When Sega Enterprises Ltd.'s video games channel comes to Canada in September, a good portion of the content will be Canadian and an Ottawa company stands to score up some profit points.

Sega has strong ties to four small Canadian companies, including Artech Digital Entertainments, and is looking for more. Canadian participation will help generate the vast number of game titles that will be needed for the around-the-clock service.

"They will need 50 titles a month, so if you multiply that by 12 you can see there will a huge market," says Artech director Paul Butler. "There will be more variety." And a foot in the door to a market that would make Hollywood blush.

"Six months ago video games became a bigger industry than the movie industry," he says. "That's why Hollywood wants in... The profit margins are bigger, production costs are cheaper, there's no big stars to pay and you don't get them storming off the stage."

The 50 titles running each month on the channel, called Sega Service, will be downloaded from a menu and available for play on a Sega Genesis system. Sega cartridges now cost between $50 and $90 and rent for under $10.

In its 12-year history, Ottawa-based Artech has developed 38 games and has won 11 Software Publishers of America awards, the Oscars of video games. The company specializes in training, 3-D simulation and education. Sega is especially fond of Artech's so-called edutainment expertise. Artech is working on 15 learning games with Washington's Smithsonian Institution.

The company employs about 30 at its Hamilton Road office.

Sega's plans to call upon and nurture the Canadian interactive games industry is one of the first signs that the information superhighway will have a distinct Canadian flavor.

The Japanese company submitted a proposal to the Canadian Radio-television and Telecommunications Commission that pledges they do not want "... to overlay an American system onto the Canadian network."

It all fits into the federal government's directive that policies will be adopted to ensure the information highway will protect Canadian sovereignty. Companies are opting to voluntarily generate Canadian content rather than have quotas imposed.

Canada's small but growing industry of video game makers would prefer entrenched Canadian content rules set by the CRTC, but they understand that would be difficult to fulfill and police.

"We have enough American interest in our products anyway," says Butler. "If we were a startup it would be a significant development."

To feed the Canadian industry, Sega is proposing an Interactive Entertainment Development Fund. Millions of dollars will be pooled for seed money to invest in Canadian companies with an emphasis on those developing interactive educational games. Cable and software companies, like Sega, would contribute.

"This is an industry that is growing dramatically globally," says Sega spokesman Ian Anderson. "There's no reason why Canadian companies can't go for the brass ring."

The CRTC said two weeks ago it plans to allow video games channels to operate without a licence. But the games must meet the violence and sex-portrayal code set by the Canadian Association of Broadcasters.

To suit the anti-violence criteria, Sega has let its developers and those they contract, like Artech, know it wants to see more "family friendly" games.

There will still be the shoot-'em-down, blow-'em-up games, but Sega's Canadian arm says the channel will have a different look to it from one planned for the United States. That implies something more educational, less violent and full of Canadian-developed games and characters.

For example, one that won't make it on the Canadian channel is American favorite Mortal Kombat , the top-selling game in the U.S. last year which came under fire for its brute force.

So what will this Canadian games genre be? It's sort of Sonic The Hedgehog meets Pony -- a kinder, gentler character than Sonic developed for Sega by Artech.

Even with huge American movie houses like Paramount Communications and Time Warner wanting in, Artech's ginger-step Pony is a guide to what will gallop into as many as a million Canadian living rooms.

Artech designed the Pony game for Sega's new family line. The player, from preschool age to seven years, takes Pony through the forest to free seven furry friends by solving simple mysteries.

Sega wants more games like Pony to broaden its appeal to the potentially lucrative female market, which makes up only about 15 per cent of customers. You'll also likely see lots of sports games that chase the elusive adult dollar.

Also catering to adults, Sega has put parents in the driver's seat.

A Password for Parents feature will give parents a way to program exactly what Rating Level is appropriate for the household. Using a special four-digit password, parents will be able to program what will come into the home based on three levels: GA (appropriate for all family members), MA-13 (parental discretion is advised) or MA-17 (adults only).

This is possible through a chip integrated into the channel adaptor cartridge that is required to make the Genesis console compatible with Sega Service.

A lot of what will appear on Sega Service will be products that aren't seen much on store shelves. In fact some of the games may skip the shelves and go directly to the channel. "It'll give us some room. You don't have to do stereotype products all the time," says Artech's Butler.

Hot new games will be available for limited play to only the first couple of levels -- much like previews on movie channels. When the new game is distributed to stores for sale, the preview version will be removed from Sega Service and will return to the channel after a four- to six-month blackout.

Canada is seen as the entertainment world's gold rush. About 77 per cent of Canadian homes with televisions subscribe to cable -one of the highest penetration rates in the world. In its plan submitted to the CRTC, Sega says it believes Canada's cold winters "mean we tend to favor entertainment in the home when possible."

And Canadians spend money. The average Sega user spends $300 a year on cartridges and another $200 on rentals.

So how do you dial up to Sega Service. No firm agreements have been signed with Canada's cable carriers though they are expected soon.

Anderson says the industry will welcome Sega because it will inspire loyalty to cable television at a time when others are invading their turf. Sega has decided to have an exclusive arrangement with cable.

That, says BCE Inc. vice-president Michael Neuman, is an unwise move. Now that telephone and satellite companies are building networks to deliver movies, "... They should keep their options open," says Neuman.

How Sega video channel will work

The games

Examples of Sega Video Games suitable for the new Sega Channel:

Disney's Aladdin, Jurassic Park, X-Men, Sonic Spinball I, II & III, Eternal Champions, Ecco the Dolphin, Arnold Palmer Golf, Home Alone and NFL Football 94

But you won't see:

Menacer -- 6 in 1, Monster Hunter, Final Flight CD, Streets of Rage II and III, Mortal Kombat, Night Trap and any games listed in the Sega catalogue under game gear, Sega CD or New Products

Dialling in

Needed: a Sega Genesis console (about $130) and a channel adaptor that will likely be leased for a small monthly fee. Sega Service will cost between $12 to $20 for unlimited play. Games can be purchased now for about $50 to $90.

How: within one minute users can download games using a main menu. The game is played until the end and disappears. The games can be played while other televisions are tuned to cable programming. The Sega channel only takes up two-thirds the space of a full cable channel.

Who: Sega estimates there will be 1.2 million Genesis game players in Canada by the time the channel begins. About 90 per cent of them subscribe to cable.

Time: Sega Service is slated to begin in September.

The players:

Users: an easier way to obtain and try games

Parents: a block out capability modelled after the movie rating system. Using a special four-digit password, parents will be able to program what will come into the home based on three levels: GA (appropriate for all family members), MA-13 (parental discretion is advised) or MA-17 (adults only) to screen out unsuitable games. Sega does not presently distribute MA-17 games in Canada.

Content developers: Sega is proposing a seed fund of an undisclosed amount of dollars to help Canadian companies supply video games to the channel.

Cable television: will generate sales and strengthen loyalty to cable as American direct broadcast satellites are poised to beam down programming to bicycle-wheel-sized dishes