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:
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.
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.
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.]