.showbizseminars.com

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