This article has been written by Vaishnavi Peddibhotla pursuing a Certificate Course in Media and Entertainment Law: Contracts, Licensing and Regulations from LawSikho.
Table of Contents
Introduction
Writers have a spectacular talent for storytelling, they let the readers ride the writer’s creativity through their specific way of storytelling. Writers are often recognised by their way of writing and storytelling; it is not new when film producers want to create a film based on the book, which has gained immense popularity. My piece of the article focusses on the aftermath of a producer approaching a writer to create audio-visual content based on the book and it further highlights the kinds of agreements that a writer and producer enter into and its essential clauses.
Book option cum assignment agreement
An option agreement is entered into between the writer and a producer to produce audiovisual content—film, or web series, documentary, short film, etc.—based on the writer’s work. Typically, the work here could mean any literary work such as a novel, screenplay, story, play, etc. The writer, through this agreement, gives an exclusive option to the producer to decide whether he/she can buy all rights in the works to create/produce audiovisual content; however, the same can’t be given in perpetuity so the writer provides this option with the right for a certain time limit, which is called an “option period.” By way of this agreement, the producer also secures his/her right to create/produce audio-visual content and also has time to decide whether he/she can buy all rights in the work. However, in order to have an exclusive right throughout the option period, the producer needs to pay a sum as decided by the parties, which is called an “option fee.” During the option period, the producer tries to pitch the work to various platforms and/or tries to gather resources to effectively buy and produce the audio-visual content such as financial and potential directors/producers on board, etc. Once all this is ready by the producer, and if the producer believes that he/she has sufficient resources to buy/purchase the rights and will give the producer huge success, he/she may proceed to exercise his/her option right and may decide to buy all the rights. The option agreement also includes assignment clauses and applies if all criteria are met and the producer intends to acquire all rights to the works (option cum assignment agreement).
Let’s understand the essential clauses of this agreement and the necessary pointers that one may consider while agreeing.
The essential clauses/pointers of an option agreement
| S.No. | Essential Points/Clauses | Explanation | Beneficial for Writer/Producer |
| Purpose/understanding of the Parties | It is essential to capture the purpose of entering into this agreement.This clause captures the intention and type of deal that the parties are entering, such as the producer expressing its intention to produce audio-visual content (film/web series, TV serial, etc.) based on the works of the writer (book/play/novel/concept, etc.) and indicating that this is an option deal. | This clause benefits both parties as it clarifies the intent. | |
| Exclusivity | This clause secures the right to exercise the option until the option period without any third-party interruptions. | This clause benefits the producer as it shall restrict the writer from pitching the story or granting option rights to any third party. | |
| Option Period | It is essential to capture the option period either for a one-year or two-year period as mutually decided by the parties (the initial option period). During this period, the writer shall not pitch or grant the works to any third party and shall wait for the producer to either approve or disapprove to buy the rights. The period can be further extended if the producer requests further time. This request may be usually agreed upon by the writer for a further period of 6 months (extended option period) or as commercially agreed. Within such an option period, the producer needs to exercise his or her option right. Upon expiry of the initial/extended option period, all rights shall revert to the writer, and the producer shall no longer have any exclusive option rights to the work. Therefore, the producer tries to negotiate for the maximum time period, whereas the writer tries to negotiate for a limited period. | This clause benefits the producer as well as the writer. Producer: The producer shall have the exclusive right for such an initial/extended option period to pitch and check the marketability of the works. Writer: The writer shall be receiving the extended option fees for such an extended time. The extended option fees are non-adjustable to the purchase price or this may differ as commercially agreed on a case-to-case basis. | |
| Option Fees | It is one of the most important clause to capture in the agreement.The option fees are basically fees paid to the writer in grant of the exclusive option for the option period to the producer. option fees are also considered as the advance to the writer which can be later adjusted in the purchase price; however, the same is a commercial call; hence, it shall depend on the work, popularity of the writer and negotiation between the parties.In the event the period is extended further then extended option fees as agreed shall be payable to the writer and these extended/subsequent option fees are usually non-adjustable to the purchase price. It is to be noted that the producer shall not be able to reimburse the option fees paid to the writer if he/she decides not to buy the works. However, the same can be negotiated on a case-to-case basis. | This clause benefits the producer as well as the writer. Writer: The writer shall receive the amount to hold the rights for a certain period of time and the option fees paid are usually non-refundable, so even if the producer decides not to proceed with the work, then the writer gets to retain the amount paid by the producer for the time and rights given. However, the same can be negotiated on a case-to-case basis. Producer: The option agreements are preferred by the producer in general due to the nature of the agreement; the producer need not have to purchase all the rights at once; rather, he/she can initially hold the rights and, upon having resources, may or may not proceed to purchase the entire rights. The producer can pay only a small amount of fees instead of paying the amount in bulk, which can allow the producer to take a backstep if he/she decides otherwise. | |
| Condition Precedent | This clause serves as a precaution to ensure that the works have a clear title, free from any third-party claims, encumbrances, pending suits, liens, etc. The option fees (initial/extended) and purchase fees shall be payable only upon satisfying the conditions such as providing the link documents, proper tax invoices, execution of this agreement and no claims received from any third parties either from the public notice issued by the producer or in general as may be challenged. | The inclusion of this clause shall benefit the producer, who will be well aware of any potential or existing claims before investing in the works. Additionally, the producer shall only pay upon fulfilling these conditions. | |
| Exercise of Option | It is very important to capture how the producer exercises the option if he/she decides to purchase/buy all the rights in the work. During the option period, the producer shall send a notice expressing his/her intention to exercise the option right, which is generally called the (“exercise notice,” and upon receipt of the exercise notice and payment of the purchase fee to the writer, it is deemed that the option is exercised by the producer and the producer shall own all the rights granted to produce/create the audiovisual content. | This clause benefits the producer as well as the writer. Producer: the producer can freely produce/create audio-visual content and be the first and exclusive owner of the rights granted in the works. Writer:– The writer shall receive new recognition through the production and exploitation of the audio-visual content and also receive a purchase fee for such exercise of the option. | |
| Grant of Rights | It is very important to capture what kind of rights are granted and what rights are held by the writer under the agreement. If the producer decides to purchase all the rights by exercising the option. All rights in the copyright shall be granted to the producer. However, the same may not be acceptable to the writer. The writer shall be cautious while agreeing to grant any rights under the agreement. Usually, the clause covers all rights, including derivative rights, exploitation in all modes and the right to the public performance, merchandise, publishing rights, and copyright waivers. However, it is upon the parties understanding that there may be certain rights that restrict the producer or writer from having such rights, which are generally called holdback rights or reserved rights. Holdback or reserved rights are those rights that are reserved or held back with the writer/producer and are not granted/allowed to be utilised by the writer/producer. Hold-back rights can include such things as radio rights, stage rights, restricting production in different languages or limiting the mode of exploitation, such as only non-theatrical exploitation for a certain period of time or from creating any sequel by the writer, etc. This protects the producer’s and the writer’s business interests by ensuring no competing versions of the works are made or distributed without their permission.It is also essential to capture the collection of royalties in the clause. As in stating that any statutory royalties receivable to the writer shall be directly collected from the Copyright Society in which he/she is a member and that these royalties are not waivable. | The inclusion of this clause shall benefit the producer and the writer to attain clarity on what rights are granted. The producer tries to negotiate to have maximum rights to the producer, which will benefit the producer to commercially exploit the work to the fullest without any restrictions. Whereas, the writer tries to restrict and provide limited rights to the producer, which will benefit the writer to exploit or grant such reserved rights to any third parties or for himself. | |
| ROFR | ROFR – The right to first refusal is an essential clause in the agreement; the right to first refusal is added in the agreement to secure the rights for any derivative works to be created based on the audio-visual content. Such as making a prequel, sequel, or remake of the audio-visual content. The addition of this clause shall bind the producer to provide a first right to refusal to the writer. Example: In the event the producer is making a sequel of the audiovisual content and the writer wants to be associated with such production then in such event, the producer is bound to first offer to the writer to be associated with such a sequel. The writer, upon hearing the offer, may accept or refuse. If the writer refuses to be associated, only then the producer may approach third parties. However, it is important to capture that no third-party offers shall be greater than the terms offered to the writer. | The inclusion of this clause shall benefit the writer, as he/she has an absolute right to be involved in the sequel and/or any derivative works that may be created from the audio-visual content. The writer negotiates to be a part of such derivative work since such work is created based on the writer’s original work created. This ROFR will give the writer new possible business opportunities. | |
| ROFN | ROFN is the right of first negotiation. This is an essential clause that gives the producer to negotiate the terms if the writer wants to exploit any of his/her reserved rights, such as if the writer writes a sequel to his/her work and wants to exploit it by creating audiovisual content. Through ROFN, the writer shall be bound to offer first to the producer and only upon the producer’s refusal may the writer proceed with any third parties. | The inclusion of this clause shall benefit the producer, as the producer shall have the absolute right to be involved in the sequel and/or any derivative works that may be created by the writer. This ROFN will give the producer new possible business opportunities since the derivative work created by the writer may be the continuation of the audio-visual content. | |
| Purchase Fee & Assignment clause | Upon the receipt of the exercise notice to the writer, the producer shall need to pay the purchase fee/assignment fee in lieu of granting all/such rights to the producer with respect to the works which generally is termed as the purchase fee. The assignment clause shall mention that upon payment of the purchase fee, the producer shall become the first and exclusive owner of the rights granted herein. The option fee may or may not be adjusted against the purchase fee it shall depend upon the commercial understanding of the parties. | The inclusion of this clause shall benefit the producer as well as the writer. Producer: the producer shall be able to exploit the rights at its sole discretion and Writer: the writer shall receive payment in such regard and another platform to further showcase his/her skills. | |
| Contingent Payment | This clause is an essential clause for writers, however, the same is purely based on the commercial understanding by the parties. This clause allows the writer to ask/negotiate for their share of the net profits earned by the producer received from the exploitation of the audio-visual content based on the writer’s works. It means that apart from the option fees and purchase fees, the writer can also seek a revenue share from the successful revenues/monies generated from the audio-visual content in all such modes and mediums. | The inclusion of this clause shall benefit the writer as this net revenue share shall be an additional amount/income to the writer apart from the purchase fee and this can be a continuous income % to the writer. | |
| Credits | It is very important to capture the credits in the agreement. The producers try not to commit a “specific manner of providing credits’’ to the writer. However, the credits are very important to the writer since the writer is recognized through his/her works. Therefore, the writer shall try to negotiate credits to be in a specific manner rather than having a generic language such as – “based on the work_____, written and authored by __________” etc. however, this shall be changed/revised as commercially agreed by the writer and producer. | The inclusion of this clause shall benefit the writer at most As credits shall recognizes and identify writer’s contributions and hard work in the audio-visual content. | |
| Other essential terms | Representations and warranties are important clauses, it needs to capture – that the writer is the true and exclusive owner of the works; during the option period, the writer shall not exploit the works to any third parties; the producer shall have all rights, license to produce the audio-visual content, and the content created shall not be defamatory, obscene; payment obligations etc. Indemnity is very important – specifically in relation to arising any third-party claims. Confidentiality is very important to keep the agreement and any confidential information confidential by the parties. Termination & Consequences of the agreement is very important to capture who shall have the right to terminate and its consequences shall be carefully negotiated by the parties. Governing law and jurisdiction, waiver, notices, severability, survival, assignment, remedies etc. |
I hope that you have a basic understanding of what options are in assignment agreements and what kind of clauses to keep in mind while agreeing. Let’s also try to understand what a shopping agreement means and how it is different from an option agreement.
Shopping Agreement
A shopping agreement serves as a preliminary step in the process of adapting a literary work, such as a story, concept, screenplay, or novel, into audio-visual content by a producer. This agreement outlines the intention of the producer to explore the possibility of creating content based on the literary work. During the shopping period specified in the agreement, the producer is not obligated to make any monetary payments to the writer of the literary work. Instead, the producer is granted a period of time to seek potential platforms or financiers who may be interested in funding the production of the audio-visual content. Once potential partners are identified, the parties involved will negotiate the terms of the production deal, including financial compensation for the author/owner of the literary work. This negotiation typically occurs after the producer secures backing for the project, ensuring that the terms are favourable to all parties involved.
While shopping agreements may not be as common in India currently, this could change as the entertainment industry continues to evolve and adopt global best practices. As the industry matures and becomes more interconnected with the global market, Indian filmmakers and producers may increasingly explore the use of shopping agreements as a tool for project development and financing. Shopping agreements are more common in countries with well-established entertainment industries, such as the United States. In these countries, shopping agreements serve as a means for filmmakers and producers to explore potential projects and secure financing or distribution deals before committing to full-scale production.
Shopping agreements may not be as prominent in India compared to other countries due to several interrelated factors:
- Industry infrastructure: Countries like the United States have highly developed entertainment industries with established networks of producers, financiers, and distribution platforms. This robust infrastructure supports the use of shopping agreements by providing a framework for negotiating and executing deals. In contrast, India’s entertainment industry is still evolving, with fewer standardised practices for project development and financing.
- Legal framework: The legal framework in countries like the United States may be more conducive to the use of shopping agreements, with clear contractual provisions and precedents that govern such arrangements. In India, the legal landscape regarding entertainment industry contracts and intellectual property rights may be less well-defined, leading to uncertainty and reluctance to rely on shopping agreements.
- Cultural norms: Cultural factors can also play a role in the adoption of certain business practices. In some countries, there is a greater acceptance of risk-taking and experimentation in creative industries, which aligns with the flexible and exploratory nature of shopping agreements. In India, cultural attitudes towards risk, trust, and business relationships may differ, influencing the preference for more traditional deal structures.
- Market dynamics: The structure of the entertainment market in India may also influence the use of shopping agreements. Factors such as the dominance of certain production houses or studios, the role of government regulations, and the availability of financing options can impact how deals are structured and negotiated.
- Industry practices: The process of acquiring rights and developing projects in India’s film industry may follow different practices compared to industries in other countries. There may be a preference for more formalised agreements at an earlier stage of development or different types of agreements altogether.
- Financial considerations: Financing structures and investment practices in India’s entertainment industry may differ from those in other countries. Producers and filmmakers may prefer to secure financing or investment upfront rather than relying on a shopping agreement model where payment is deferred until a later stage.
- Risk aversion: There might be a general tendency towards risk aversion among parties involved in creative projects in India. Filmmakers and producers may be less inclined to invest time and resources in exploring potential projects without the certainty of a production deal in place.
Overall, the prominence of shopping agreements in India is influenced by a combination of cultural, legal, industry-specific, and financial factors that shape business practices and contract negotiations in the country.
Basic differences between an option agreement and a shopping agreement.
| S.No. | Option Agreement | Shopping Agreement |
| An option agreement is a very established procedure that secures the rights of both parties equally. | A shopping agreement is a modern method that will not monetarily secure the writer. Further, the parties shall receive compensation only upon securing a deal with such third party. | |
| In the option agreement, the writer does not have a say in negotiating the deal with such third parties interested in the project. | In the shopping agreement, the writer along with the producer may directly negotiate the deals with such third parties. Further, the writer shall have absolute control in approaching such third party bought by the producer. In the event the writer doesn’t want to make any offer or deal with a particular third party, the writer shall refrain from making any deal with them. | |
| In an option agreement, the producer shall have an exclusive option right to hold the rights for a certain period of time and purchase them. | In a shopping agreement, the producer shall not have an exclusive right to hold the rights; all rights in the work shall absolutely vest with the writer and only upon securing a third-party deal shall the parties negotiate accordingly. In the event that the producer has found a third party who is interested, then the writer can directly make the deal. Therefore, the writer has control over the deal with such third parties. | |
| In an option agreement, the term is generally longer, i.e., 1-2 years. | In a shopping agreement, the term is usually shorter, i.e., 9-18 months. | |
| In an option agreement, the compensation shall be paid even during the option period for holding the rights. | In a shopping agreement, no monetary/compensation is paid to the writer and similarly, the producer shall be paid only upon securing a third-party deal with the approval of the writer. If any deal is unsuccessful, then the producer shall not be receiving any compensation, even for his/her time and efforts. |
What can be the possible impact and changes if the Indian entertainment industry starts entering into shopping agreements:
- Increased flexibility in project development: Shopping agreements allow creators to develop and pitch their projects to multiple potential buyers without initially committing to a single entity. This could lead to a more flexible and dynamic environment where innovative and diverse content can be explored more freely.
- Attracting global collaborations: The use of shopping agreements, common in Hollywood and other developed entertainment markets, could make Indian filmmakers more attractive to international collaborators and investors. This alignment with global practices could facilitate cross-border partnerships and co-productions efficiently.
- Standardisation of contracts and practices: The adoption of shopping agreements could lead to the development of more standardised contracts and industry practices within India. This might result in clearer guidelines and better protection for intellectual property rights and creative contributions.
- Increased investment opportunities: By enabling creators to secure backing from multiple financiers and studios, shopping agreements could open up new avenues for investment. This might encourage more private equity, venture capital, and other forms of investment in the Indian entertainment sector.
- Enhanced project quality and diversity: With the ability to shop projects around, creators could seek out the best possible deals, resources, and partners to bring their visions to life. This could result in higher-quality productions and a more diverse array of content being produced.
- Potential for market disruption: The introduction of shopping agreements could disrupt traditional power dynamics within the Indian entertainment industry. Established production houses and studios might face increased competition from new entrants who can leverage shopping agreements to secure deals.
- Changes in risk management: Shopping agreements could alter how risk is managed in the industry. Creators and producers might be more willing to take on ambitious projects knowing they have the opportunity to pitch to multiple buyers. However, this could also lead to increased pressure to constantly develop marketable ideas and secure deals.
- Legal and regulatory evolution: The widespread adoption of shopping agreements might necessitate changes in the legal and regulatory framework governing the Indian entertainment industry. Clear laws and regulations would be needed to address the specifics of such agreements, ensuring fair practices and dispute resolution mechanisms.
- Professionalisation and skill development: As shopping agreements become more common, there might be a greater need for professionals skilled in negotiation, contract law, and intellectual property management. This could lead to the growth of specialised training programs and career opportunities within the industry.
- Cultural Shift in Business Practices: The introduction of shopping agreements could gradually shift cultural norms around business practices in the Indian entertainment industry. There might be a move towards more formalised and transparent deal-making processes, fostering a more professional and trust-based industry environment.
Overall, while the adoption of shopping agreements could bring numerous benefits and opportunities, it would also require careful management of the associated challenges and transitions within the industry.
Determining whether shopping agreements or option agreements are better for the Indian entertainment industry depends on various factors, including the specific needs of the project, the preferences of the creators and producers, and the overall industry context.
Let’s try to understand the potential advantages and disadvantages of each in the Indian entertainment industry:
Shopping agreements
Advantages
- Flexibility: Shopping agreements allow creators to pitch their projects to multiple potential buyers, providing more opportunities to find the best fit for their vision.
- Control: Creators retain more control over their projects as they are not committed to a single buyer initially.
- Exploratory nature: These agreements can be beneficial for new and innovative projects that may require multiple rounds of pitching to find the right backer.
Disadvantages
- Uncertainty: There is no guarantee of a deal, which might lead to prolonged periods of pitching without securing financing.
- Legal complexity: The legal framework in India might not be as well-suited to shopping agreements, potentially leading to ambiguities and disputes.
- Market dynamics: Shopping agreements could disrupt traditional industry practices, possibly leading to resistance from established production houses and studios.
Option Agreements
Advantages
- Security: Option agreements provide a sense of security as the buyer pays for the exclusive right to develop the project within a specified period.
- Clear timeline: These agreements come with a clear timeline, which can be advantageous for both parties to manage their schedules and expectations.
- Commitment: Having an option agreement can show a level of commitment from the buyer, which might attract additional financing and interest.
Disadvantages
- Less flexibility: Creators are committed to one buyer, which could limit their ability to seek better opportunities.
- Upfront costs: Buyers must pay for the option, which could be a deterrent for smaller production houses or independent filmmakers.
- Risk of reversion: If the buyer decides not to proceed with the project, the rights revert to the creator, which might lead to delays and complications in finding new buyers.
Conclusion
Considering the evolving landscape of India’s entertainment industry, option agreements emerge as a favourable choice currently due to their alignment with traditional practices, security benefits, and clarity within the existing legal framework. These agreements provide essential stability and defined timelines, which are crucial in an industry still navigating its growth phases.
However, as the industry matures and adapts to more global standards, shopping agreements offer compelling advantages such as flexibility and greater control over intellectual property rights. They can potentially democratise market access, enabling new entrants to compete on a more level playing field.
Ultimately, the decision between option and shopping agreements should be driven by project-specific requirements and long-term strategic goals. A nuanced approach that integrates elements of both types of agreements could be beneficial, ensuring that the chosen contract aligns with both current industry dynamics and future growth trajectories. As the legal and cultural frameworks continue to evolve, the landscape for these agreements may shift, presenting new opportunities and challenges for stakeholders in India’s vibrant entertainment sector.
References
- https://www.romanolaw.com/whats-the-difference-between-option-and-shopping-agreements/
- https://www.mondaq.com/unitedstates/broadcasting-film-tv-radio/882834/shopping-agreements-the-pros-and-cons-as-compared-to-option-agreements
- https://www.lw.com/en/people/admin/upload/SiteAttachments/Option%20and%20shopping%20agreements%20for%20film%20and%20TV%20(w-034-2532).pdf
- https://www.romanolaw.com/shopping-vs-option-agreement/
- https://www.scconline.com/blog/post/2021/09/02/option-agreement/
- https://janefriedman.com/books-to-film-option-versus-shopping-agreement/
- https://www.mondaq.com/india/broadcasting-film-tv–radio/1320070/book-options-agreement-in-a-film-industry
- https://www.tdslaw.com/resource/film-production-and-entertainment-law-shopping-and-option-agreements/
- https://www.spillerlaw.com/post/the-differences-between-an-option-agreement-and-a-shopping-agreement-in-film-and-television
- https://writersguild.org.uk/wp-content/uploads/2021/11/Film-Option-agreement-template-11.11.21.pdf
