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With Universal Pictures’ co-financing deal with the Warner Bros. Pictures-owned Castle Rock Entertainment expiring by year’s end, Warners is in advanced talks with Spanish powerhouse telco Telefonica Media to take a stake in the production label.

Telefonica came close to acting as an equity partner in Steve Reuther’s Bel-Air Entertainment, but was narrowly beat out by Canal Plus. When Warners began looking for a partner to replace the exiting U, Telefonica was a logical first stop. No deal is in place, however.

A source close to the talks said that the idea of buying into Castle Rock was driven by Telefonica Media prexy Jose Antonio Rios, who abruptly ankled his post last week. It was unclear what Rios’ departure would mean for this deal.

Also last week, Telefonica announced plans to invest $100 million in 20-30 Spanish co-productions during the current year.

Castle Rock, which was co-founded nearly 13 years ago by current Warners president Alan Horn, Castle Rock Pictures president Martin Shafer, producer Rob Reiner, Castle Rock TV president Glenn Padnick and producer Andrew Scheinman, was a boutique indie firm when Turner purchased it in 1993 for $100 million cash and $260 million in assumed debt.

When Time Warner and Turner merged in 1996, Castle Rock was put on the block, but by the end of the year, Warner Bros. chose to keep the label.

In January 1998, Warner Bros. and the then-nascent Polygram Filmed Entertainment made a deal to split rights on Castle Rock pics for three years. Universal bought PFE later that year and later agreed to inherit the Castle Rock arrangement.

‘Green’ team

From the PFE slate, Warners released Castle Rock’s Tom Hanks starrer “The Green Mile” and the Hugh Grant pic “Mickey Blue Eyes” in the U.S., while Universal handled international. U took domestic on Castle Rock’s “The Story of Us” and Warners distributed overseas.

Beyond the PFE commitments, however, no new Castle Rock pics were co-financed between Universal and Warner Bros. Instead, Castle Rock co-financed a number of pictures with Warners-based companies Village Roadshow (“Miss Congeniality,” “Pluto Nash”) and Bel-Air Entertainment (“Proof of Life”).

A Warner Bros. spokeswoman denied that any part of Castle Rock was for sale. A Telefonica spokesman also denied any knowledge of the talks.