Matthew Garrahan, the Los Angeles Bureau Chief for the Financial Times, has a great scoop that just went online today: “Time Warner has been forced to absorb the cost of four films released in 2008 by its Warner Brothers subsidiary after one of the studio’s key financing partners failed to contribute its 50% share.” It seems that Village Roadshow Pictures, the Australian group that has financed dozens of movies with Warner Bros including the Matrix trilogy, was unable to provide the funds as scheduled, which Time Warner said was approximately $120M. “The company’s failure to secure the 3rd-party financing illustrates the difficulties facing Hollywood studios as they wait for a thaw in frozen credit markets. They are being forced to carry more of their production costs on their balance sheets as co-financing partners struggle to raise cash,” Garrahan analyzes. In its 2008 annual report, which was recently sent to shareholders, Time Warner said it was “unsure” whether its co-financing partner “would ultimately secure the funding for amounts due on these four 2008 productions or the funding it had committed for films slated for release in 2009”.

Garrahan writes that Warner Bros and Village Roadshow were supposed to co-finance several films in 2008 including Get Smart, Yes Man, Nights in Rodanthe and Gran Torino. “With Village Roadshow unable to provide its share, Time Warner subsequently had to account for the films as if they were wholly owned by the group.” This year, the two companies are due to co-finance Where the Wild Things Are and Sherlock Holmes. Time Warner added in the annual report that “the difficulties in the credit market may also reduce [TW’s] ability to attract other financial partners to co-finance its films”.

Village Roadshow declined to comment to Garrahan “although a person familiar with the situation said the company was close to restructuring a credit facility that would enable it to pay for its share of the films.” And a TW spokesman told the FT that absorbing the cost of the four films was “not going to have a meaningful impact on the P+L [profit and loss statement]. … It’s possible [our partner] will obtain the financing”. Meanwhile, a spokesman for Warner Bros told Garrahan that the studio was ”not concerned” by the funding delay. ”This is a temporary restructuring issue and we fully expect our partner will ultimately secure funding. At the end of the day, we make movies with partners and we make movies without partners. This is simply a issue of the times we’re in.”

Time Warner announced 1st-Quarter earnings today and beat the street by cutting marketing spending and 1,500 jobs. The company also announced it will probably spin off all or part of AOL to shareholders. Jeffrey Bewkes said on a conference call he intends to announce plans “very soon.” TW’s stock price was up sharply on the announcement. The company also said it is in talks to buy back Google’s 5% stake in AOL, after Google told Time Warner in January that it was exercising a right to force TW to take the Internet unit public or buy back the stake.

Revenue at the film division fell 7.3% on dropping DVD sales.