When you can't tell the commercial from the show: advertisers are finding new ways to pitch their products--inside television shows.

Viewers who watch USA Network s House Wars--one of the more successful home-improvement reality shows--get to see four families vying to win a house they design week by week. Also starring on this reality show: Home Depot, General Motors, Hewlett Packard, and Nextel.

All four companies advertise during the show--and inside it. Each week, for instance, the families visit Home Depot to pick up supplies. And they get there in a GM vehicle.

For the networks, the embedded ads are a new source of revenue, in addition to selling time during commercial breaks: Networks typically charge advertisers an additional 20 percent to get their products into the program script itself.

Advertisers are interested in product placement because they're worried that viewers aren't paying attention to their ads--especially with the proliferation of devices like Tivo, which let viewers fast-forward through commercials. "What's going to happen with our medium is that advertisers are going to have to find new, more clever ways to get their point across," says Chuck Larsen, a Los Angeles-based TV consultant.

Incorporating products into programs is part art, part science. On the Bravo and NBC show Queer Eye for the Straight Guy, producers say they don't want to scare off viewers with a barrage of brands. So product and store shots usually appear for two or three seconds at most, says Marsha Turner, who handles the show's product placement. "If it's on any longer ... we find that people say 'My God, what are they doing?'" she says.

CRITICS' COMPLAINTS

The strategy does have its detractors: On NBC's reality show The Restaurant, producers spotlighted three advertisers--Coors Light, Mitsubishi, and American Express--that had paid a premium, and some TV critics found the frequent product shots annoying. But producer Ben Silverman says viewers don't mind embedded ads. "This show would not have happened if it wasn't for the advertisers," he says. "The audience gets that the show needs to be paid for." Still, some see a disturbing trend. An advocacy group, Commercial Alert, recently asked the Federal Communications Commission to regulate product placement.

Embedded ads are, in fact, nothing new. They've been appearing at a theater near you at least since the movie E.T. used Reese's Pieces candy as part of its plot in 1982.

More recently, British writer Fay Weldon was paid to mention jeweler Bulgari in her 2001 novel, conveniently entitled The Bulgari Connection; and rapper Jay-Z has mentioned Armadale vodka (his company owns the U.S. distribution rights) in his songs. On the Internet, advertisers can buy more prominent placement for their Web sites in search results, with the distinction between paid and unpaid results sometimes hard to see.

Television itself has a long history of blurring the lines between advertising and content. When the medium was in its infancy in the 1950s, advertisers produced their own programs. Their imprint showed up in everything from the shows' names--Goodyear Playhouse, sponsored by the tire company, for example--to their plots: On NBC's Martin Kane, Private Eye, which ran from 1949-54, Kane would head to his neighborhood tobacco store and ask for cigarettes sold by the show's sponsor, Old Briar Tobacco.

COMING FULL CIRCLE

The practice faded away in the 1960s, as networks started producing their own shows and advertisers kept their messages in the commercials. Now things are coming full circle, as advertisers make their way hack inside the programs themselves, sometimes in subtle ways: The kickboxing spy played by Jennifer Garner on the hit ABC show Alias doesn't use a Nokia phone by accident. According to programmers and advertisers, reality shows are especially easy to insert brands into, since there's no traditional story to interrupt.

Meanwhile, some shows that first ran ad free have since been digitally modified to accommodate ads in reruns. PVI Virtual Media Services, based in New York, is placing "virtual advertisements" on nationally syndicated shows, inserting computer generated items like soda cans into sitcom sets for 30-second intervals. A PVI promotional reel shows a bag of Oreos sitting in front of Ross Geller as he munches what were previously unbranded cookies on Friends.

PVI chief executive James Green says his company has sold a dozen minutes of airtime for five advertisers in the past 18 months, but says he is prevented by contract from disclosing the products or shows he has worked with. He says that "if you watch the top five syndicated shows with any kind of religion, you've seen this already."

For those of you keeping score at home, the top five are Will & Grace, Friends, Everybody Loves Raymond, Seinfeld, and That 70s Show.

U.S. ADVERTISING SPENDING IN 2002

Broadcast $60.87 billion
Print     $48.19 billion
Internet  $5.74 billion
Outdoor   $2.48 billion

TOTAL     $117.28 billion