The Podcast Lawyer™ on the disturbing trend in "shopping" agreements
Recently, I've started seeing a dangerous trend in so-called "shopping" agreements . The first few of these came up in deals between podcasters and networks or production services, but I've also encountered the problem with TV producer/writer deals. What's odd is that, while they seem innocuous, these deals really don't serve either of the parties very well. Sort of a case of "Penny wise; Pound foolish".
A few years ago, I wrote a blog post titled Option vs. Shopping Agreements: How to secure your position with your next project.
In that piece, I outlined the relative advantages and disadvantages of these two approaches when producers want to be "attached" to a property.
Refresher: Option vs. Shopping deals
In a traditional Option agreement, the producer pays a small(ish) option price to secure the exclusive right to purchase the rights to the property at an established price, within a fixed period of time. For example, a one-year option for $1,000, locks in a purchase price of $100,000, if the option is "exercised" within that one-year period. Otherwise, all of the rights revert to the owner. This has the benefit of locking up exclusive rights to the property, for relatively low cost, while assuring both parties of a fixed price, if the project moves forward.
Meanwhile, in a 'traditional' Shopping Agreement, the producer pays little or nothing up-front, but secures a short period of time in which to "shop" the property trying to set it up with a studio or network. Then, if there's interest, the producer and the owner of the property each negotiate their respective deals, services, rights, and fees separately with the financier/buyer.
A disturbing trend: Enter the "shoption" agreement.
In recent months, I've encountered more than a few of this new breed of so-called "shopping agreement". These deals grant the producer not just an attachment with the right to 'shop' the property, but also full control of negotiations for the rights and services of the Owner. Often, there's no guarantee that the creator/owner will receive any compensation whatsoever, usually, it's only vague promise to split the profits from exploitation of the project.
In my view, such deals are, essentially, option contracts masquerading as shopping agreements.and they're often a bad idea for owners and producers alike.
You see, such arrangements leave the creator/owner with no control over whether or not their properties and services are valued appropriately by the producer negotiating the rights component of the deal, while that producer is free to negotiate separate (and lucrative) producing or executive producer fees that aren’t shared.
Vulnerable to "creative" dealmaking and accounting.
Moreover, anyone with a few years around the entertainment industry knows that "net profits" are famously elusive. Hollywood-style accounting can make achieving profit almost impossible; but even using generally accepted accounting principles, expenses can easily be shown to equal or exceed the revenues. This is especially so, when producers draw their fees separately, and see them deducted as expenses. The sad truth is, there's just too much room for "creative" dealmaking and accounting. And that leaves owners holding an empty bag, having tied-up and/or sold their properties for, what often amounts to nothing except the [misplaced] hope and prayer that there's someday a profit.
Bad for the goose, AND the gander
These deals can be just as detrimental to the producers' interests. For starters, producers' expectations of there being any actual net profit are often just as misplaced as owners'. And, savvy financiers increasingly decline to pay meaningful producing fees. And, holding the pursestrings very tightly, just as often refuse to pay reasonable value, even when dealing with experienced producers. Sadly, I've seen producers left nearly as empty-handed as owner/creators.
Owner/creators and producers alike should resist these new-style shopping agreements. Even if it means passing up what looks like an otherwise promising opportunity. Personally, I'd rather regret saying no to a mediocre deal, than regret saying yes and being under- or uncompensated and feeling like a rube.
Whether you're a screenwriter, a podcaster, author or producer, these "shoption" agreements are a disturbing trend that should be resisted whenever possible. The time has come to respect the more reliable option contract model when acquiring properties. This provides a greater degree of certainty to all concerned. The producer/buyer is able to control the rights, and need not raise a great deal of cash, since the eventual purchase price will be paid by the studio or network. Meanwhile, the creator/owner is assured that if the project is produced, they'll receive a reasonable price, along with whatever other terms have been negotiated into the option. This beats hoping and praying any day.
After all, 50% of zero profit is zero, no matter which side of the split belongs to you.
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