After the first public workshop of your new play, a famous producer approaches you with the request that you grant him or her an exclusive option to shop the play around town. What do you do? You start the process of preparing an option agreement, in which the arrangements with regard to the producer's ability to exclusively market your play are clearly spelled out.
An option agreement must include two basic provisions: (1) the option price, and (2) the option term. The agreement does not have to explicitly address the obligations between you and the producer upon the exercise of his or her option; it may simply state that the terms regarding the purchase of the rights in your play will be negotiated in good faith upon the exercise of the option. Nevertheless, as we will discuss a bit later, a thorough option agreement includes both the option and purchasing provisions.
Setting the Option Price
The option price is the fee paid to you by the producer for the privilege of exclusive control over your play script during the term of the option agreement, which is prior to the actual purchase of all or a portion of your rights in the script. In most cases, the option price is much lower than the actual purchase price for the rights in your play, as it is a fee paid for exclusivity during a specified term, and not a fee for the transfer of any portion of your underlying rights in the script.
In other words, the option price is the reasonable amount paid to hold the producer's place of priority as the exclusive marketer for your script. There is no hard and fast rule dictating the amount to be paid by the producer to you as an option price. Within the theatrical community (and other media), however, there are general standards. Determining them without the assistance of a lawyer may sometimes be difficult; still, a telephone call to a professional writers' organization (such as the Dramatists Guild or the Writers Guild of America) will usually yield the necessary information.
When calculating the option price, you should also consider whether any portion of the price is to be applied as a credit against the purchase price at the time of the exercise of the option. If your agreement permits the producer to extend or renew his or her option, the agreement should include a provision detailing the fee to be paid for that privilege, and whether the fee paid for any extension/renewal is to be applied as a credit against the purchase price.
Setting the Option Term
The option term is the length of time you are willing to place your script in the hands of one producer; it is also the length of time the producer deems necessary to thoroughly market your script, and the two of you must ultimately reconcile these potentially disparate goals. The customary option term is for one year. However, you may not be comfortable with a full one-year option term if your play script is a hot property and several producers are vying for your attention, or if the producer with the most promise is unwilling to pay you the option price you consider acceptable. In either of these scenarios, you may want to consider shortening the option term to less than one year. Keep in mind, though, that the producer has to knock on many doors and contend with the workloads and vacation schedules of busy theatre managers in order to accomplish his or her goal. A six-month option term may not be a realistic time frame. Conversely, you should also keep in mind that your script is going to be actively marketed by the producer to every possible theatre company during the option term. You want to limit the risk of overexposure, which may prevent you or another producer from marketing the script after the option term expires.
That is why your agreement should spell out whether the producer is permitted to automatically extend the original option term for a specified (shorter) period of time, or whether he or she is permitted to automatically renew the initial option term for a second or third option term of the same length. (And if you decide to grant automatic extension/renewal, remember to stipulate the cost of it, too.)
As noted earlier, not all option agreements explicitly spell out the terms regarding the purchase and transfer of your rights upon the exercise of the producer's option. The most comprehensive agreements, however, do include purchasing provisions. It is better to know up front the scope of your obligations to the producer (and vice versa), as well as the compensation you will receive for fulfilling these obligations, rather than risk losing the opportunity to see your play performed by a reputable theatre company because of a failure to think (and negotiate) ahead of time. If you haven't already called your local writers' organization, now is the time to do so. Many writers' organizations provide their members with informative articles and "how to" pamphlets; some even provide their members with sample agreements. If you decide that your option agreement should include purchasing provisions, I highly recommend that you seek legal representation to ensure that you transfer only the rights necessary to the project at hand, and that you are reasonably compensated for the transfer of those rights.
Know Your Copyrights
Whether you are represented by counsel or not, in preparation for entering into an option agreement you should review the Copyright Act of 1976 (the "Act") and develop a working understanding of the categories of rights protected by the Act and the scope of each category. The Act includes five distinct categories of exclusive rights held by you as the playwright. Specifically, you are the holder of the rights of: (1) reproduction; (2) adaptation; (3) public distribution; (4) public performance; and (5) public display. It is important to remember that each of these five categories may be further subdivided into a multitude of hybrid rights within each category and across the five categories. Thus, for example, it is possible for you to grant the producer the exclusive stage rights to your play while you retain the film adaptation rights. In many instances, however, the producer will not permit you to subdivide your rights, and will require you to transfer all of your rights, exclusively, to him or her. For example, a theatrical producer acquiring the stage rights to your play will most likely also want the right to, among other things: (1) create and sell an original cast recording resulting from the play's musicalization; (2) broadcast the stage version of your play on the radio and/or on television; and (3) manufacture and sell merchandise related to the musicalization of your play, such as wearing apparel and posters. Indeed, most purchasing agreements have a "kitchen sink" provision, in which all rights not specifically retained by you are deemed transferred to the producer. In other words, if you fail to spell out which rights you specifically wish to retain, the producer is deemed to have purchased these rights by default, and you are not permitted to independently exercise them.
In addition, the producer will most likely seek to restrict your ability to use any of your retained rights during some future period of time subsequent to the exercise of his or her option. This may seem like the producer is having his or her cake and eating it, too, but it actually makes logical sense. Neither you nor the producer will be successful in exploiting the possibilities of your play if you are competing against yourself for the public's attention (i.e., the play is running on Broadway for $80 a ticket while the movie of your play is running at the local multiplex for $10). The length of time during which a limitation exists on your ability to exploit your retained rights should be explicitly spelled out in the purchasing provisions of your option agreement.
An examination of all of the provisions necessary to prepare a comprehensive purchasing agreement is outside the scope of this article. It is important, however, to keep in mind that an option agreement is the first step in the process of seeing your play come to life on the stage. If your producer is successful, the next step is the purchasing agreement. Some producers (and playwrights) will not enter into an option agreement without knowing the terms of purchase. Forewarned is forearmed—in addition to familiarizing yourself with the basics of preparing your option agreement, you should start familiarizing yourself with the rights and obligations to be negotiated and enumerated in your purchasing agreement.