chapter  1
19 Pages

Underlying Rights

One of the fundamental elements of the film business is the buying and selling of rights: rights in books, scripts, treatments, magazine articles, short stories and various other forms of intellectual property. It is customary for a producer or production company to initially option the underlying rights in a project that is based on an existing form of intellectual property. For economic reasons, the cost of an option is much less than buying the rights. As a rule of thumb, producers generally pay 10 per cent per year of the purchase price. If the purchase price is £50,000 then a producer will pay £5,000 for a year-long option. This gives the producer a year to decide whether they want to exercise the option and purchase the rights. Producers usually negotiate the right to extend the option for another year by paying an additional fee, i.e., another 10 per cent. In most cases, the initial option fee is on account of the purchase price so, in the example above, if the producer decides to exercise the option during the first option period, he will have to pay only £45,000 for the rights, as he has already paid the £5,000 option fee.