Option vs. Shopping: What’s the Difference

The film and television industries have become increasingly informal in recent years. In the past, producers would enter into a written “Option Agreement” with writers, authors, content creators, or life rights owners (the “Rights Owner”), under which they would pay money to exclusively option the film and television rights to a screenplay, book, life rights, or idea (the “Property”). However, in today’s market, producers will frequently enter into a so-called “Shopping Agreement” (also sometimes referred to as a Producer Attachment Agreement) which gives the producer the exclusive right to “shop” a project to a third-party entity to finance or produce the Property for a set period of time – this entity could be a network, financier, studio, or other production company. While both shopping agreements and option agreements can apply to the development and acquisition of the Property, the application and terms of each are quite different.

Here are the basics:

OPTION AGREEMENT

An Option Agreement is an agreement between a producer (such as a movie studio, a production company, or an individual) and the Rights Owner for an exclusive, but temporary, right to purchase the Property. The Rights Owner in effect is agreeing to sell his/her Property to the producer for a price (the “Purchase Price”) which is to be paid within a specified time frame (the “Option Period”), and in exchange the producer pays the Rights Owner a smaller price (the “Option Payment”). Therefore, in a traditional Option Agreement both the Option Payment and the Purchase Price are negotiated upfront. Options are exclusive and usually last for an initial period of 12-18 months. After the expiration date, the producer no longer has an exclusive right to buy the Property, and the Rights Owner can option it to a different producer. Most option agreements specify the prices of additional extensions (most commonly one extension, also for 12-18 months), should the producer be unable to put the project together in the originally specified term, and choose to extend. The fee for the first option period is normally applicable to the option exercise price, while the fee for the extension (if exercised) typically is not applicable, though that is not always the case. The Option agreement may also address other terms related to what the producer will pay the Rights Owner for ancillary rights that flow from the original Property such as sequel rights, merchandising rights, etc. if the Option is exercised and the Property is purchased.

SHOPPING AGREEMENT

On the other hand, a Shopping Agreement usually has a much shorter term, generally 6-9 months, and there may not be any upfront monies paid. Typically, the producer simply promises to use his/her best (or even good faith) efforts to obtain an agreement from a network, financier, studio, or other production company to produce, develop, and/or finance a project based on the Property. In exchange, the Rights Owner grants the Producer the right to “shop” the Property for the length of the term to obtain such an agreement with a third party, but if the producer cannot establish negotiations or attain financing for the project before the term is over, he/she is no longer attached as a producer unless the contract is renewed. The producer does not own or control the rights to the Property, they only have the exclusive right to negotiate and set up the Property with a third party. The Rights 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 third party. The Rights 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). The Rights 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.

WHICH IS BETTER?

So, which is better? In true lawyerly fashion, I’ll say, “it depends.”
In some instances, 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 his mouth is,” which generally means he is more committed to take action to develop the Property. However, 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, then it may be more beneficial to the Rights Owner to retain his rights and enter into a short-term arrangement with the producer to see if he/she can secure a deal for the Property.

CONCLUSION

Ultimately, every deal is different, and should be evaluated on its own merits. Whether you’re on the producer side or a rights owner, the first step is to get a lawyer… not just any lawyer, but a reputable entertainment attorney. They can help walk you through and educate you about the process and your rights. They will handle things you never imagined would need to be handled. They will ask for compensations and protections that you didn’t know existed. They will ensure you get the most favorable deal possible and you will be better off for it.

[This article is not intended to be legal advice of any kind. It is purely intended for the purposes of general education and general discussion.]

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From Idea to Launch: Things to Consider Before You Start your Start-Up

So you came up with a great start-up idea? What is the next step? We work with start-up founders and entrepreneurs every day, listen to the problems that they want to solve, and help them with starting their dream project. In doing so, we have learned that there are a few things that are consistent with start-ups that ultimately succeed. So before you write up your business plan and start pitching to VCS, here are some things you should consider in your pre-launch phase to set yourself up for success.

1. Research your idea
The most important thing to do is to find out if your idea has already been executed. When entrepreneurs come to us with their idea, the first thing we ask them is have they googled it? In 2017, it is easy to research your idea to find out if it exists. Also, find out if there is even something similar to your idea. Use that information to determine if you have potential competitors and what is working for them. Also, research what is not working and how you can improve on it. Sometimes real disruption is just about doing things better, not dramatically differently. Don’t shy away from an existing model. There is a reason there is an uber and a lyft. It is important to recognize the strength, potential opportunities, weakness of the idea and lot of research is required to be done on this basis.

2. Research the industry
Research the industry your idea is applicable to. Google some more. Read business books. Seek out counselors and talk to industry veterans. Business schools and industry associations can also be invaluable sources of information. For instance, you might approach business schools in your area to see if one of their marketing classes will take on your business as a test project. You could potentially get some valuable market research results at no cost. Once you learn more about the industry, you can make better assumptions about how the industry works relative to your idea. Airbnb had to assume that people would want to rent a bed from a stranger rather than stay at a hotel. Your idea should be something that makes an industry shift.

3. Research your customers
Focus on what problem your idea is going to solve. Research who the customer is and how they will use it. Talk to people and find out if there is a potential customer base for your idea. Determine how your idea will help, disrupt, or elevate your customer’s life. Share your idea and let people poke holes in it so you can address and pivot. Part of your research is to validate the idea. In your gut you may feel like you have a brilliant idea, but your target audience must agree with you and that is when you can say that you have validated your product. In order to have a successful business, you have to create a product that your target customers, and not just you, would love to use.

4. Research the product
Yep, more research. Research how the product will actually work. You know what you want it to do, now research how it will do it. Don’t worry so much about features and product launch. Sometimes entrepreneurs get overwhelmed thinking about all of the features of the product and get stuck. It is better to have a few key features that address a problem rather than having 25 features that try and do everything. A simplified product is also much easier to execute. As you grow, customers will give you feedback and you can add features later. You may also find that your product can help solve additional problems as it grows. When uber launched they didn’t have uber eats, but they figured out “hey, if we can move people…we can also move food!”

Conclusion
While launching a successful startup is the dream of every entrepreneur, not everyone succeeds in the long run. The best course is to do the preliminary research to make sure you are laying a strong foundation to amplify your success.

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NDA 101: What is a Non-Disclosure Agreement?

One common way to protect the secrecy of confidential information provided by one party to another is by using a Non-Disclosure Agreement (NDA), also known as a confidentiality agreement. The principal situations in which an NDA is appropriate are those in which you wish to convey something valuable about your business or idea, but still want to ensure that the other party doesn’t steal the information or use it without your approval. NDAs are commonly used in business relationships to protect trade secrets, between employers and employees to protect confidential information, and they are also used quite often in the entertainment industry to protect ideas before being shared. Although the concept is simple—I’ll tell you my great idea if you promise not to steal it from me—in practice, things are a bit more complicated. To be effective at all, an NDA must include some pretty specific language. And even if the NDA contains that language, it still might not be effective if the information isn’t considered unique, i.e., novel and original.

DEFINITION:
A Non-Disclosure Agreement is defined as a legal contract between two or more parties that signifies a confidential relationship exists between the parties involved wherein the parties agree not to disclose confidential information that they have shared with each other as a necessary part of doing business together. The confidential relationship often refers to information that is to be shared between the parties but should not be made available to the general public.

NDA PROVISIONS:
Though NDAs may be customized to any degree, there are particular terms that are considered essential to include. These are sections that detail the parties to the agreement, the definition of what constitutes confidential information, the exclusions from confidential information, the obligations of the receiving party, the time periods involved, and what happens if a party breaches.

The parties to the agreement section at the beginning of the NDA is simply a description of who is involved. A NDA can be one-sided or mutual. The one-sided agreement is when you are contemplating that only one side will be sharing confidential information with the other side. The mutual NDA form is for situations where each side may potentially share confidential information.

The definition of confidential information section lists the types and categories of confidential information protected under the agreement and should state that such information is unique or novel while not disclosing the specific information. NDAs will typically include a laundry list of types of items which are covered, including unpublished patent applications, ideas, know-how, schema, financial information, verbal representations, customer lists, vendor lists, business practices/strategies, etc. For example, an NDA for an exclusive designer’s clothing boutique might include a statement such as this: “Confidential information includes customer lists and purchase history, credit and financial information, innovative processes, inventory and sales figures.”

At the same time, nondisclosure agreements often exclude some information from protection. Exclusions might comprise information already considered common knowledge or data collected before the agreement was signed.
Additionally, NDAs explicitly spell out a time period for which the person receiving the information is to keep it secret and what they can do with the information provided by the disclosing party.

Lastly, the agreement should set forth what happens if a party breaches the agreement. For example, if an NDA is breached by one party, the other party may seek court action to prevent any further disclosures and may sue the disclosing party for monetary damages.

The NDA may also include miscellaneous sections to cover any other matters deemed important, such as which state’s law to apply to the agreement and which party pays attorney fees in the case of a dispute.

CONCLUSION:
NDAs are an excellent tool to confirm that confidential information stays protected in a variety of situations. However, it is important to be aware of how these legal agreements work before signing or creating a document. Make sure and consult an attorney.

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