Option Agreement
Contract giving exclusive rights to purchase property within a timeframe.
Definition
An Option Agreement gives a producer or studio exclusive rights to purchase a screenplay, book, article, or other intellectual property within a specified period (typically 12-18 months) for a negotiated price (option fee). If exercised, a larger purchase price is paid.
Options allow producers to develop projects and secure financing without immediately paying full purchase prices. Option agreements specify exercise price, option period, and often include extension options for additional fees.
Why It Matters
Options manage risk by allowing producers to test market interest and secure financing before committing large sums. For rights holders, options provide immediate income and exposure while maintaining the possibility of the full purchase price.
Multiple option extensions can generate significant income even if projects never get made, while the exposure can lead to other opportunities. However, options tie up rights exclusively, preventing other potential buyers from developing the property.
Examples in Practice
A producer might option a novel for $10,000 with an 18-month term and $100,000 purchase price. If they secure financing within that time, they exercise the option by paying the purchase price minus the option fee.
Long-running option chains can see rights revert and be optioned multiple times. Some properties have been optioned for decades without production, generating hundreds of thousands in option fees.