Warner Bros.' Financing Bumps

For decades, movie moguls have, it is said, lived off "other people's money." Investors come and go, lured by Hollywood's glamour—only to wind up losers while the studios prosper. But as the studio bosses at Warner Bros. are learning quickly, sometimes other people's money has a way of walking out the door.

For the second time in recent months, the credit markets have scuttled funds Warner Bros. was counting on. First it was the Abu Dhabi government, which for months has been renegotiating a 2007 agreement with Warner to provide $1 billion in financing for several Warner projects, including a $500 million fund to make movies. Those talks continue, and only one film has been made from that agreement to date.

Now the studio's parent has said in its most recent regulatory filing that another financing partner—Australian film production company Village Roadshow—was unable to provide $120 million for four films because of "difficulties in the credit markets."

In neither case was the quality of Warner's film production at issue. In fact, the studio last year generated a record $1.79 billion in U.S. ticket sales. And it is riding a high right now in terms of 2009 sales, with an industry-leading 17.5% of the domestic box-office gross, according to online site Box Office Mojo. Rather, as parent company Time Warner (TWX) said in its most recent filing, the credit markets have forced its partner—known to be Village Roadshow—to experience a "delay in securing" the $120 million. Time Warner also said it was unsure whether its financing partner would be able to secure the financing for those films or other films due to be released later this year.

On a Box-Office Roll

In a statement, Warner Bros. said it was "not concerned" about the development, calling it "a temporary restructuring issue, and we fully expect our partner will ultimately secure financing." In a separate statement, Village Roadshow said it anticipates a renegotiation of its film funding facility to be completed in May.

For Warner Bros., the good news has been that three of the four films it had to finance solo have been hits, to varying degrees: Gran Torino, directed by Clint Eastwood, who also starred in it, which received several Golden Globe nominations; Yes Man, a Jim Carrey comedy; and Get Smart, the Steve Carell remake of the 1960s sitcom. The fourth, Nights in Rodanthe, a love story starring Richard Gere and Diane Lane, grossed a less-than-stellar $84 million worldwide—meaning Warner could have used the Village Roadshow cushion to avoid what's almost certainly a loss on the film.

Moreover, Warner was counting on Village Roadshow's cash to help make two films yet to be released, Where the Wild Things Are, an adaptation of the Maurice Sendak children's story, and Sherlock Holmes, starring Robert Downey Jr. and Jude Law. Neither movie is considered a huge-budget affair, though in Hollywood nothing is ever a safe (or even breakeven) bet.

If Warner Bros. is concerned, it has maintained a calm veneer. "This is simply an issue of the times we're in," the studio said in its statement. "At the end of the day, we make movies with partners, and we make movies without partners." Of course, it helps for Warner and every other studio to know when their partners are able to pony up.

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