Option vs. Shopping Agreements: How to secure your position with your next project.

Option vs. Shopping

Developing material to produce is a major challenge. A series of major challenges, actually.

1. First, you have to find and identify the right project(s) to develop,
2. Next, unless it’s an original idea you’ve conjured from thin air (which, of course, DOES happen), you have to actually secure the right to develop and produce the material.
3. Then, you have to actually make the project happen. This is where the writing, re-writing, packaging and financing come in.

But let’s take a look at item #2 above. Securing the right to develop and produce the material.

Option Contracts

Historically, the way producers, production companies, and studios went about securing rights in material for their development and production pipeline(s), has been to enter into an option agreement with the owner, author, or subject of the desired project.

An Option Contract is a long-established legal structure where a seller agrees to sell the property in question for a price (the “purchase price”) which is to be paid within a specified time frame (the “option period”), if and when the purchaser determines that the purchase is in his/her/its best interests. In so doing, the seller is granting the purchaser the exclusive right to purchase the property during the designated time. In exchange, the seller pays a smaller, so called “option price”.

So, for example, suppose Peter Producer has found a script by Walter Writesalot. They enter into negotiations, and Peter obtains a 1-year option to acquire all rights in the script by paying a purchase price of $100,000. Peter agrees to pay $10,000 [1] for this 1-year period, in order to ensure that Walter doesn’t sell the piece to someone else. To fully acuire the script, Peter must pay Walter $100,000 upon the earlier of: starting principal photography, or; expiration of the 1 year Option Period.

Of course, typical modern option agreements are more complex than the simple example above, and include extensions, writing service add-ons, etc., but you get the picture. Peter is assured the property can be his for a price he’s pre-negotiated, and he can’t be circumvented for at least a year. So, he’s on pretty solid footing as a producer.

Shopping Agreements

A more modern approach some producers and production companies take is to enter into a “shopping agreement” with the owner of the material in question.

In a shopping agreement, the owner agrees to give the seller a fixed period of time, during which to “shop” the material around to prospective distributors, television networks, financiers, and what-have-you, in order to get the project “set-up.” The owner and producer agree that if, during the shopping period, there’s interest in the project, they will each enter into negotiations with the interested party. The owner will negotiate for the sale of the rights (possibly an option, sometimes a straight purchase), while the producer will negotiate his/her/its deal as producer (or Executive Producer, Co-Producer, etc., as the case may be). Owner and producer further agree that neither will circumvent the other by entering into a deal, unless the other has also entered into a deal.

Typically, little or no money changes hands between the producer and material’s owner, so the producer is getting a free window of time to set up a deal. That window of time is often (but not always) shorter than a typical option period.

The owner of the rights may feel that such an arrangement is worthwhile, because the purchase price isn’t pre-negotiated. If the producer is successful generating “buzz” around the project, and gets it set up with a major film studio, or there’s interest from multiple directions, it’s possible to command a higher purchase price than might be possible earlier on. But, in my experience, that doesn’t happen. Instead, the producer “sets up” the project (and the owner) by striking his/her/its deal first, and essentially presenting the deal terms for the rights-purchase as a fait accompli.

Which is better?

Determining which structure is “better” is really like shooting at a moving target. In true lawyerly fashion, I'll say, “it depends”.

My personal view is that in most cases, an option is the better approach. It provides better protection for the producer, some up-front cash and greater certainty about the purchase price for the rights owner, and is the more established deal structure. By expending some money to acquire the option, the producer is “putting his money where is mouth is”, and is more likely (I think) to take action to develop the property. He has some “skin in the game”.

Of course, that need for that “skin” can be a deterrent to an enthusiastic, connected, but cash-poor producer, who might just bring the kind of hustle that gets projects made.

By contrast, the shopping agreement provides the rights owner little certainty, while limiting his/her ability to entertain other offers. The Producer might blanket Hollywood with the project, reducing likelihood that there will be opportunities later, if he/she/it is unsuccessful in setting up the project. Similarly, the rights owner might sandbag the producer with unreasonable expectations and demands in the eventual negotiations.

However, there are contractual provisions that can be implemented to reduce these risks, but with no money changing hands, the rights owner will have to go out-of-pocket to hire an attorney.

Still, there are situations in which a shopping agreement can be valuable. If the producer is well-established, with strong relationships, and the proven ability to get projects set-up, the risk might be worth taking.

Conclusion

Ultimately, every deal is different, and should be evaluated on its own merits. Whether you’re on the producer side or a rights-holder, the help of an experienced entertainment lawyer can ensure that you're getting the most favorable deal possible.