Hollywood released 607 movies in 2006 to the tune of 1.45 billion tickets sold for $25.8 billion in ticket sales world wide.
Yet, with an average budget of $65.8 million and average marketing and distributing costs of $34.5 million, every studio film put out last year cost over $100 million.
It is a well established rule of thumb that a movie has to make three times its negative cost to show a profit. With those kinds of numbers in the ledgers, it is no wonder that studio executives are nervous.
Talent costs continue to rise and over the past decade writers have been asking for, and getting, multimillion dollar deals. And perhaps the most valuable, if underrated, factor in the industry is the story itself.
Movies continue to draw on television for inspiration (e.g., Jackass, Mission Impossible, and the upcoming Simpsons movie). Other robust sources for potential screenplays are books, plays and newspapers. Several films have also been based on video games.
Generally, however, all purchase agreements for the acquisition of motion picture and allied rights contain the same elements.
Allied (or ancillary) rights may include merchandising, television or multimedia rights.
For example, a producer may wish to acquire the multimedia rights. This might enable the producer to create a DVD for the film or sell digital downloads. Additional consideration is usually paid for each additional right acquired. The additional consideration for a multimedia right might take the form of a flat fee or, more commonly, a royalty based on sales.
With so much money flying around in these kinds of deals, there is a constant dance going on between the producer wanting to lock up as many rights as possible and the creator of the underlying work trying to reserve as many rights and retain as much control as possible.
The best way to choreograph this particular dance is to set up the deal initially in the form of an option agreement. This way, instead of acquiring the right immediately, a purchaser obtains an option to purchase the property for a period of time during which he or she can seek financing.
In this way, the producer can secure the property for a relatively small sum of money. When the option is exercised, the ultimate purchase price can then be paid from funds which have been secured from the sell-off of video and foreign rights, and negative pickup deals.
(A negative pickup is a means of financing by which a studio guarantees that it will buy the negative of a film according to certain agreed upon standards and conditions. The fimmaker takes this guarantee of distribution to a bank which loans the filmmaker the funds necessary to make the film.)
Typically, option agreements in the film industry are set up for 1 year periods. However, properties may be initially optioned for as little as ninety days if the producer is confident of selling the project quickly.
Believe it or not, it is not unheard of to grant free options for original screenplays or other underlying rights. While this is acceptable for new authors with no prior credits, I would seek to limit the option period and obtain more points on the back end of the deal.
In most cases, the initial option price is about 10% of the ultimate purchase price. Additional option money may be paid for renewals of the option period(s). And, while any initial option fee may be applied against the purchase price, it is possible to negotiate that renewal options fees not be so applied.
In any option or purchase agreement is important to be clear about what rights are being acquired.
For example, if the Producer is acquiring the right to make a feature film based on the literary property, it is important to distinguish between granting video rights and granting television series rights.
Furthermore, if any sequels are to be made, there should be an additional payment for each sequel, payable upon commencement of principal photography. Remakes also require additional fees.
Television series rights and multimedia rights are extremely lucrative and complex, as are merchandising rights.
In the event the Author grants television series rights to the Producer, a royalty formula for television series rights might involve different royalties for the pilot versus subsequent episodes.
In addition, the Author must receive credit on the screen and in all paid advertising under the control of the producer.
For multimedia rights, a formula based on sales is typical either as a per unit percentage or a fee payable based on certain sales plateaus. In both cases, the royalties will depend upon the value of the property (e.g., bestselling novel) and the general market price for similar properties.
Force majeure clauses can be very important in option agreements. These clauses deal with so-called "acts of God" and other contingencies which delay performance of the agreement.
For example, if the producer options your novel for 1 year, he is not going to be too happy if there is a writers' strike which coincides with the term of the agreement and lasts 9 months. This would prevent the producer from engaging screenwriters to develop the project, a necessary step in obtaining the sale of the project. As a result, the force majeure clause extends the option period during the strike.
The author, of course, must be careful to put a reasonable limit on the period of force majeure, such as 6 months.
Negotiating for acquisition of rights for a film project requires a familiarity with certain standards in the industry. On the other hand, every project has its own peculiarities.
One client whose true-life story was being optioned wanted a clause in the purchase agreement guaranteeing that the producer would take adequate steps to distinguish the film family from the real-life family of my client (e.g., change family name, locale, etc.).
The reason: the film was based on a supernatural occurrence in the family household and my client was concerned about ostracism from friends and co-workers.
If you are the next J.K. Rowling and Hollywood comes knocking to option your new novel, just remember to write one more sentence:
"All rights not granted to Producer herein are reserved to Author."