The Ottawa Citizen from Ottawa, Ontario, Canada • 43

mm THE OTTAWA CITIZEN TUESDAY, DECEMBER 21, 2004 D3 BUSINESS asks Canada Go big i 1 I i i'T'l vn 1 to clarify bank merger policies I Valve one of the few big independent developers, spent more than $40 million U.S. developing Half-Life 2, released last month. Mr. Goodale said he's pleased with the glowing findings. "This report is a further vindication of the sacrifices made by Canadians to get our nation's finances back on track over the last decade." The IMF did have some fiscal quibbles.

It said the recent strength of the Canadian dollar and expected slow growth in the United States are likely to dampen real growth in Canadian exports. It added that the federal government's decision to boost health and equalization payments to the provinces has virtually eliminated any room for fiscal manoeuvring over the next couple of years. And while Mr. Goodale is forecasting surpluses down the road, the fund warned against counting unhatched chickens. "The mission would caution against measures that place an undue weight on these future surpluses." Mr.

Goodale agreed. "We cannot take anything for granted," he said. "We must continue to be prudent and balanced in our planning." The report also said that Canada's spending on health, as a share of GDP, is high by international standards and urged efforts to improve efficiency in the health system. It suggested the federal government allow provinces to experiment with reforms. Each year, the international economic watchdog reviews the fiscal policies and economic development of its 184 members and issues a report.

THE CANADIAN PRESS BY JOHN WARD The International Monetary Fund fund is urging Canada to clarify rules governing bank mergers and to adopt a single securities regulator to replace a patchwork of provincial statutes. Both issues are political hot potatoes. The IMF, in its annual review of the country's economic policies, said a clear framework on bank mergers would reduce uncertainty and promote efficiency. And, it said, a single securities regulator would reduce administrative costs. Finance Minister Ralph Goodale has said he's studying the merger process, even though a poll last summer showed a majority of Canadians strongly opposed bank mergers.

With a minority Parliament, the government may find mergers unpalatable. Two big merger proposals were shot down six years ago when Paul Martin was finance minister. Mr. Goodale has, so far unsuccessfully, urged the provinces to come to an agreement on a common securities regulator for the whole country. The IMF report also called Canada's economic performance enviable and said the country is on track to produce the lowest government debt to GDP ratio among the G7.

The report agreed with the Bank of Canada that economic growth should remain at about three per cent next year and said Canada's string of seven straight budget surpluses was the best performance among major industrialized countries. V'A. A hi sA game could generate worldwide sales of $400 million by year end, says Michael Pachter, analyst at Wedbush Morgan. Mr. Pachter figures the game's gross profit in the three months since its release has been about $285 million U.S.

In recent years, a handful of games has dominated the annual sales figures. But in 2004, publishers released an exceptional number of blockbuster titles, many of them sequels to games from previous years. Banc of America estimates that the top six PC and console titles will generate roughly $1.2 billion to $1.5 billion U.S. in sales in the United States and Europe this holiday season. "Normally there are only three really big games every year," says Mr.

Pachter. The success of the blockbusters, however, has come at the expense of lower-tier titles. Publishers have largely focused on making sequels to successful titles or games based on movie or comic-book characters, which are seen as less risky. "We don't green light any more things that will be small or average-size games," says Kathy Vrabeck, president of Activision publishing unit, which made the SpiderMan 2 game. "One of the consequences of escalating budgets and escalating conservatism is an awful large number of brilliant game designers' ideas are laying fallow right now," says Seamus Blakley, an Xbox veteran who now works as an agent at Creative Artists Agency in Los Angeles representing a handful of star game designers, like Sims creator Will Wright.

THE WALL STREET JOURNAL CONSOLIDATION: ELECTRONIC ARTS BUYS UBIS0FT STAKE, PAGE D8 bought Yukos unit off the sale of Yuganskneftegaz, which pumps nearly 60 per cent of its oil. Following that decision, a syndicate of western banks pulled their financing for state oil giant Gazprom, which had been expected to acquire Yuganskneftegaz. In Sunday's auction, a representative for Gazprom's nascent oil production arm declined to bid, having first left the auction hall to make a telephone call. Some analysts suggested that Yukos shares could be handed back to the state if BaikalFinansGroup failed to provide the cash by a Jan. 2 deadline, and forfeited its $1.7 billion deposit.

A spokesman for the Russian Property Fund, which organized the auction, suggested the company could have until Jan. 11 to pay. THE ASSOCIATED PRESS xf- i Cott shares fizzle after bottler issues earnings warning OTTAWA Thermal settles debts Thermal Energy International Inc. said it has settled debts with six employees and one consultant for a total of $61,585. The settlement involves issuing 821,139 flow-through shares at a deemed price of 75 cents a share.

CANADA Bombardier wins deal Bombardier Transportation has won an $8i-million U.S. order to supply 26 streetcars to Marseille, France. The Flexicity Outlook low-floor trams are to be put in service in early 2007, Bombardier said. B.C. gas pipeline cancelled B.C.

Hydro and its U.S. partner, Williams Gas Pipelines, have scrapped a $340-million line to Vancouver Island. The Georgia Strait Crossing, or GSX, project, proposed in 2000, was to bolster supply for Williams' customers in northwestern Washington and feed gas-fired electricity generation facilities on Vancouver Island. CCL buys label maker Packaging company CCL Industries Inc. of Toronto is paying $80 million to buy label maker Steinbeis Packaging of Holzkirchen, Germany.

Steinbeis sells battery labels around the world and provides decorative labels for the European consumer products market. Fording, Teck sign deals Fording Canadian Coal Trust and Teck Cominco Ltd. said two Asian steelmakers have signed long-term deals to buy their coal and acquire stakes in their jointly owned coal mine. Fording and Teck will sell a total of 4.85 million tonnes of metallurgical coal annually to Japan's Nippon Steel Corp. and South Korea's Posco in 2005 and 2006 from their Elkview mine in southeastern B.C.

UNITED STATES Hotmail signs new software Microsoft Corp. has switched from McAfee antivirus technology to that of Trend Micro Inc. of Tokyo for its free Internet e-mail service, MSN Hotmail. No reason was given for the change and spokesmen for the companies weren't available for comment. The value of the deal was not announced.

Lucent, unions reach deal Two unions have approved a contract with Lucent Technologies Inc. that gives workers raises of more than 16 per cent over the next seven years. The contract also calls for a cost-of-living adjustment starting in 2008 and a $1,000 ratification bonus. $3B oil deal faces tax hurdle An impending tax ruling threatens to unravel a $3-billion deal in which Marathon Oil Corp. would consolidate ownership in Marathon Ashland Petroleum LLC by buying Ashland interest.

Ashland, which owns 38 per cent of the gasoline refiner and marketer, said it feared the pending ruling from the Internal Revenue Service could leave it with an unknown amount of tax liability-Sprint says it'll reach goals Sprint Corp. said it expects its 2004 financial performance to meet expectations and revenue to grow slightly in 2005, but the forecast does not include any effects from the company's planned $35-billion merger with Nextel Communications Inc. WORLD 3.3 Telekom stake sold The German government sold a 3.3-per-cent stake in Deutsche Telekom AG to state-owned KfW investment bank for $2.1 billion U.S. The sale leaves the government holding 16.7 per cent of Deutsche Telekom; KfW holds 15.3 per cent Honda predicts 8 surge Honda is forecasting an eight-per-cent surge in its global auto sales next year to a record 3.4 million vehicles in 2005. It sold 3.16 million vehicles in 2004, up nine per cent from the previous year.

Sony lays out TV strategy Sony Corp. said it is focusing its television business strategy on liquid-crystal displays and rear-projection television sets, but will continue to assemble and sell plasma display sets for now. Sony expects to sell 11.4 million televisions during this fiscal year through March 2005. It sold 94 million cathode ray tube sets, one million rear-projection TVs, 700,000 LCD sets and 300,000 plasma sets. or go broke Video game publishers are betting heavily on big-budget titles, and that, in turn, puts pressure on the smaller publishers, MARCELO PRINCE and PETER ROTH report from New York.

It's shaping up to be a high-scoring year for the video game industry. Microsoft Halo 2 broke records when it raked in $125 million U.S. in its first day on the market, more than any movie has ever made in an opening weekend. After a month in stores, the alien-fighting game has topped $250 million in sales. Several other sequels, including Grand Theft Auto: San Andreas and Doom 3, have lived up to their blockbuster billings and Hollywood-level budgets.

U.S. video game sales are expected to increase 10 per cent this year to $7.7 billion, according to Wedbush Morgan Securities. That isn't far behind total U.S. box office receipts, which stood at $8.6 billion at the end of November. But the fast-growing industry also faces a major challenge: Escalating development and marketing costs are sowing the seeds of an "arms race" that analysts say will intensify as publishers rely more heavily on big releases to generate the lion's share of their profits.

The string of big-budget games released for the holidays is expected to put pressure on some of the smaller publishers, who have significantly fewer titles on shelves and might not be able to survive if even one of them stalls. Among them, Britain's Eidos Pic, which gained fame with its popular Tomb Raider series of games, has already explored a sale. "If you're not making a lot of money right now, you're not going to make it in the next generation," says Jeff Brown, vice president of communications for Electronic Arts publisher of Madden NFL and the industry leader with annual sales of nearly $3 billion U.S. Once the arena of children and hobbyists, video games are now a big business dominated by a handful of large media companies spending heavily on popular franchises. Just this week, Electronic Arts signed an exclusive five-year deal with the National Football League and the league's players' association to protect its Madden franchise amid a price war in sports games.

Little known about BY ALEX NICHOLSON MOSCOW Russia has sold the heart of the Yukos empire in an auction reminiscent of the country's notorious privatizations of the 1990s, analysts said yesterday, as the former chief executive of the oil company offered bitter season's greetings to the Kremlin from his courtroom cage. "The authorities have given themselves a wonderful Christmas present," said Mikhail Khodorkovsky, the jailed founder of the business that had been considered the most transparent of all Russian companies. A day after an auction that saw 11 per cent of Russia's oil output handed to a previously unheard-of company registered in a provincial western city, Russian stocks fell across the board, with Moscow's RTS exchange closing down 1.2 per cent for the day. Yukos once the bluest of the Russian blue chips plunged deeper into junk stock status, falling nearly 26 per cent on the RTS to 57 cents. At their high, Yukos shares traded at $16 US.

Even after the sale of the giant Yuganskneftegaz unit, the company must come up with $18 billion U.S. to pay crippling bills for back taxes, meaning the carve-up of the company's assets is likely to continue In a statement on his website, Mr. Khodorkovsky, once Rus Cinram International which uses oil-based products to make disc cases and discs. UBS analyst Caroline Levy also downgraded the stock, adding that with Wal-Mart accounting for more than 40 per cent of Cott's sales, and sales at the world's largest retailer slowing recently, Cott may face trouble at that outlet. Cott's final results for 2004 are scheduled to be announced Jan.

28. As for 2005, sales are expected to grow eight to 10 per cent and operating earnings of $230 million to $240 million U.S. are forecast. THE CANADIAN PRESS mmm Unreported income, Failure to file? Improper tax planning Avoid Criminal Prosecution Civil Penalties Developers now spend upward of $10 million U.S. to create their leading games an unheard-of amount only a few years ago and budgets for some high profile titles can be much higher.

Analysts estimate production costs for Halo 2 were about $20 million, though a Microsoft spokeswoman said it was less than that, but declined to be more specific. "What used to be a huge budget with PlayStation 1, in the range of $5 million, is now an average budget for PlayStation 2," says Bruno Bonnell, chairman of Atari Inc. "Twenty million dollars. Twenty-five million dollars. These are significant budgets for the industry.

We will see, during the next cycle, this kind of investment." Some games have already eclipsed those levels. Valve one of the few big independent developers, spent more than $40 million on Half-Life 2, says Doug Lombardi, Valve's marketing director. The game was released in November. Mr. Bonnell says Atari spent $17 million to develop this summer's Driver and about $17 million more to market the racing game, which sold more than three million copies, but failed to live up to expectations, analysts said.

A Microsoft spokeswoman says Halo 2 has already sold more than five million copies. "The costs to create stellar games continue to increase, but we are looking at ways to help the industry streamline rising costs," she said. Those efforts include building standardized software tools developers can use to make games. Despite rising costs, hit games are extremely profitable. Take-Two Interactive Inc.

spent less than $10 million to develop the latest Grand Theft Auto, says president Paul Eibeler. The Russian group that sia's wealthiest man, pulled no punches in describing the Kremlin-orchestrated legal assault on a company that he built from a suspect auction about a decade ago. "They have destroyed the most effective oil company in Russia," said Mr. Khodorkovsky, who has been behind bars since his arrest on tax and fraud charges more than a year ago. The auction winner BaikalFinansGroup is an unknown company, whose registered address is a building in the city of Tver that houses a food store, cafe and a mobile phone shop.

BaikalFinansGroup joined the bidding on Friday, one day after a U.S. bankruptcy court issued a 10-day injunction against the sale. Yukos lawyers had turned to U.S. courts as a last resort, seeking Chapter 11 bankruptcy protection in an effort to stave WHEN YOU GIVE AfWlENT ABOE. Tax YOU SHOW YOU CARE.

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For the full year, "results will be at the low end of current guidance, or slightly below, as raw material costs have continued to exceed projections," the Toronto-based company said in a release. With sales growth for 2004 expected in the range of 16 to 19 per cent, net earnings of $1.15 to $1.19 U.S. per share are now forecast, along with operating earnings of between $210 million and $215 million U.S. The high price of crude oil, a key ingredient in the plastic pop bottles in which Cotfs products are sold, has been a major concern for the company through the fall. In late October, crude oil was selling at a record high of $55 U.S.

a barrel. It has since dropped off to about $45, but it is still significantly higher than where it was last year at this time. The soaring oil prices have also meant bad news for other plastics makers through the fall, including moulded plastics maker IPL toy-maker Mega Bloks Inc. and DVD and CD maker St. between Metcalfe O'Connor 236-9101 Kanata 592-3551 Tax and A to Don't tax This Tax Ottaw Before you are caught we can negotiate a NO NAME (anonymous) settlement with the tax authorities.

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