In the first of a series of articles breaking down the key stages in the life of a production from a legal perspective, Geldards Media and Entertainment Law Partner, Peter Ward discusses how TV and film producers acquire the underlying rights which will ultimately become their film or TV programme.

The idea

Every film or TV production begins with an idea. That much is obvious. What’s less commonly understood, however, is that ideas themselves are not protected by copyright. Copyright protection only applies once the idea is expressed in a tangible form, such as a book, script, or screenplay. This means that if a producer wants to use a recorded idea for their production—whether it’s a film, TV show, or other audio-visual project—they must legally acquire the rights to that work. In legal terms, the recorded idea is known as the “underlying work.”

Commissioning a new original work

There are broadly two options for a producer looking for underlying work to be made into a production: (i) create or have it created from scratch or (ii) acquire the rights to underlying work that already exists. The legal considerations for each are slightly different. Let’s look first at the creation of new works.

If a new original work is required, the producer may approach a screenwriter to help them create it. The producer will usually have an idea of what they want their production to be, though may lack the skill and expertise to develop those ideas into a viable script. This is where the screenwriter comes in, transforming the producer’s ideas into a cohesive and professional script. In any case, a contract must be put in place to outline the scope of the work to be created.

For a TV series, the producer will want the screenwriter to create a “bible” setting out the story premise, character breakdowns and perhaps half a dozen story springboards. They may also want them to write a pilot episode script. For a movie, a screenplay will be required. The contract needs to tread the line between sufficiently detailing the type of work the producer expects the screenwriter to produce whilst not stifling creativity. A key element of this will be the parties recording a sensible approvals process, including how many drafts the screenwriter will be expected to submit to the producer before the final sign-off.

Assignment v Licence

Crucially from the producer’s perspective, the contract must ensure that the rights to the screenwriter’s work are legally assigned or licenced to the producer or their production company. In this context, assignments are normally preferable to licenses as they fully transfer ownership in the underlying works and allow the producer to deal with those ownership rights as they wish.

With a licence, ownership of the underlying works remain with the screenwriter, who licenses the producer to use those works for certain defined purposes in connection with the production. There can be pitfalls here, as licences must be broad enough to allow the producer to do everything they want to do with the works. If a licence is not comprehensive enough, the producer may find they cannot use the works to their full potential for maximum commercial gain, for example via merchandising or other ancillary revenue streams.

A note on loan-out contracts

So called “loan outs” are a common feature of the film and TV industry. This is where an individual such as a screenwriter is “loaned out” by a company, in order to provide services on a production. The individual being loaned out usually, but not always, owns the company doing the lending. In other sectors, such companies are more commonly known as personal services companies. The structure can confer some tax advantages on the individual in question, although these aren’t what they once were (at least in the UK).

A producer contracting for the services of a screenwriter, or any other talent for that matter, will often be asked to contract with the talent’s loan-out company. In this scenario, a well-advised producer will require what’s known as an ‘inducement letter’, which is a side letter between the producer and talent that gives the producer a direct route of contractual recourse (rights under the contract) against the talent in the event the loan-out company defaults on any of its contractual obligations.

Crucially, the inducement letter should confirm that a full assignment of rights from the talent to the loan-out company, together with a waiver of their moral rights, has taken place. After all, if the producer is taking a licence or assignment from the loan-out company rather than the individual, they will need to be sure that the loan-out company has the rights to transfer in the first place. It is surprising (and alarming) how often this point is overlooked when contracts with loan-out companies are put in place.

Payment

In addition to their fee, which should always be expressed as being in full consideration for assignment (or licence) of the rights, a screenwriter will usually negotiate a contractual right to be credited on the final production, usually by way of a “created by…” or “written by…” credit. This will be the case even if the ownership of the works is being transferred. A well-advised screenwriter may also seek to negotiate commission bonuses or other deferred payments from net receipts if the production does well.

Screenwriters with a track record of success will be in a better position to negotiate these “back end” entitlements, but strategically, producers should bear in mind that any profit participation ceded at the outset will diminish the pot further down the line. If the production proceeds fruitfully, the screenwriter will not be the last party who expects back-end entitlements (we’ll cover this in more detail in other articles but commissioners, distributers, and financiers will all want their piece of the pie). Good advice from an experienced lawyer on what is a reasonable position can prove invaluable at this early stage.

Existing Works and Option Agreements

If a producer wants the right to make a production based on an existing literary work, a book or a novel say, this can be achieved by an upfront assignment or licence of those rights, in return for payment of a fee.

More typically, however, the owner of the rights in the underlying work and the production company will enter into an option agreement. Sometimes the underlying rights will be owned solely by the author, but on other occasions, a publisher or even the author and their publisher together will own the rights, particularly in situations where film and TV rights to the underlying work have already been decided between them. All rights owners should be party to the option agreement.

As the title suggests, under an option agreement the producer is granted the right or “option” to take a licence or assignment of the underlying works in return for payment of an agreed price, payable on option exercise. For the option to have value to the producer, they (or rather their lawyer) should ensure the option is granted to them exclusively and irrevocably.

The option itself won’t be free. The producer will be expected to pay a fee in return for both the ability to use the underlying works in certain ways during the option period and for the future opportunity to acquire the works. There is a natural tension between the producer, who will want the option period to be as long as possible, and the underlying rights holder(s), who will be mindful of the opportunity cost of tying up the rights for an overly long time. Again, an experienced lawyer will be able to guide producers here.

Option agreements can be structured so that the option period is extended on payment by the producer of an additional fee, typically somewhat less than the initial option fee. Multiple extensions are possible, however, the rights owner will want to see evidence that there has been meaningful progress in developing the rights before granting an extension and tying the rights up for a further period of time.

During the option period, the producer will be permitted to use the underlying work in various ways, such as adapting and developing it for film or TV, shopping it around broadcasters and streamers and using it to drum up production financing. The extent to which the author is entitled to be consulted on such matters during the option period will be a matter for negotiation and should be covered in the contract.

Other key points to be negotiated will be the option price and the purchase price payable on exercise of the option. The rights holders may also want a percentage of net receipts and potentially a right of consultation in relation to the development of the underlying works post-option exercise.

Finally, it’s worth noting that options don’t have to be exercised. The film and TV landscape is littered with the ghosts of promising works which have been under option at one stage or another, but never made it to the screen.

If you require legal support with acquiring the rights to a production, Option agreements or any other matters covered in this article, contact Geldards Media and Entertainment Law team.