Screenwriters’ Dealmaking Tips for Negotiating a Screenplay for a Film and Television Option/Purchase Agreement

Breaking into the TV/Film industry by successfully selling a screenplay is no joke. With all of the time and effort it takes to develop, write, and polish an audience-ready script, it is just as challenging getting the script in front of film & television companies, whether with an agent/manager or without. When you do strike gold, though, you will need to know how to handle the Option Agreement that the producer will present you with. Having a good entertainment lawyer will help bring sense and good bargaining skills to the table. However, new or emerging screenwriters do not always have tons of money to spend on legal fees.

During the course of my legal practice counseling screenwriters and others in the film and entertainment industry, many often have the same questions and concerns. Here are some of the points I generally cover with them:

What Exactly Is an Option Agreement? Putting a film together is a lot like making a meal using a recipe you’ve never tried, where you have to go out, find, and purchase all the ingredients at grocery stores scattered across the city. Filmmaking involves a lot of moving parts that must be prepared, developed, and brought together before the movie can actually be made. Using the cooking analogy, a screenplay is like the recipe card. You need to have the recipe card in hand before shopping around for the ingredients so you know what to look for and how they will fit into creating the meal. The industry standard for screenplays is thus the Option/Purchase Agreement. Option/Purchase Agreements allow producers to keep the screenplay in their pocket why they run around the industry to their contacts and others to secure interest, talent, financing, and the logistics necessary to make the film.

The “Option” portion of the Agreement thus refers to an option which the producer can exercise the right to purchase a screenwriter’s screenplay. Granting a producer or director an option to a work of authorship (such as a book, novel, screenplay, etc.) gives them the exclusive rights to that work while they try to raise money, secure talent, and otherwise exploit the work with the goal of making a movie. During the option period (which is a period of agreed time, often 6-12 months or sometimes longer), the producer can exercise the right to “purchase” the work. An option does not mean that your film will necessarily get made. Once you agree to the Option, you won’t be able to sell it to anyone else other than the producer you’ve agreed with, submit it to contests, or show it to others. The “Purchase” portion, on the other hand, is the actual Agreement by which the screenwriter’s rights to the screenplay will be purchased, when the movie is ready to move forward.

It’s the Compensation, Stupid. The most important deal terms in film and television are almost always compensation. Option/Purchase Agreements often compensate screenwriters in a few different methods: a) an initial payment that is paid to you regardless of whether the film is made, which is the option price; b) percentage-based compensation (such as back-end points); and c) other perks or rights (such as box office bonuses, right of first refusal on re-writes, sequels, etc., or monetization of other rights such as to merchandise, apps, video games, etc.). There are options agreements out there called “dollar options,” for which the option price is for $1 or no money. There are mixed reactions among screenwriters about whether such deals should ever be entertained. Some screenwriters feel as though it is abusive and unreasonable; other screenwriters (often new or inexperienced) use the opportunity to work with a particular director/producer or get a break into the business.

How Much Should Screenwriters Be Getting for an Option? Like everything else in the entertainment industry, the answer tends to be “it depends.” It depends on the screenwriter’s experience, leverage, and how “hot” the screenplay is considered. A brand new screenwriter with no experience and no relationship to the industry will probably have to take whatever he/she can get; on the other hand, a screenwriter writing hired to write the screenplay for a hot novel on the bestseller list can expect a sizeable advance and better terms. Generally, option prices can be around 10% of the purchase price. For independent films with a budget of $100K, an option price will be very minimal, maybe a few thousand. On the other hand, for a $5 million movie, the option can range from $10,000 – $20,000. The option price isn’t everything. Think of low-budget movies that became hits, like Blair Witch Project, which had a $750,000 budget but with $248.6 million in revenues. Having a piece of the back-end on that type of project would have significantly dwarfed any option price that would have been paid on the front-end.

The Purchase. If all of the stars align correctly, the “Purchase” portion of the Option/Purchase Agreement will eventually come to fruition. The screenwriter’s compensation will generally be based off of the production budget. Generally, screenwriters are entitled to ask for 2-4% of the production budget. If the writer is in the Writer’s Guild, the WGA’s schedules will apply and lay out a host of other minimums depending on the product being delivered by the screenwriter.

Other Dealpoints. As with all contracts in the entertainment industry, the devil is often in the details. No contract is rarely identical to another, so again, it is important to have an experienced entertainment lawyer help you with the details. That being said, here are the topics that I address most often with clients:

• Net Profit . One of the biggest areas for negotiation and dispute in film/tv contracts (as well as music, and other entertainment industry areas) involves the calculation of back-end compensation using the “net profits” made by the project. “Net Profits” simply means gross income minus expenses. The problem is that the definition of what counts as “expenses” can be so expansive and broad that by technical definition, the film makes no “net profit” even though those involved with the film are profiting. Imagine a business that makes $1 million a year and has $500K in expenses. If the owner pays himself $100K, the business will have a profit of $400K. If the owner pays himself $500K, the business has zero profit. When you’re negotiating any kind of contract in the film/tv industry, pay very close attention to what is being included to set off against income, as it will affect residual/back-end compensation that is often based on percentages or points (discussed below).

• Points, Percentages, and Bonuses . Back-end compensation is often discussed in terms of “points.” There is a difference between “points” and “percentages” because points are often a portion of other percentages (i.e., 5 points out of 50% of net profits). However, because of the creative way that expenses are often set off against revenues in “Hollywood Accounting,” equity participants often see only minimal returns. Box-office bonuses, on the other hand, usually involve a tiered structure where additional compensation is paid depending on how well the film does at the box office. For example, screenwriters could negotiate to get an additional X if the box office sales exceed a Y times the budget of the film.

• Audits & Accounting . It is shocking how many agreements presented to screenwriters, and others in the entertainment industry do not allow audit and accounting rights. This would be like agreeing to work as an employee for someone without knowing how much they’re going to pay you. It’s going to be extremely difficult for you to know how much you are entitled to if you have no rights to ever examine the books and ledgers.

• Writing Rights . In addition to the option price for the screenplay in its current form, another dealpoint is to negotiate for writing rights to earn additional compensation for revisions, rewrites or polishes. There could also be TV series and remakes done later down the line of the film is successful.

• Rights of First Refusal and Passive Payment Rights . A right of first refusal for sequels will allow you to write a subsequent screenplay if the film does so well that a sequel is in the works. A passive payment right, on the other hand, will compensate you even if you don’t actually prepare the sequel and decline to exercise your right of first refusal. All of these issues are subject to negotiation, and often what the parties will agree to is a compromise of what is asked.

• Other Rights . Don’t forget the other rights that you have that could earn compensation. A Option/Purchase Agreement could cover the screenplay only, or other rights, such as the story. For example, successful films usually launch a variety of ancillary products, such as video games, merchandise, t-shirts, apps, and other licensed products. They can also include publishing rights (for literary publications), theatrical/stage rights (if the film is turned into a performance), radio rights, sequels written by the same author, soundtracks, commercial tie-ups, documentaries, and other exploitations. Pay attention to what the Option Agreement actually covers before you sign it.

• Salary. In addition to the forms of compensation above, screenwriters can also negotiate to have the producer hire the screenwriter for a creative role and earn separate wages that do not depend on how the film does at the back-end.

• Reversion. Finally, it is important to negotiate the reversion of your rights back to you if the screenplay is never turned into a movie. Otherwise, you give away the rights to your work product forever, and you will not be able to use it, distribute it, copy it, show it off, or do anything else with it, since you may have already transferred all copyright and intellectual property rights to the producer through the Option/Purchase Agreement.

• Credits. Finally, how should credits be handled? If the project falls under the Writer’s Guild, then you should try to negotiate where you are deemed a Professional Writer as well as a Participant Writer. Furthermore, other commonly requested credits include “Story By,” “Written By” or “Screenplay By.”

Obviously, all of the online articles and tips in the world will not serve as a good substitute for legal advice with a lawyer who is working with you. However, the points above cover the bare minimum issues that you should negotiate when working with a producer to option your screenplay.

Attorney Rabeh M. A. Soofi (@rabehsoofi) is CEO and founder of Axis Legal Counsel, a Los Angeles, California based entertainment law firm serving clients in film/television and others in the entertainment industry.

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