Options in the Motion Picture and Television Industries

You often hear the word “option” tossed around in the motion picture industry. A producer says he’s got the option on a certain book or script. A screenwriter is excited that a studio optioned her screenplay. But what are they talking about?

In the What Every Filmmaker Needs to Know About the Law books and videos, I spend a fair amount of time on options, and I encourage you to get this set and review the material. While you’re waiting for it to arrive, here’s a very brief, down-and-dirty overview of options.

Types Of Options

In the financial industries, there are two broad types of options (which Black’s Law Dictionary defines generally as “the right of election to exercise a privilege”). One is the right to buy something in the future at a price you fix today, which Wall Street types term a “call.” The other broad category of option is the right to sell something in the future for a price you fix today, which financial investors term a “put.” There are variations on these two broad categories.

In motion pictures, it’s usually the first type people are talking about when they say “option.”

Option on a Screenplay

An option on a screenplay means the right to buy it in the future for a price that is stated in the option. It obligates the screenplay’s owner (the “optionor”) to sell for that price, but it does not obligate the person optioning (the “optionee”) to buy. It is the optionee’s choice whether to purchase.

The biggest mistake many do-it-yourselfers (i.e. people who foolishly try to do their own legal work) make is in not fixing the purchase price and purchase terms in the option. Unless you fix the purchase price and terms, you don’t really have an option to purchase.

In practice, most experienced lawyers who draft options agreements create a separate purchase agreement that is attached to the option and signed at the same time, but which is not effective unless the option is “exercised.” [CAUTION: Don’t try this at home.]

Sometimes, people come to me with agreements they’ve put together that say if the optionee exercises the option, the parties agree to “negotiate in good faith” on the purchase price. To a lawyer, that’s not an option, it’s a “right of first negotiation.” Other problems with this: What does “negotiate in good faith” mean? Who decides? Usually, a judge or jury. After you sue (i.e., spend a lot of money and time fighting).

Another important part of the option is a description of how the option may be exercised. The best, and most obvious, way is to give the seller a check for the purchase price. It surprises me how often unwitting screenwriters agree that the option may be exercised simply by giving them written notice without any mention of payment.

There’s much more about options in What Every Filmmaker Needs to Know About the Law, which is available at WhatEveryFilmmakerNeedsToKnowAboutTheLaw.com.

Why Do An Option?

If you’re the screenwriter, you may wonder why someone doesn’t just buy your screenplay outright, instead of optioning it.

Generally, the purpose of optioning, rather than buying, is to give the producer an opportunity to see if there is interest in the marketplace for a film based on the screenplay (or book or whatever source material). Making a movie is an expensive venture, both in money and time, so the producer will want to see if any investors are interested in funding the project. The investors, in turn, will want to know if there will be a large enough audience for the finished film to make the project profitable. The producer wants to spend as little money as possible until he/she is sure the project can be completed.

If you are a producer or a screenwriter who needs help with your options, please feel free to contact me via the contact page at ProductionCounsel.com.

© Keith E. Cooper. All rights reserved. You may freely link to this post, but please do not copy (in whole or in part) without permission of the copyright owner.

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