Options

In my earlier post about script sale breakdowns, I promised a more in-depth look at options. This is that post!

As mentioned previously, an option is essentially when a buyer acquires the rights to your work for a limited period of time in exchange for a fraction of the money. Motion pictures are incredibly complex projects that require a lot of money and a lot of other elements to come together; production companies understandably want to make sure they have a viable project before they spend tens of thousands, hundreds of thousands, or, in some cases, even millions of dollars acquiring the rights.

Think of it like buying a car. Before you purchase a new vehicle, you’ll probably want to take it for a test drive, get it checked out by a mechanic, run a vehicle history check, etc. to make sure the car you’re getting will work for your needs and doesn’t have any unpleasant surprises show up right after you buy it. Production companies are the same way; they don’t want to actually buy something until they’ve kicked the tires, checked it out, and made sure it’s a viable project that won’t break down on them as soon as they’ve written a check.

In the case of a script, they’re willing to pay you something during that time period so you don’t sell it to someone else while they’re trying it out.

During an option period, the production company will develop the script, which means having you or another writer address the company’s notes that they think will make it a better project. The company also sends the script around trying to get a director, actors, and other talent interested (each of whom may also have notes they want address, hence the additional writing). And if they don’t have money or guaranteed distribution themselves, the company will have to secure those elements as well.

At the end of the option period, the company will either be far enough along in the process and enthusiastic enough about the project’s prospects that they’ll exercise the option and purchase your script… or the company will be less than bullish on the project’s prospects and they’ll let the option lapse, which means the rights will revert back to you, in which can you get the rights to the script back, and get to keep the option fee as consideration for the limited period of time you loaned them the script.

Keep an eye out for the following details when it comes to options:

The option fee
The option period
The purchase price
Any extensions or renewals
Whether the option fee(s) is/are applicable against the purchase price

Let’s take a look at each of those in turn:

OPTION FEE

The option fee is the amount of money you’re being paid for the option period. If the project is signatory to the Writers Guild of America, the option fee must be no less than ten percent of the purchase price. If the project is non-signatory to the WGA, the option fee can be anything that’s agreed to by both parties. Make sure that you’re satisfied with the amount of money you’re being paid for the option period.

OPTION PERIOD

The option period is the amount of time you’re giving someone else the rights. During the option period, the project is for all intents and purposes owned by that other entity, which means you can’t sell it or do anything else with it on your own. In most cases, twelve or eighteen months is a standard length of time to option something. If it’s more than eighteen months, ideally there’s a good reason or additional consideration being given; if it’s less than twelve months, there’s likely to be less money involved and/or it could be for a high-profile and/or time-sensitive project.

PURCHASE PRICE

The purchase price is the amount of money you’ll be paid for the rights if the company decides to exercise the option and actually purchase the screenplay. The WGA has a set of minimums for signatory projects; non-signatory projects can have a purchase price that’s as low as you’re willing to sell the work for. Make sure you’re satisfied with the amount of money you’re being paid in exchange for the intellectual property rights you’re selling.

EXTENSIONS OR RENEWALS

An option extension is the company’s ability to extend the deadline by which they have to decide whether or not to purchase the material by a specified amount of time, typically in exchange for an additional option fee. For example, the contract might state that the company will pay you $10,000 to option your script for 12 months, with the ability to extend that option period for an additional 12 months for an additional $10,000. In other words, if the company options your script on January 1, 2017, the first option period (i.e., initial option) deadline is December 31, 2017. At that point, the company has the right to elect to extend the option for another year (i.e., until December 31, 2018).

APPLICABLE VS. NON-APPLICABLE

A key component of an option deal is whether an option fee is applicable or non-applicable against the purchase price. In other words, can the company deduct the cost of the option from the purchase price? If your option fee is applicable, the answer is Yes.

For example, if you have a $10,000 option fee applicable against a purchase price of $100,000, that means the company will pay you $10K for the option, and then $90K ($100K less the $10K option) if/when they decide to exercise the option and purchase the rights.

It’s fairly standard for initial option fees to be applicable against the purchase price, but option extensions may or may not be applicable depending on the circumstances. For example, if your deal is a $100,000 purchase price with an applicable $10,000 initial option and a non-applicable $10,000 option extension, that means the company will pay you $10K for the initial option, $10K for the extended option, and $90K ($100K less the $10K initial option but not the $10K extended option) if/when they decide to exercise the option and purchase the rights.

Okay, so now that we’ve outlined the mechanics of an option, let’s talk about a few pitfalls that you should be looking out for:

Unlimited option extensions. Even if there’s money attached, you should avoid allowing a company to just keep extending the option over and over again. There should be a limited number of option periods and extensions, after which the company will need to make a decision about whether they want to purchase the material. You can always mutually agree to another option extension later, but giving the company a mechanism to just keep extending the option over and over without negotiating with you firmly puts the power dynamics significantly in their favor.
Always-applicable option fees. Having option extensions always applicable against the purchase price doesn’t really incentivize the company to buy the rights because every extension just reduces the amount they ultimately have to pay you if/when they buy the script. Especially when combined with #1 above, this can get really dangerous for a writer. For example, if every option period is an applicable $10,000 against a $100,000 purchase price and the company can extend an unlimited number of times at their discretion, they can tie up the rights to your script for 10 years ($10K x 10 years) and then own it at the end of that period!
Delayed option period starts. Make sure you’re clear about when the option period begins. Contracts can take a very, very long time to get signed, so you want to make sure the option starts as close to when the deal closes as possible. If you close a deal in March, you don’t want the twelve-month option period to start in September when the deal is actually signed. Ways to avoid this are to: (a) put a specific expiration date in the agreement, or (b) have the language of the contract say the option takes effect upon the date of the deal (usually the date the deal closes) rather than upon the date the deal is signed.
Purchase prices conditioned upon something out of your control. Sometimes, companies will try to condition the payment of the purchase price upon an external condition that you have no control over, like the securing of financing for the picture, or the commencement of principal photography. The payment of your purchase price should generally not be contingent upon a factor not under your control or at an undefined point in the future, and should absolutely not allow the company to permanently acquire the rights now and pay later. For example, if the purchase price is payable upon commencement of principal photography, what happens if they don’t start shooting the film for two years? What if they never start shooting the film at all? Make sure you’re not putting yourself in a position where the buyer can just go, “Okay, we’re purchasing it! We’ll pay you later when or if [X] condition is met!”
Free options. Sometimes, a company will ask you for a little more time because the option deadline is coming up while they’re in the middle of negotiations that could get the movie where it needs to be. Make sure that you’re not giving away too much time for nothing. A few weeks, a month or two… that’s not an unreasonable request if you agree that they’re on the cusp of taking a big step forward and are excited about the prospects. But a free option should be for an extremely limited amount of time to vet the business opportunity in a timely manner; it should not be a whole new option period for no money.

Now that we’ve looked at some mechanics and pitfalls of options, I’ll end with a few assorted pieces of advice and suggestions about negotiating your option deals:

INCENTIVIZE THE COMPANY TO BUY THE SCRIPT OR LET IT GO

A lot of projects lose momentum or flat out wither on the vine when there company isn’t incentivized to keep things moving. If they have long option periods, a lot of extensions, don’t have to pay a lot of money to renew, and/or can keep deducting applicable extensions from the purchase price, there’s very little incentive for the company to actually pull the trigger and purchase the script… or even to make your script a priority over other projects that come in and may have more expensive or more time-sensitive deadlines. It’s therefore in the writer’s best interests to have short options periods, few (if any) extensions, high option fees, and/or non-applicable extensions.

Finding a middle ground between those two opposed interests is what the negotiation is all about… and it’s safe to say that in the vast majority of cases, you’re not going to get everything you want. Which brings me to the next point…

DETERMINE YOUR PRIORITIES AND MAKE THE NECESSARY TRADE-OFFS

What are the one or two elements of the option that are most important to you? The amount of the option fee? The length of time your rights are tied up? You’re not going to get everything you want, so figure out which aspects of the option are most important to you and then be willing to sacrifice the other components of the negotiation to get what you want.

For example, if you want to maximize your option money, you’ll probably have to agree to a lengthier option period and/or a fair number of extensions. On the other hand, if you want the shortest possible option period, that probably means less option money. If you want the largest purchase price possible, you might have to agree to a number of (possibly applicable) extensions that you’re not thrilled with.

There is no right or wrong in negotiating an option deal. You just have to figure out what’s most important to you, and what elements you’re willing to sacrifice as trade-offs for those things that are more important.

KEEP THEM COMING BACK

The point where the writer has the most power is when the option is about to expire. When there are no extensions left, the company has to make a binary choice; they either have to purchase the script or they have to let it lapse when the time’s up… or they can try to convince you to give them more time.

It’s not at all uncommon for a company to come to you at the end of an option period and ask for an extension, and it’s the one of the few times where the writer has the upper hand in a negotiation. After all, you can always say No and they’ll only have their two original choices of purchasing the rights or letting them lapse.

The more often a company has to come back and ask you for additional time, the more bargaining power you have. That said…

HAVE REALISTIC DEMANDS

While the terms of any extension are subject to negotiation, don’t go so power crazy that you sour the company on working with you… after all, they always have the fallback position of exercising the option under the original terms of the deal, or walking away and letting it lapse. I’ve seen a great many writers talk themselves out of a good opportunity because they got too greedy with the demands during extension negotiations.

That said, some things you could consider asking for:

Money for the new option period (this is the most common)
An increase to the purchase price
Additional contingent compensation (bonuses, participation, etc.)
Additional recognition (e.g., producing credit, special thanks, etc.)
Updating other terms of your contract (perks, definitions, etc.)

Remember, though, that these asks need to correlate to what you’re being asked for. If you previously got $10,000 for a 12-month option period, and $10,000 for a 12-month extension, asking for $10,000 for a 3-month option probably isn’t going to fly. Neither is asking for a producing credit if the company just wants to extend the option by an additional month or two so they can try to close a deal with talent. Make sure the demands you’re making are consistent with the things you’re giving up.

DON’T UNDERESTIMATE THE POWER OF GENEROSITY

Sometimes, doing the company a solid is worth more than money or perks. While you should never be so generous that you feel you’re being taken advantage of, there is legitimate good will to be earned by giving the company a little latitude.

For example, if the option is about to expire and the company comes to you and says they need another couple of weeks because they’re in talks with a star whose attachment could mean getting the movie made. They’re excited about it, and you’re definitely in a position to leverage that excitement and that position to your advantage.

Sure, you could hold their feet to the fire and demand some more money or a producer credit or extra premiere tickets for your extended family… but you could also just agree to give them a very small defined period of time to resolve those discussions. Chances are, it will make you seem like a team player and earn some goodwill with the company you’ll presumably be working with in the future. This is the company that will determine whether you’re asked back for additional writing, whether you’re needed on set or consulted during the editing, and a million other factors… it’s not necessarily a bad thing to have them thinking you’re a pretty swell person for not holding them hostage when you had the chance.

That said, do not misconstrue this section to mean you should bend over backwards. There is a difference between giving someone a break as a limited, one-time favor and letting them walk all over you by repeatedly asking for favors instead of fairly compensating you. Use your best judgment and…

KNOW WHEN TO FOLD ‘EM

The development period of a movie can last for years, sometimes even decades. And a lot of development projects never see the light of day because the project elements just never quite came together in the right way. There’s nothing inherently wrong with that; it’s just the way the business works. But that’s why it’s important for you to know when to pull the plug and not agree to any additional extensions.

Assuming you’ve followed the above advice and the company has come to you asking for an extension, you have to decide when to say no. If your priorities, per the above, are to make money on the script and the company is offering you more money for an additional extension, this might be a non-issue. But if your goal is to truly see this script made into a movie, there may be a point where it’s clear that this company just isn’t the place where that’s going to happen (usually after years and years of option extensions and no progress). In times like that, you have to be willing to say, “Thanks for the offer to extend the option, but if you’re not going to buy it, I think it’s time we go our separate ways.”

That’s never an easy conversation, especially if you have a lot of history with the company or are potentially leaving a sizable chunk of money on the table, but it’s important to be realistic about your goals and recognize when the opportunity to actually get the project into production transitions from an optimistic outlook to a pessimistic one.

I know this was a long post with a lot to chew on, but hopefully it gives everyone a better understanding of how options work and what scenarios to aim for or avoid when faced with a potential opportunity to option your work.