When you make a film based on an existing piece of source material you hardly can do it for free. Before you are able to go ahead with it you must first be able to secure the rights. This is often done in a way that you are not forced to make the film, but still give a small amount of cash to have it reserved. This is called optioning the film rights.
Taking an Option
A producer often takes an option so that they can reserve a piece of source material until they can find funding from a studio or investor. An option is taken every year, and every year that a project continues to be optioned they pay an option fee. This is usually roughly ten percent of the total cost of rights, which can be anywhere from twenty thousand to almost a million dollars depending on the property. The option cost then usually runs from the low thousands to tens of thousands of dollars annually. This is paid until either the film is going to be made and the full price is paid, or until the producer or film executive decides against the project all together.
This optioning process goes in a multi-tier step deal. The first year is usually called the initial option period and marks the time when the person who purchased the option retains absolute dominance over the property. Once it is going to be made by a larger studio there has to be a setup fee paid, which is often considered the second step. Finally the film being purchased for production will close out this step process.
Options need to leave themselves open to the possibility of renewal so that a person or entity can sit on the property until they are able to get it made. The final price of buying the rights must also be agreed upon, and usually is because that is how the annual option fee is determined. The purchase price is usually only paid once the project actually begins filming because anything can happen before production begins.
From here there must be a contract drawn up that will define the property and exactly what kind of rights are being sold as part of this adaptation. There is not an absolute standard for this and can run from film representation rights to things like merchandising and cross-promotional advertising. All of these things depend of the purchaser as well as the seller, and every one is different. Each type of source material has its own specific rules so those need to be addressed precisely before going ahead.