Option Agreements: A requisite tool for stakeholders in the film industry
By: Mukhtar Mustapha
Nollywood is well known as the second largest film industry globally, in relation to the number of movies produced. In recent years, there has been a steady increase in foreign investment in the Nigerian film industry.
In 2019, Canal plus, A French media company, acquired Nigerian ROK film studio from Irokotv. Three years earlier, Canal had invested million of dollars in Iroko. Earlier this year, Netflix Naija was launched to a big fanfare. However, before this, Netflix had obtained licenses to Nigerian movies from Filmone distribution and movie producers.
Most recently, Inkblot productions partnered with Netflix to develop new original drama series for the US streaming platform. This is in addition to Netflix agreement with EbonyLife that involves the latter creating two original series and movies for Netflix. Also, Ebonylife had earlier signed a deal with Sony Pictures Television to create a three-series deal. It’s safe to say the Nigerian Film Industry is on the rise internationally.
A great story and a well written screen play are essential to the success of any movie or television series. Nollywood is famous for the quantity of movies produced yearly rather than the quality.
In recent times, some Nigerian filmmakers, recognizing the importance of quality, have invested in employing the services of talented screenwriters. Furthermore, there seems to be a rise in the adaptation of novels or plays to movies by Nigerian producers.
Movies like The Setup, King of Boys, Living in Bondage, etc all have great reviews and award nominations because of well written scripts, acting and directing.
Considering the rise of investments in Nollywood and the importance of a good story and script to the success of movie or series, it is important for authors and scriptwriters to understand their rights and protect themselves adequately when dealing with studios or producers.
This article will, in two parts, describe how screenwriters and authors can protect their copyright when negotiating contracts with producers or studios.
Copyright ensures that the owner of literary works such as a novel or screenplay have five main rights namely: right of reproduction, right of distribution, right to performance rights, right to public performance, right to display the work in public and right to prepare derivative works based upon the existing literary work.
In relation to the film industry, the right to prepare derivative works is arguably the most important. Derivative works refers to new and original works that are based on preexisting copyrighted work. For example, the Americanah HBO series is a derivative work, as it is primarily based on the novel written by Chimamanda Ngozi Adichie.
In order for a producer to produce a movie based on an existing literary work like a novel or screenplay, permission must be obtained from the owner of the literary work.
It’s important to state that the author of a literary work might not necessarily be the owner of the copyright, as there is a difference between authorship and ownership.
An author might have transferred certain rights such as derivative rights to the publisher or in the case of a remake of a movie, the scriptwriter might have been employed under a work for hire agreement. In both instances, the producer is the owner of the literary work.
It is therefore essential for producers or studios to ensure that they are negotiating with the copyright owner of a literary work, who has the right to derivate works. This process of establishing ownership is known as chain of tittle.
Upon establishing the chain of title, A producer or studio desirous of adapting a novel or script into a movie or series would have to acquire certain rights. Considering the high cost involved in the production of movies, producers do not tend to outrightly acquire the rights to adopt a novel or script. Rather, they settle for an Option Agreement.
This grants a producer an exclusive and irrevocable right to purchase literary works such as a script or novel for a fixed price within a specified period. The fee paid to the owner of a literary work in an option is substantially less than the amount of an outright purchase
An Option Agreement usually incorporates a Purchase Agreement that comes into force once the Producer exercises the Option by either paying the Purchase price or commencement of Primary Photography. The key provisions of an Option Agreement are:
- Option Fee- In order for any agreement to be legally binding, there must be consideration. This represents the amount paid by the Producer or Studio to the owner of the literary work in exchange for the exclusive right to purchase the work. Though there is no standard price as to Option Fee, the industry standard price is often set at 10% the purchase price.
However, in certain instances, the owner of the literary work might agree to a reduced free in exchange for additional rights such as percentage of profit & substantial creative role in the production of the movie or television series.
- 2. Option Period – This refers to the period within which the producer or studio has to exercise the Option. It is usually between 6-18 months and it provides time for the producer/studio to secure funding to produce the movie or television series, hire preferred actors, and commence development activities.
This period serves as an opportunity to ascertain whether or not the project is viable. Where the producer is either unable to secure funding or ascertain that the project is not viable, then the option may not be exercised and upon its expiration, the owner of literary work is free to work with someone else.
In most cases an Option Agreement has a clause called the Extended Option Period which provides for the extension of the initial option period.
However, it is important for the owner to negotiate and ensure that the fee payable for the extension is not tied to Purchase Price. This prevents the option from unjust extension, as producers are forced to pay an additional fee that does not count towards the purchase price.
Furthermore, it also advisable that the owner ensures that certain conditions must be met before the initial option period can be extended.
Example of relevant conditions are: the completion of writing of the screenplay, hiring a director or actors for the prospective movie or television series. Conditions like these are important as they establish that the producers or studio are committed to the project.
It is important for a Producer to include a force majeure clause that will effectively suspend the option period for the period of the force majeure event. The option period resumes from the period left before the occurrence of the force majeure event.
However, it is important to ensure that the duration of the suspension is capped, otherwise it could unjustly be utilized by the Producer or Studio. This clause is particularly important considering the present Covid-19 pandemic.
- Purchase Price- This refers to the amount the Producer or studio has to pay in order to exercise the option. This is an important clause as it ensures certainty by ensuring the owner of the literary work is prevented from unilaterally increasing the cost of buying the right to adopt the literary work.
This could occur where the owner realizes that the purchaser has secured large funding from an investor or studio to produce the movie or television series and uses this as leverage to refuse to sell the literary work until his/her price demand is met.
A specific amount can either be agreed between parties as the purchase price or it could be tied to the budget of the movie or television series. Where the purchase price is tied to a budget, it is usually set between 1-5%.
However, in order to protect all parties, there is often a floor(minimum) and a ceiling (maximum) price when the purchase price is tied to the budget.
For example: The owner will receive 3% of the budget as the purchase price upon exercise of the option with a floor of N500,000 and a ceiling of N1,000,000.
Producers & studios often include a clause that empowers them as lawful Attorney of the owner to sign the agreement on behalf of the owner where he/she refuses to sign the purchase agreement upon exercising the option.
The importance of an Option Agreement can not be overstated as it protects both the interests of studios and owners of literary works. It ensures that the owner receives compensation for the exclusivity granted to studios or producers.
While, the studios and producers are provided the opportunity to secure funds without fear that the literary work will be sold to a third party.
In the next article, the key clauses in a purchase agreement will be identified and discussed in detail. However, it is important to restate that it is standard practice for a purchase agreement to be included with a option agreement. This ensures certainty and ensures relationship between parties properly defined.
