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20 Things To Think About When You Option Your Screenplay - Part II

By Chip Street

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Okay, so you’ve gotten an option offer, you’ve thought about the first 10 things in Part I of this article, and you still want to do it. Now it’s time to talk to your attorney, and make some decisions about the negotiation points. Your attorney is going to toss some notes back to you for consideration, and chances are these things are going to be included. (There’ll be lots more than this… from simple typos to wholesale rewrites. But these are the top contenders for “things I think you should know”.)

Ask your attorney to spend some time with you to explain what they mean in the context of your deal… but here’s my take, based on my experience.

DISCLAIMER: I shouldn’t have to say this, but: I Am Not A Lawyer, I am not offering legal advice, and none of the numbers used as examples here should be considered recommendations or as examples of my personal previous contracts (which are none of your beeswax). They are provided as hypothetical examples only. Talk to your own attorney about your particular deal.

PART TWO

Equity

This is a freebie. Either that, or this is really a list of 12 more things to think about. But I use the term “Equity Position” or “Equity Participant” frequently, and I want to make sure you know what that means before we really get started.

Equity (as defined by Wikipedia) is “the value of an ownership interest in property, including shareholders’ equity in a business”.

It means you’ve got an ownership stake in the property, and participate in its upside. When the property increases in value, your piece of it increases in value. You’re an investor.

And of course, should it be worth nothing (and many an indie film is worth just that), so then is your stake.

Your share of ownership in the property is generally defined as a percentage, or points, which brings us to:

1 – Percentage, Points and Net

This is a long one, so let’s get it out of the way.

You may be offered a percentage of “Net Profits”. Most people will tell you that this is worthless, and it may very well be (I’ve had a percentage of Net on all my options, and most of the features I’ve worked on in any other capacity, and so far I haven’t seen a dollar) for two reasons:

  • (1) Most films — especially small low-no budget indie films, never get finished. Of those that get finished, most never get distribution. Of those that get any kind of distribution, most genuinely don’t make a profit. So your percentage becomes a percentage of “zero”.
  • (2) Of those films that do make a profit, often some very creative bookkeeping takes place to make sure that “net profit” is never achieved (on paper), so again your percentage becomes a percentage of “zero”. (See below)

Some oversimplified round numbers: “Net” is the amount of profit that is left after “Cost” is recouped by the producer. If it costs 50K to make the film, and the film them “Grosses” 100K (in distribution deals, say) that’s a “Net” of 50K. Let’s say you negotiated 5 percent of Net. You get $2500. Simple, right?

Not so fast. What constitutes a “Cost”? The producer may claim other costs besides pre, production and post. There may be M&A (Marketing and Advertising) costs, film fest entries (maybe including her travel and lodging to attend said fests), and so on. You might even see “Producer’s Fees” (a professional fee the producer has set aside for herself to be paid as a “cost” before arriving at “Net”).

So make sure your attorney gets “Net” defined in your contract. You may not completely love the definition you get, but at least it’s non-negotiable. Should you NOT have it defined, it may became very nebulous indeed if the film catches lightning in a bottle and becomes Paranormal Activity.

So you arrive at a definition of “Net”, and you’re getting some piece of “Net”. What piece? Sometimes you’ll hear the term “Points” – as in, “we’ll give you 5 Points in the film”. It’s easy to think this means “Percent” (and it might) but it’s not uncommon for the overall Net profit to be split in two — half for the producer, half to be shared among investors and/or other equity participants (like you). That second half is divided into 100 “Points” (sometimes more). So your “5 Points” may really only be 5 Percent of 50 Percent, or 2.5 Percent, of Net.

Further, those Points may be assigned a dollar value… so as funding is being pursued, investors are sold Points at a fixed cost — say 5,000 per Point. Invest 20K, you get 4 Points. If that’s the case, a dollar value is being placed on your contribution (if each Point is worth $100 and you’re getting three Points, that’s valuing your contribution at $300). Make sure the Point value matches the agreed value of your deferred pay – or at least, that you’re comfortable with the valuation.

Lastly, consider the order in which equity participants are paid out. Some agreements may have the cash investors paid back first, until they recoup some percentage of their investment (anywhere from <100% to 110% or more) before “Net” is arrived at. In other words, all the “hard costs” of the film get recouped, then as profits come in it all goes to cash investors until said threshold is hit, THEN other equity participants start getting their cut. Perhaps the “point structure” should mandate you get paid as a CASH investor… with the “first paid”.

Bottom line? You’re not likely to affect how “Net” is defined. But getting it defined in your contract, and then defining WHEN you get paid, sets all expectations, and gives you the power to protect your back end participation should the film ever turn a profit.

2 – Audit and Accounting Rights

Pretty much what it sounds like… particularly important when you’re an equity participant. You want to be able to (reasonably) request access to Accounting information for the purpose of an Audit. You may never need to exercise it (I hope you don’t) but should the “Net” seem mysteriously elusive, you’ll want these rights in writing.

3 – Box Office Bonus

A Box Office Bonus is just that… a bonus paid to you for good box office performance. Hey, if the movie does well, it’ll be in part because of your great script, right? So how does that work?

If the box office gross surpasses the budget of the film (and you’ll want to define what constitutes the “budget” too) you may receive a bonus. This can be a tiered structure as the box office reaches ever higher multiples of the budget. For example:

  • $10, 000 when box exceeds 2.5 x budget
  • another $10K when box exceeds 3 x budget
  • another $10K when box exceeds 3.5 x budget
  • a balloon $30K when box exceeds 4 x budget

4 – Set Up Bonus

Another opportunity for a bonus? Yup. You can negotiate a “Set Up” bonus, which pays you a happy little chunk of unexpected change when the project is “Set Up” with either a production or distribution entity.

How much? Think in the neighborhood of 3-5% of your purchase price.

5 – Writing Rights and Fees

Get paid for more writing? Sign me up! See, what the producer is purchasing is rights to your script in whatever version/state it’s in when they optioned it. Once it’s optioned, you shouldn’t still be working on it, unless you’re getting paid for it.

Okay, that’s not entirely true. You want to be a team player, and if this is a low budget project, money might be tight. You may opt to forego fees for rewrites if it helps move the project toward production… imagine Angelina Jolie said she’d consider being attached, if her part were meatier. Are you gonna screw the pooch by demanding another 5K the producer can’t afford?

I didn’t think so.

But you do want to be the writer writing for Angelina, right?

So get first right of refusal on rewrites, polishes and sequels.

If you want to write for free, consider putting a limit on the number of unpaid revisions. Be generous if you like, but protect yourself.

Then, when it’s time for paid rewrites or polishes, you should still be first in line, and you should have a fee defined in the contract.

How much? Entirely dependent on the budget and purchase price. Work it out with your attorney (have you heard me say that too much already?).

6 – Passive Payments

Like to get paid for not working? It could happen.

Imagine the option is exercised, and your script is bought. It goes to production, gets distribution, and sees enough success to warrant a sequel. If you’ve negotiated well, they have to give you first right of refusal to write that project.

But what if you don’t write the sequel? Maybe the notoriety of the original project has got you too busy with new assignments… or maybe they’ve done something terrible to your original concept and you don’t want to be associated with the sequel. Whatever the reason, if you’ve negotiated a Passive Payments clause into the sale of the original script, you’ll get paid for the sequel even if you pass on writing it.

How much? You might negotiate your contract to stipulate the fee for writing a sequel as negotiable, with a minimum at least equal to the purchase price of the original. Then, you can negotiate a Passive Payment of 30-50% of the fee you got for the original should you choose not to write the sequel. Make sense?

  • Purchase price: $50K
  • Write the sequel: Minimum $50K
  • Passive Payment (for not writing the sequel): $25K

Remember that any or all three of the above might include some back end participation as well.

Consider also negotiating what credits you might get on a sequel, should you choose not to write it.

7 – Ancillary Rights: What rights are you selling?

Bear in mind that the producer is going to ask for ALL rights… that’s what “all right, title, and interest wordwide and in perpetuity in and to the Property [your script]” means. That’s the right to make it, sell it, exploit and market it in any and all media “now known or hereafter devised”.

That’ll probably include “Ancillary Rights”… merchandising, commercial tie-ups, soundtrack. Happy Meals, action figures, posters and jewelry and Hot Topic paraphernalia.

Even the novelization or serialization of the story in a periodical.

Serious, right?

But there may be some rights you can hang on to. Work it out with the producer and your attorney, but I’ve had luck retaining:

  • Publication Rights (publish and distribute printed, audio and electronic versions of the Property in book form and magazines).
  • Stage Rights (perform the Property or an adaptation on the spoken stage provided no broadcast, telecast, recording, photography, etc is made).
  • Radio Rights (broadcast the Property by sound on radio).
  • Author Written Sequel (a literary property using one or more characters, participating in different events, in a plot substantially different).

The specifics of these might get complicated, and maybe they’re not of interest to you.

Consider then also ensuring you get get some equity position in all the subsequent merchandising and other exploitation of your script. That might be covered adequately in your back end percentage of producer’s net, but check in with your attorney.

8 – Reversion Rights

What if the producer exercises her option, buys your screenplay, then never makes it? Sure you got paid, but wouldn’t you like to see the film produced? And now it’s sitting on somebody’s shelf collecting dust, never to see the light of day. What if you’d like to get it back and maybe find it a home where it’ll finally get shot?

That’s what Reversion Rights are. Some defined number of years after a purchase (3? 5?) the rights to the script can revert back to you.

But wait, you say… the producer paid for the script. Don’t you have to buy it back?

Nope… you can negotiate a “lien” on the script, which means that they’re paid back as a part of the budget that eventually gets raised for a future production, or out of its profits (as an equity participant), should you succeed in placing the script with another producer. Again, let your attorney work out the details. But consider asking for Reversion Rights if you can.

9 – Arbitration Clause

A basic part of any contract, this clause simply states that should the contract require arbitration, you and the producer agree to abide by arbitration rules of a given state. Usually the state in which the production entity is incorporated.

10 – Get yourself added to E&O Insurance

E & O (Errors and Omissions) Insurance is standard practice for all productions (or should be). It protects the production company from liability should they cause financial harm to another party by way of an error or an omission. So, you want to be protected as a member of the production from liability.

Imagine they screw up and use Toyotas in that big crash scene you wrote, without permission from Toyota, thus inferring that Toyota’s brakes and accelerators kill babies. Toyota takes them to the cleaners. You want that mess to roll downhill to your unprotected hiney? I don’t… so having your name added to the production’s E&O is smart protection.

11 – WGA and Credits Protection

I actually talked a lot about this in Part I but thought it bore repeating here. If you’re not WGA, how can you protect yourself from losing credits or rights to WGA writers who might come on board the project later for rewrites, polishes, etc?

Have it stipulated in the contract that, should the project fall under WGA jurisdiction, you should be deemed a “Professional Writer” and a “Participant Writer” as defined under WGA to determine writing and separated rights.

And while we’re talking credits…

  • Story By: You didn’t write the script, but created the source material (article, book, treatment, etc).
  • Written By: You wrote the script, and everything is original to you.
  • Screenplay By: You wrote the script, based on source material not original to you (article, book, treatment, etc).

And of course all of these can be shared among numerous individuals.

In the end…

Seems like a lot of stuff, right? It is. And this is just the tip of the iceberg. Your attorney might recommend everything from how many copies of the DVD you get, to guaranteeing invites to any festivals the movie plays at, to negotiating first-class flights to the premiere. It’s up to you what to push for and what to let go, but I’ll leave you with this thought (and I’ve said it before):

Be a partner. Don’t cripple the deal, or the production (especially small productions), with unnecessary fees that might either paint you as a prima donna, or worse, keep good money from hitting the screen. When the time comes that you’re negotiating million dollar development deals, then you can play hardball if you must (I know I will. I love me some First Class).

I personally have tried to focus on a fair price, first rights of refusal for paid rewrites and sequels, and protecting my credits.

I hope you have every opportunity to huddle up with your attorney, and negotiate a fair contract that forges a real partnership with a great producer that turns into many more projects.

Till then, good luck. Check in and let us know about your success stories (or horror stories). And if you’ve got anything to add to the above (corrections welcome) hit me up in the comments section.

Good writing.

About Chip Street

Chip's first screenplay, Rocket Summer sold to eKidsFilms and the novelization is now available on Amazon.com. His second script, Grampa Was A Superhero, was promptly optioned for two years. His third, Faeries, is under option and is being developed into a franchise property. He has also co-written and directed several short films, is a screenplay contest judge, and founded Write Club Screenplay Challenge, which launches quarterly micro-screenplay contests (when he has time). Chip's screenwriting and crowdfunding articles have been referenced by Script Magazine, the BlueCat Newsletter, IndieWire, JohnAugust.com, Bleeding Cool, and No Film School. To learn more about Chip and his projects, visit ChipStreet.com.

Screenwriting Article by Chip Street

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