I stumbled upon an extremely informative and interesting thread in the imdb message boards, about the process of selling a script, negotiating tips, and much more.

I will paste the best bits of it, in case anyone is interested in this topic; I hope it may be useful.

Since there are always several questions at any given time about selling scripts, what the process is, etc., I thought I would start a post that will give everyone an idea of what to expect from the industry. I called this post ‘Reality Check’ because, in all likelihood, that’s going to be the first check you’ll get in this industry.

The thing that needs to be understood, first and foremost, is that production companies are like any other company… they want to make money. If they don’t make money, they can’t pay the bills. If they can’t pay the bills, they can’t continue to operate. People can complain and whine and moan all they want about the types of movies Hollywood makes, or how good writers aren’t given a fair chance, but the fact of the matter is, Hollywood makes its decisions based upon what works or has worked in the past. They make the best financial decisions they can, just like the rest of us do.

With that in mind, here’s the typical process of getting a motion picture made:


STEP 1: FINDING A GREAT SCRIPT

The first thing any company needs is a great script upon which to base their great project. This script can be found a variety of ways. It could be found by the development department, which reads through hundreds or even thousands of scripts every month. It could be found by an executive or other employee who, through their network of contacts, came across a great property and brings it to the company. It could be found hearing a pitch from established writers. Or, again, based on the company’s network of contacts, a company or individual with some drawing power can pitch the project in hopes that the company will share the risks and rewards of producing the picture. However it’s done, finding a great script is the first step.


STEP 2: ACQUIRING THE SCRIPT

The next thing the company needs to do is acquire the script. If it’s a previously established project (spec script, based on existing material, etc.), rights need to be obtained. If it’s a new project (original pitch, idea an executive came up with, etc.), a writer just needs to be hired.

Money is paid for creative work in two ways… as an option or as a purchase. A purchase is an outright sale of the material from the owner to the company. The papers are signed, money changes hands, and the material is then owned, now and forever, by the company. It’s just like a purchase at the grocery store. You give them money and the groceries are then yours to do with as you will. An option, on the other hand, is like a lease. It’s a lesser amount of money given in order to “own” the material for a predetermined amount of time. Just like a lease on a car, it’s a way of being allowed to use something, without necessarily having to pay the money to own it outright.

Now this bears saying… in 99% of all situations, your material will be optioned before it’s purchased.

What that means is that you, as a writer, will most likely NOT get the full purchase price up front. You’ll likely be given a small percentage of that so the company can own your material for a period of time. The reason the company does this is because there are a million and one reasons why a project won’t get made (to be detailed below). As a way of minimizing their financial risk, the company will option a script instead of buying it, so in the event the project falls through, they’re only out a little bit of money, rather than the entire purchase price.

There are a LOT of factors that go into determining an option, but let’s look at a basic example:

A production company loves your script. They tell you they’ll buy it for $100,000. But before they buy it, they want to option it, to see if they can get the project off the ground. So they say, “We’ll give you $5,000 for a twelve-month option.” What that means is that they’ll pay you $5,000 now. In return, they own your screenplay for the next twelve months. You can’t sell it, shop it around, or do anything with it… it’s theirs. BUT, at the end of those twelve months, the company either has to give you the rights to your script back (and you keep the $5,000), or pay you the remaining $95,000 of the purchase price to buy it. The reason they do this is because, as stated above, if they can’t get studio, distributor, director, actor, etc. interest in those twelve months, it’s easier to say, “Keep the five grand and here’s your script back,” than it is to say, “Wow, we just wasted a hundred grand and now own the rights to a script no one wants to make.”

Many writers see this as a disadvantage. After all, they’re only getting a fraction of the money instead of the full purchase price. But there is a silver lining… first, you’re getting money for just sitting around (you got that $5,000 and don’t have to do any work on the project). Second, you have the script back, which, once you have it back, you can send out to other companies, which, IMO, is much better than to have it sit at a company who clearly can’t get it made. And hey, you made $5,000 off someone!

Keep in mind, too, that once you sell your work to someone, they become the new owner. They can do anything they want with the material, since it’s theirs. They can hire a new writer to change it, let it sit on their shelves forever, or refill the toilet paper dispenser in the bathroom with it, if they so choose. It’s theirs, and you, as the original writer, no longer have any claim to it. That’s why it’s important that the Option/Purchase Agreement you sign specifically outlines ANY and ALL things you want. Because outside of that agreement, the company doesn’t owe you anything. But contract terms and negotiation is a whole separate thread.

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STEP 3: DEVELOPING THE SCRIPT

In most cases, the production company will want to change elements of the script. Maybe they want the lead to be twenty-five instead of forty-five. Maybe their audience is older, and want your script to be more adult and more graphic. Whatever the reason (and there are endless reasons), chances are the script will change, possibly a great deal.

This is why it’s important to be professional, courteous, and understanding as a writer. These changes are GOING to be made; they don’t necessarily have to be made by the original writer. So if you’re willing to work with the company and give them the script they want, you might make some extra money by way of rewrites and polishes. But if you’re going to be a stickler for your original script and refuse to make their requested changes, it’s very easy for them to boot you off the project and hire a writer who WILL make the changes. There are plenty of struggling writers out there who wouldn’t bat an eyelash at gutting someone else’s script for $10,000 and six weeks’ work.

The bottom line is that the company is who gets this picture made. That means they’re going to make the picture they want to make, or they’re going to abandon it. The more willing you, as a writer, are to helping them make the movie they want to make, the more likely you’ll continue to work with them, and continue to be paid by them.


STEP 4: ATTACHING ELEMENTS

These days, just having a great script isn’t enough anymore. Investors want a guaranteed return on their money. Although nothing’s ever guaranteed, that risk is minimized by, for example, attaching a star actor to play the lead, or a well known director to helm the picture. Once the company has a script they want to make, and owns the rights, they have to get people interested in the script, and get them to commit to the project.

This is a long, drawn-out process. Talent doesn’t want to attach to a project without the money in place (because they don’t want to be obligated to a picture that is going to take forever to get made), but the money often won’t be available without an attractive proposal, which includes attached talent. Most often, these negotiations take the form of the actor, for example, saying, “Okay, I’ll do it, but only if you can get half the movie funded first,” while the investor or studio says, “Okay, I’ll give you the money, but only if so-and-so actor agrees to be in it.” And, if things go well, in what can only be described as a blind luck miracle of opportunity, both parties will agree, and you’ll get both the money and the talent attached.

The process of attaching talent and balancing raising the money is very tricky, and if things aren’t timed well, there’s a good chance it’ll fall through. This first obstacle to getting a movie made is why companies option scripts instead of buying them. If they can’t finagle that magical window where the investor and the talent are both happy, the project probably won’t get off the ground. And then it becomes a decision of whether to keep pushing forward, or to cut the losses and give the script back to the writer.


STEP 5: RAISING THE MONEY

This is the second obstacle to getting a picture made. Once talent is attached and some money is in place, the company has to get ALL the money for production. Most companies don’t have those kinds of assets on hand, or at least don’t want to risk taking out a sizeable chunk of their net worth by backing only one project (something about eggs being in one basket...). So, in most cases, companies will co-finance pictures together with outside investors, whether they’re individuals or other companies.

These negotiations also have to succeed, and a partnership has to be formed in order for the money to be available for production. If the company can’t agree with the investors and no agreement is signed, there’s no money and the project is scrapped (or stalled while they look for money elsewhere). At this point, the company still needs to be able to cut its losses with the script, which is again why they option before they buy.


STEP 6: FINDING DISTRIBUTION

The last step that a company worries about, in terms of setting up a project, is finding distribution for the film. It doesn’t matter if it’s a theatrical release or straight to video, most companies need to find someone willing to put up the money to get the picture made and distributed to theaters, retailers, etc. Again, this is another situation where the company has to enter into an agreement with a distributor, and why they option the script instead of buying it. If no distributor will back the film, they’re better cutting their losses on the script than paying the full purchase price for a script that no one will distribute.


STEP 7: FINALLY! THE SALE!

If Step 1 through Step 7 goes well and everything is in place, the picture is ready for pre-production. This is usually the point where the movie is ready to be made and will, barring any production or post troubles, be made. Since everything is in place, and the picture is a go, they will purchase the script from the writer to establish their ownership of the material. This is when the writer will get that big fat check for the screenplay, and sign it over forever to the care of the company.

The above process, even when everything goes smoothly, can take months, or even years. That’s why it’s so important that aspiring screenwriters understand that this is not a “get rich quick” business. Yeah, a lot of money trades hands, and the high profile sales are touted by numerous sources, but it’s certainly not a situation where someone dropped off a script with a production company and got a $200,000 check a week later. It’s a very slow-moving process, and, as you can hopefully see above, there’s a reason it moves so slowly. A lot of elements have to come together in order for a picture to be successful. Hollywood is like any other business… it may spend a lot of money on writers and other talent, but that money’s not going to be spent without having a product to show for it. That can take a very long time.

Hopefully after reading this post, some of you will have a better understanding of the process, and why it can take so long to get that big paycheck we’re all hoping for. The business drives everything… and when we understand the business of making movies, we can better prepare ourselves for the reality that surrounds our career choice. There’s so much hype and misconception surrounding this industry; it’s the writers who are realistic about their expectations and understand why things work the way they do that will stand the best chances of success.

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About options:

THE OPTION and the writer

As jwillis said, the overwhelming majority of purchases are in the option area instead of outright purchase. And as for his example... It would be wonderful if they paid 5000 dollars for each year (they don't.) The majority of first time options in LA are to lesser sized production companies and producers. And even a lot of the big ones who know they have first timers by the short hairs pay considerably less for the options, and many times expect you to option them the script for the first couple of years for free. More often than not if you are offered money, you'll be offered a nominal option of 100 to 500 dollars.

Look at the option as a script rental for a specific period. Usually one to two years with the chance to re-option for the same period. During that time the company or individual will try to get financing and or acting attachments to get the film greenlit. The one good thing is that anytime a film is greenlit the FIRST person paid is the writer.

But thousands of scripts are optioned each year and a few are actually made. Optioning a script is a wonderful thing, but the trick is to get it made so you have a credit. Sometimes you need to be cooperative moneywise to help make that happen.

SCRIPT PRICE

As for the 100,000 dollar price jwillis quoted. Most first scripts go for prices that don't come near that. It's usually 3% of the budget of the film with a floor of WGA minimums if it's a union film. If it's not (and a lot aren't), then the floor can be much lower. Remember.... close to all first time scripts sold are low budget ones, meaning that if your script has a million dollar budget... the most you can hope for is 30 thousand. Now, that's a lot of money... but not the hundreds of thousands or millions that most new writers think they will earn right off the bat. And if you sell to someone with a 250 thousand dollar budget...you'll only get paid, at the most, 7500 dollars for that same script. Some non-union low budget producers will offer you a copy and credit only. Can they do this?? Yep. And you can say no if you want to.

The thing I stress most is that for a first timer, you should not expect to make all that much on your first script sale. But again... if you can get one of the big boys to want one of your scripts bad enough... then all bets are off. That just doesn't happen all that often. You're more likely to interest one of the lesser producers and companies to start. That's another reason why you shouldn't be a One Trick Pony.

COOPERATION by the writer and the benefits

Sometimes (and only sometimes and depending what else you have in your backlog of finished scripts) letting the option go for not much can help you in your contract negotiations. Being able to say, "Hey. Since I let you have the option for a hundred bucks, I'd like the first two rounds of rewrites written into the contract so I am assured of having them."

Don't ask for too much in return for cooperation though, that can come back and haunt you. It screams amateur and makes them want to get rid of you FAST.

Don't ask for in your first contract:

1. A role in the film.
2. To be assured you can be on set. (you can be anyway if you cooperate and get along with the director)
3. To direct the film (unless you have a HUGE track record and a lot of award winning shorts or features in your past)

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And more about options:

I guess I should detail a little of my experience about options too. Before signing, options, like any negotiation, go back and forth. The company wants to get as much as they possibly can for as little money as they can get away with, and naturally, the writer wants to give them as little as they possible can for the most money. So the negotiation goes back and forth until the writer is happy with the amount of money he's being paid, and the company is happy with what they're getting for that payment.


In general, there are key points to any option:

1. The length of the option.
2. The amount of the option.
3. The renewal of the option.


1. THE LENGTH OF THE OPTION

One of the major issues is how long the option period will last. Standard options usually last for twelve or eighteen months. In certain situations, depending on either the prominence of the writer, or the obscurity of the writer, the option can be as short as six months, or as long as two years. Options are rarely shorter that six months (unless on a month-to-month basis) and rarely go beyond two years unless there are significant extenuating circumstances. Naturally, the company will want the longest possible option to try and get the project made, and the writer will want the shortest possible option so they either get the work back or get more money. But generally, 12-18 months is pretty standard for an option period.


2. THE AMOUNT OF THE OPTION

This is a little harder to put into absolutes, because every project is different. At my company right now, we've paid as little as $1,000 for an eighteen-month option (unknown first-time writer with an original script), to as much as $100,000 for a twelve-month option (a VERY well known writer who controls the rights to a VERY well known book). Generally, options are figured as a percentage of the purchase price, meaning they're not going to give you a $5,000 against a $20,000 purchase price. By the same token, they're not going to give you a $100 option against a $200,000 purchase price (unless you agree to it, of course). With most of the options I've seen, the initial option price is around 5-10% of the total purchase price. So, if you're a first timer being offered $20,000 for your script, I wouldn't expect much more than $1,000-$2,000 for the option.


3. THE RENEWAL OF THE OPTION

The most important part of any option is the renewal clause. It amazing how many writers, upon hearing someone's ready to cut them a check, will rush into signing an option without really paying attention to the particulars. Every option contract should outline the terms of a renewal. Most companies will look for one or two additional option periods. Some companies might even try to get those option periods for free, just to see if they can get away with it, or if the writer is smart enough to consult an attorney or ask for some kind of compensation. Again, in this situation, the writer wants the least number of renewals, for the most amount of money (for the least amount of time). The company wants the most number of renewals, for the least amount of money (for the longest period of time).


Here's a horror story about options:

This is an old story... probably only an entertainment industry urban legend, but still worth telling. Way back in the early nineties, a company optioned a screenplay for a couple grand. It was a solid script, but for one reason or another, it hasn't been a priority for the company. People want to make it, but the timing just hasn't been right. The option was drafted by a very aggressive lawyer (the kind that puts stuff into the contract that's clearly taking advantage of the other party), reasoning that it'll be immediately taken out if the other side requests it... but if they don't and the company can get away with it, why not? So to make a long story short, the first-time writer saw the option money, saw the purchase price number, and signed the contract without consulting a lawyer, not realizing that the contract provided for unlimited renewals AT NO COST. So, the writer got his $3,000 or whatever it was, and his script has now been sitting on the company's shelf for almost fifteen years, and he hasn't gotten another cent, because he agreed to it without thinking or negotiating.

That's why everyone should properly weigh and consider everything before they sign... and get it looked at by an attorney. Everyone should also know that they have a right to negotiate any agreement. Some lawyers and executives are more pushy than others and may try to bully you into signing something as is, but part of the bargaining process is counter-proposing offers to the other side. If you don't like their offer, you can propose one of your own. Make sure you fight for what you feel is right for your work. That said, however, don't be unreasonable... because the flip side of that coin is that prior to signing the paperwork, either party can walk away at any point. And if you come off as someone who's demanding, arrogant, or expensive, it's easy for the company to walk away.

Here's a couple of tips for writers, when it comes to negotiating options:


Ask that only the initial option payment be applicable against the purchase price.
As Trev said, this is a fairly common give by a production company. In exchange for something they want more (longer option period, more renewals, lower purchase price, etc.) they may concede that only the initial option fee counts against the purchase price. So if they offer you a $1,000 option on a $10,000, and renew the option four times, even though you've been paid $4,000 so far, they can only count $1,000 of that toward the purchase price (meaning, then still owe you $9,000... NOT $6,000). That technically means that, in this example, if they chose to purchase the script, they would have given you a total of $13,000 ($10,000 purchase price, plus the three option periods that didn't count against it). Unknown, and especially first-time writers probably won't get this concession, but it's worth a try, particularly if the company is pushing for other things and you want something to even the negotiation.

Ask for escalating option fees for each option period.
Companies love unlimited renewals, because that means they can keep the script for years and years and years if they want. If they press for that, what I'd propose is saying they can have all the option periods they want, but the fee they owe you escalates with each one. So again, on a $10,000 purchase price, say they offer you a $1,000 and want unlimited renewals. You could propose to them that it would be acceptable, but the option fee goes to $2,000 for the second option period, $3,000 for the third, $4,000 for the fourth, etc. What this does is gives the company an incentive to either give it back or get something done with it, particularly since they're out more and more money each time around.

Ask for guaranteed writing steps to be attached with the purchase.
More likely than not, the company is going to, as Trev said, break the purchase price up into several segments to cover rewrites, polishes, etc. If that happens, you can negotiate for guaranteed writing steps above and beyond the purchase price. Again, with the $10,000 example. Say they buy it for $10,000, which is broken up payments for various revisions. Try to negotiate, for example, for an additional guaranteed rewriting step for $5,000... meaning that if they elect to purchase the script, even when they've bought it and own it, they still have to pay you $5,000 to take another crack at it.

All of these tips and suggestions are, of course, not meant to be construed as things you should demand or expect... they are merely meant as food for thought for those of you who might be offered an option to consider. Companies can get very creative in rights they're provided by their agreement; there's no reason why a conscientious writer can't get creative in his rights as well.

A quick not regarding payment.  When you get paid 3% of the budget, you get 3& of the production budget.  It doesn't include the salaries of any top name stars.  So, if the budget of a movie is ten million dollars, you'll get $300,000 for the script.  If the studio signs Tom Hanks for thirty million dollars, your payment for the script doesn't jump to 1.2 million dollars.


Phil