CREC010510 - Overview and definitions: rights payments

Book rights 

Expenditure on the rights to use a story or book as the basis of a film, TV programme or video game is production expenditure. Expenditure on wider rights beyond what is necessary to make the production is not. For example, the right to use and exploit characters from a book for commercial purposes outside of film, TV or video game production. 

Each case must be considered carefully, but in general a payment for an option over the right to use a book or story would be speculative, while the purchase of the actual rights needed to make the production is not speculative expenditure, it is core expenditure. 

Example 1 

A producer likes a book and thinks that a video game might be made based on it. 

She does some preliminary work, including setting up a company through which any costs associated with the game will be channelled, and seeking initial opinions from colleagues and financiers. 

All seems favourable, so the company pays for an option over the game rights. This is purely to protect its position and is speculative. 

There follows further development work, including commissioning game developers to work on potential gameplay. Finance is found. 

At this stage the company exercises the option so that it can make the game. 

The company’s payment for the rights is core expenditure, but not its payment for the option. 

Example 2 

A studio buys outright the intellectual property in a series of popular children’s adventure stories and sets to work to make films of them. It does this by engaging separate production companies to produce and deliver a film of each individual book. 

Included with the costs borne by each production company is a recharge by the studio of the book rights relating to the film it has been engaged to produce. The studio retains all other intellectual property including merchandising rights. 

The payments from each production company to the studio are core expenditure.

Musical, literary and stock film rights 

Similar considerations apply to payments made for options and rights connected to music, songs, literary works and stock footage that may be incorporated into the film or TV programme during principal photography or post-production, or into the video game during production.