What Is the Difference Between a Shopping Agreement or an Option Contract for Your Creative Work?
If you have written a book or screenplay, you may be interested in turning it into a film, play or television series. However, pitching a project to buyers or financiers can be challenging. It can be helpful to work with a producer interested in either obtaining the right to “shop” the work or “option” the right to purchase it. Knowing the main features of each can help you decide the path to take with your creative materials.
WHAT IS A SHOPPING AGREEMENT?
A shopping agreement is a contract between the owner of the creative work and a producer, which gives the producer the right to “shop”, or pitch, the work to studios, networks, distributors and financial backers. The producer usually has the exclusive right to pitch the work and find backers for a defined period of time set in the agreement.
The parties to the agreement typically do not pay or receive compensation unless the producer succeeds. A shopping agreement is beneficial to producers because they can attach themselves to a project without risking any money. If a backer is found, the producer can negotiate their own agreement with the buyer for their producing services. However, if a project is not successful, the producer receives no compensation for their time or effort to pitch the work.
With a shopping agreement, owners of an existing work hoping to adapt it can leverage the experience and connections of a producer. Further, if a buyer is found, the owner can negotiate directly with that party to obtain the best deal for themselves. A major downside of a shopping arrangement is that a producer may be less motivated to seek backers because they do not have a financial investment at stake. In addition, if there is no interest in the project, the owner receives no compensation, unlike if a producer had paid for an option agreement.
Generally, shopping agreements last for 9 to 18 months, with exclusive contracts tending to be shorter in length than non-exclusive ones. In addition, there is usually a clause that allows for extension of the term if the parties are negotiating with a buyer when the agreement expires.
The producer in a shopping agreement has no ownership rights in the source material. Compared to an option agreement, the exclusive work ownership allows the owner to have substantial control over whether the producer can move forward with a particular buyer, as well as the terms of the deal with the buyer.
WHAT IS AN OPTION AGREEMENT?
An option agreement gives a producer the exclusive ability (“option”) to purchase the rights in a work for a limited time and specified price. The owner of the creative work receives compensation in exchange for holding the rights exclusively for the producer and not offering the rights to anyone else during this period. An option arrangement benefits producers because they have time to secure financing, develop the project and determine whether it is something they want to pursue. Owners of creative works receive some compensation for agreeing not to sell the project to anyone else. If the producer doesn’t exercise the option by paying the purchase price, no ownership interest is transferred, and the owner keeps the option fee.
The producer is required to pay an option fee to the owner for the option. In addition, the agreement will set forth an execution or purchase price which is the amount due to the owner if the purchaser exercises the option. Owners are paid for each option exercised by the producer and for renewals, with renewal prices generally higher than the initial option.
Option agreements are typically longer than shopping agreements. The average length is 18 to 36 months. Options can be renewed or automatically extended. An option agreement should indicate when the owner can terminate the arrangement and when rights revert back to the owner—specifically, if the producer does not purchase the work or produce the project within a certain period of time.
Producers have an exclusive option to purchase the rights to the work and can usually sell the rights to any buyer. Although the original owner has less control over the sale, the producer is incentivized to obtain the best deal. If the option is not exercised, the original owner maintains the rights to the underlying work.
WHICH AGREEMENT IS RIGHT FOR YOU?
Shopping agreements usually require less investment by the producer and provide more flexibility for both parties as compared to option agreements. Producers typically do not have to pay for the right to shop the project. In addition, both parties have more freedom in deciding whether to negotiate and accept a deal with a buyer. Since the term also tends to be shorter, the parties are not tied to the project for a long period of time.
However, with shopping agreements, since producers do not have a financial stake in the project, they may be less motivated to find backers, which can be detrimental to an owner who wants to make sure their work is adapted.
Option agreements tend to provide more security to both sides than a shopping agreement. Owners work with a producer incentivized to pitch the project, but if no deal is found, the owner retains all rights of the creative work. Further, the owner receives some compensation for the option and a pre-set purchase price if the option is exercised. Producers benefit from having an exclusive option right but a limited investment in case the project goes nowhere. Producers also have more control when negotiating the sale of the project. However, option agreements are more complex and require negotiation of numerous terms including the option fee, option period, purchase price, rights granted, rights reserved, set-up bonus, contingent compensation and reversion rights.
Ultimately, which type of agreement is best for you should be determined by consulting an experienced attorney. Contact a member of our team for next steps.
Carlianna Dengel is admitted to practice law in New York and California.
Photo by Romain Dancre on Unsplash
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