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How Option Agreements Work

In the motion picture industry, whether the producer wishes to obtain the life story of an individual for the purposes of making a motion picture, or obtain a book, article or screenplay (collectively and generally known as literary property) written by someone other than the producer, an option is used as a cost saving measure. From the producer's perspective, the goal is to pay the least amount of money in order to allow the producer time to obtain funds to purchase the life story or literary property over the longest period of time that can be negotiated. This is accomplished by using an option.

An option agreement (whether for life story or literary property) is an agreement whereby the purchaser (the Producer) pays a small amount of money so that the purchaser/producer may have the exclusive right to produce that movie over a defined period of time. An option period could last from months to years. As a general rule, the producer will negotiate for an option for a period of six months to one year and pay the option payment to exclusively "tie up" the life story or literary property for that period of time. The option payment could be anywhere from one dollar to thousands of dollars. The producer may exercise the option by paying the purchase price for the life story rights or literary property, pursuant to the option agreement. The purchase price may also include varying amounts based on a percentage of the budget, deferred fees, contingent (back-end) profit participation, rewrites, polishes, etc. The producer may also wish to extend the option for a further period of time by making an additional option payment. As a general rule, the initial option payment price is applied against the purchase price whereas the subsequent extension option payments are not applied towards the purchase price.

Once the option is exercised and the life story or literary property is purchased, the producer will attempt to complete the film based upon the optioned life story or literary property.

For more information regarding life story options and screenplay options, see website sections entitled Deal Point Checklists for Life Story Option and Screenplay Option (which also applies to any other type of literary property which may be being optioned).

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