As Torontonians know, we are in the midst of a mayoral election campaign; in all the excitement surrounding the candidate debates, it may have slipped into the rearview mirror that last month it was announced that the film rights for Crazytown: the Rob Ford Story, Robin Doolittle’s bestselling book about Toronto’s current mayor, had been sold to a Toronto-based production company. What are some of the considerations to be taken into account when structuring and negotiating an agreement to make a movie based on a book?
- Option vs Purchase. Most often, the deal to make a movie based on a book takes the form of an exclusive “option” agreement. What that means is that the producer has acquired not the exclusive right to make the movie, but has acquired the exclusive right to purchase the right to make the movie. In other words, there are usually some conditions precedent which the producer needs to satisfy before they can actually go ahead and make the movie, the most important condition (from the author’s perspective) being the payment of a “purchase” price. Why are agreements structured as options? Because the producer usually needs time to make arrangements to actually finance the making of the movie – and while the producer is running around trying to gather the money to make the movie, they need to “secure” the exclusive rights in the book, so that the author doesn’t go and give the rights to some other producer. By entering into an option agreement, the producer is basically acquiring the right to go to potential investors and financiers of the movie and say “hey, I’ve got the exclusive right to make a movie based on this book – want to be a part of it?”
- Who Owns the Rights? For the film producer, it is critical to ascertain who actually controls the right to make an audio-visual project based on the book (what I’ll refer to throughout this post as the “AV rights”). Often the publisher of the book will have acquired the AV rights in their publishing contract with the author – but it certainly is not unusual for an author to have retained the AV rights. Even if a producer is able to satisfy themselves that the author has the AV rights, it will be prudent to obtain from the publisher a quitclaim or release wherein the publisher confirms that they do not control the AV rights.
- Option Fee. The option fee is the amount which the producer pays to acquire the exclusive option. This fee is usually paid on signing of the option agreement (or very soon thereafter), and is often a relatively nominal amount – but is entirely open to negotiation. Only blockbuster bestsellers will see an option fee in the high five- or (even more rarely) six-figure range. An ancillary issue is whether the option fee is “applicable” against the purchase price – in other words, when the producer has to make payment of the purchase price (which we’ll discuss below) do they get to reduce the amount of the purchase price by the amount of the option fee (and any payments for extensions, also discussed below) which they have already paid? It is often the case that the initial option fee is “applied” against (i.e., reduces) the purchase price, but subsequent payments to extend the option period beyond its initial duration are not – again, however, the point is really a function of the negotiations between the parties.
- Option Period and Payments for Extensions. How long the initial option period lasts for is likewise subject to negotiation, though there are some general parameters: producers will usually be reluctant to enter into an option period which is less than one year, and authors will usually be reluctant to agreement to an option period which is longer than two years – so an initial option period of 12-18th months is fairly common. Given the vagaries of the film/TV production process, however, the “initial” option period is usually just a starting point: producers will often want the ability to extend the option period beyond its initial duration – but it will cost them, and they will not be able to extend the option period indefinitely. The amount of any extension payment is usually a multiple of the initial option fee.
- Purchase Price – Amount and Form. Here’s where things get funky. The purchase price is the amount which the producer has to pay in order to actually obtain the exclusive right to make the movie – payment of the purchase price is what converts the producer’s right from an option to an actual conveyance of rights. The amount of the purchase price is often related to its form: Is the purchase price simply a flat dollar amount which is pre-agreed by the parties at the time of entering into the contract? Or will the amount of the purchase price be determined by reference to a formula which takes into account the budget of the film or TV project? Authors will often want the purchase price to be determined by reference to a formula: the producer making a $3 million movie based on the book is a very different proposition than the producer making a $30 million movie based on the book. By contrast, the producer will often want to place some restrictions on the size of the purchase price they need to pay – and so the purchase price often is expressed as a percentage (usually somewhere between 1.5-4%) of the budget of the film/TV show, subject to a floor and ceiling on the amount. That way, the author knows they won’t get less than $x, and the producer knows they won’t have to pay more than $y. Easy enough, but which budget will be used as the reference point? The “in-going” budget which is used at the start of principal photography, or the “final” budget after all costs have actually been expended? Will there be any exclusions from the budget which is used to calculate the purchase price (such as deferred payments owing to cast and crew who agreed to forego an upfront payment in an effort to get the movie made)?
- Purchase Price – Timing and Process. How the purchase price gets paid and how the option actually gets exercised should be the subject of close attention when drafting an option agreement. The process and payment mechanic (e.g., in order to exercise the option, the producer has to deliver a written notice to this particular person at this particular address, along with payment of the purchase price in this particular way (such as by money order or wire transfer)) should be spelled out in detail. Where the purchase price is to be determined by reference to the budget, there should also be a mechanism which allows for a portion of the purchase price to be paid “up-front” upon exercise of the option (because the relevant amount of the budget might not be known at the time of exercise of the option) with a “catch-up” payment to be made later on, once the final amount of the budget can be determined. Authors will want the option agreement to include a mechanism which makes it clear that the commencement of principal photography is deemed to be an automatic exercise of the option, necessitating payment of the purchase price.
- Contingent Compensation. Another oft-contentious area – the possibilities for contingent compensation are limited only by the parties’ imaginations and tolerance for drawn-out negotiations. Contingent compensation might take the form of box office bonuses, net profit participation, additional payments to the author if the book achieves “bestseller” status on one chart or another, etc. Don’t forget audit and reporting language!
- Subsequent Productions. If the producer is granted rights to produce more than one audio-visual project based on the author’s book, the agreement will need to spell out what sorts of payments (if any) the author is entitled to for such subsequent productions (which can include sequels, prequels, remakes, spin-offs, TV-series-based-on-movies, etc.).
- Scope of Rights Granted. What exactly are the rights being granted to the producer? Is it the right to make a single audio-visual production? Or multiple productions? Can they make sequels? Prequels? Spin-offs? Remakes? Can they create merchandise based on the movie? Can they publish the movie’s screenplay as a stand-alone work? Can they create a theme park ride based on their movie? What about a videogame? Specificity in the wording of the nature of rights being granted will be rewarded down the road.
- Credit. The precise form of the author’s credit will need to be determined. This can take multiple forms, whether on-screen or in promotional materials for the AV project. Some examples: the on-screen credit might read “Based on the book [insert title] written by [insert author name]” – but will that be a main title credit on a separate card, or just a credit in the end credit roll? Is the author going to get credit in paid advertising? Does the paid ad credit get included just in the “billing block” or does the credit get included in the “artwork” so that it is plainly visible to viewers of the ad? In really exceptional cases, the credit obligation might include the right/obligation to use the author’s name as part of the title of the movie (e.g., “John Grisham’s The Firm“). Oh, the contortions we go through in specifying these things…
- Consultation/Approval/Participation. For the most part, unless the author is a J.K. Rowling or John Grisham calibre superstar, most producers are going to be loathe to give any sort of consultation or approval right to an author – the producer just wants to go off and get their movie made without interference from an author who thinks that their character would never say the lines in the screenplay. But, hey, it never hurts to try and ask for the right to approve or be consulted about things like the title, the casting, the screenplay, the promotional campaign, etc. If an author is feeling particularly bold, they might want to argue for a small role in the picture (non-speaking!), or to be engaged as a paid consultant on the project.
- Reserved Rights. Properly drafted grants of rights should make it clear precisely what rights are being granted from the author to the producer – but it can be helpful to have just-as-clearly-drafted provisions which set out what rights are being retained (or “reserved”) by the author. This is often a jumble of “non-core” rights, but ones which can prove lucrative: radio rights, live stage rights, print publication (e.g., graphic novels), etc. Authors will want to make it clear that the author has the right to create “author-written” sequels to their own book.
- Ownership of Development Materials. The producer will inevitably create what are referred to as “development” materials while they, er, “develop” their audio-visual project – things like draft screenplays or character designs if the project will be an animated one. Who gets to keep those materials if the option is not exercised should be addressed.
- Reversion. Sometimes the producer will exercise their option, pay the purchase price and then… the movie/TV show never actually gets made. For the author, that’s a terrible position to be in: they have conveyed the AV rights in their book, and those AV rights are just sitting on a shelf, unexploited. In order to ensure that doesn’t happen, agreements will include a “reversion” clause, which stipulates that, even after exercise of the option, if the audio-visual project has not been commercially released within a certain number of years (usually somewhere between 4-7 years), the AV rights revert back to the author. The producer will try to make such reversion subject to the producer’s right to be repaid any costs which the producer expended in purchasing the rights and developing the project.
The foregoing list does not address provisions which are not specific to option agreements, such as representations and warranties, “no injunctive relief” clauses, dispute resolution, etc.; nor does it address extra-contractual matters such as the need for conducting a chain of title review on the project.
A final thought: perhaps moreso than other film/TV-related contracts, option agreements require significant input from author’s agents, who can advise on what is “market” for certain elements of the agreement with reference to the particular book being optioned, particularly those relating to payment and credit.