OPTIONS FOR PLAYS, MUSICALS, MOTION PICTURES AND TELEVISION PROGRAMS
Options are frequently used in the entertainment industry. Authors and publishers who hold subsidiary rights in their published works are often asked to grant options for movie, television, and other types of productions based on their works. The production of a new play typically begins with the producer obtaining an option from the playwright. Accordingly, it is important for authors, playwrights, publishers, and other rights owners to be familiar with options.
What is an option?
Options provide producers with a low-risk way to tie up a work while determining if production of the work is economically feasible.An option is simply a contract in which the owner of rights in a work gives another party, such as a producer, a limited period of time to decide if it wants to use the work. During the term of the option, the rights owner agrees to refrain from soliciting or accepting other offers for the work. At any time before the end of the option term, the party to whom the option was granted may exercise the option and proceed to use the work. Options typically can be exercised in one of two ways: (1) by paying the purchase price specified in the option contract; or (2) by beginning the production of the film, television show, play, or other work covered by the option. The rights owner will usually be entitled to receive royalties or a share of the revenues earned by the work, but the amounts acutally received will vary greatly depending on the type of work produced. Options provide producers with a low-risk way to tie up a work while determining if production of the work is economically feasible. During the option term, a producer may line up talent to work on the production, prepare an initial script for the production, and seek financial backing for the production. If the producer is unable to generate sufficient interest in the production, the producer can walk away without having made a susbstantial investment of money or time.
How Much Is An Option Worth?
The party receiving an option should always pay an option fee, and that fee should always be nonrefundable. However, the fee may be applied against the purchase price or royalties that will become due if the option is exercised. Option fees vary widely, from a few hundred to several thousands of dollars, depending on the value of the work covered by the option.
How Long Does An Option Last?
Options typically run for a period of one year, but it is not unusual to find shorter or longer option terms. In most cases, the party holding the option can extend the option for one or more additional terms by paying another option fee. Depending on the value of the work subject to the option and the bargaining position of the rights owner, the fee for an extended term may be higher than the fee for the initial term, and may not be applicable against the purchase price or royalties if the option is exercised.
Are There Any Downsides To An Option?
At first glance, an option seems to be a good deal for the rights owner. Most options are never exercised, so the rights owner gets additional income without losing the work. However, there are at least two reasons why rights owners should look closely before signing an option agreement:
1A rights holder should always negotiate the terms of the Purchase Agreement before signing the option.. While the Option Agreement itself is usually a relatively short document, it will always be tied to a much longer and more complex Purchase Agreement. (In most cases, the two agreements will actually be contained in a single document.) The Purchase Agreement will automatically become effective upon the exercise of the option. Since the party holding the option has sole control over the exercise of the option, the rights holder should negotiate the terms of the Purchase Agreement before signing the option.
2. The option will take the rights owner's property off the market for the option term and any extended term or terms. If there is only a limited period of time in which the rights owner's work will be marketable, the rights owner should try to insure that the property will be developed rather than languish with an underfunded or disinterested producer. It is not unheard of for a producer to tie up a property with an option solely to avoid having that property compete with another property that the producer already has plans to produce.
In summary, options are often the only way to get a work produced in the film, television, and theatre industries. Rights owners should be open to opportunities to grant options, but should also investigate the background of the party to whom the option will be granted and review the terms of each deal carefully to avoid unexpected outcomes.