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When Casino Royale opened with a gala premiere in London's West End earlier this month, the question on everyone's lips was whether the blond Daniel Craig cut it as 007. But the latest in the evergreen James Bond franchise is notable for more than just the colour of the lead actor's hair: no fewer than seven brands - Ford, Heineken, Omega, Smirnoff, Sony Electronics, Sony Ericsson and Virgin - are integrated into the action.

Meanwhile, Bond's small-screen counterparts on BBC drama Spooks are no less brand-conscious - they use Apple computers and in a recent episode caught their bad guy using a Cisco internet-capable phone network.

Over on Channel 4, popular soap Hollyoaks featured an episode with the characters playing Sony PlayStation games in a social setting.

The difference is that the brands in Casino Royale paid handsomely for the exposure, while Cisco and Sony did not - indeed could not.

Paid product placement has been illegal on British television since the introduction of commercial TV in the 1950s, but events in Brussels this month mean this could potentially change - in about three or four years' time.

Yet the British public will continue to be exposed to product placement in films and American TV imports, as well as free prop placement in home-grown drama.

Product placement is also a growing area away from the small screen and is perfectly legal on any non-broadcast medium, from film and publishing to video games and broadband.

Why it is unlikely to succeed in linear TV

The wheels of bureaucracy turn slowly and it will be 2009 at the earliest before any changes to the law on product placement take effect.

First, the European Council of Ministers and the European Parliament must reach agreement and pass legislation on a European level. Individual member states are likely to be given an opt-out clause, so even when that happens, it is still up to the British Government to implement the changes locally.

It is unlikely that broadcasters will be given carte blanche to implement product placement in any manner they like; the discussions in Brussels this month indicate that any lifting of the ban will come with strings attached.

The Council's view is that product placement should remain banned in news and current affairs and children's programming, while the European parliamentary committee considering the issue has proposed that broadcasters should be forced to remind viewers that product placement is taking place once every 20 minutes.

If and when product placement becomes legal, it is far from clear how big the opportunity is and who - the broadcaster or the producer - would benefit.

Ofcom has estimated that product placement could be worth £35m after five years, but many broadcasters believe even this modest figure is over-optimistic.

Gary Knight, brand partnerships director at ITV, says: "The only real evidence comes from the States, but it is over-claimed and over-hyped. A lot of these product placement deals are not done in isolation, but are actually part of a wider relationship with the client that would include spot advertising or sponsorship."

Steve Read, managing director of free prop placement specialist 1stPlace, says the size of the US market is often over-estimated, since only about 20% of US product placement deals are paid for and most are free arrangements. "Who's going to pay for it if they don't have to?" he asks.

David Charlesworth, head of sponsorship at Channel 4, says there is no way that product placement could even come close to matching the loss of revenue from spot advertising: "How could it, when we (the industry) are haemorrhaging vast amounts of money every month?"

Product placement is ubiquitous in US programming - from subtle messages in premium shows such as Lost, Desperate Housewives, 24 and The OC, to in-your-face placement, such as contestants in Survivor eating Snickers bars after a fast and spending five to 10 minutes talking about it.

Tess Alps, chief executive of Thinkbox, says the UK has a different culture to the US and believes it is important that broadcasters do not go overboard if the rules are relaxed here.

"Our ads aren't like American ads - the British public is different and broadcasters would be wise to take a cautious approach," says Alps. "They should research it as they go and see how people react to it - people will hate you if you mess up their programming."

Why it will happen in other media

The same rules that restrict product placement on television also restrict radio, although it seems some stations push the boundaries or are genuinely confused.

While it is not uncommon for a presenter to plug a product as part of a commercial deal, this is actually against the law, according to the regulators. However, product placement is fair game in any other medium outside television and radio, with film the classic example.

It is also possible, although rare, in publishing, with the most high-profile example being Fay Weldon, whose book The Bulgari Connection was sponsored by the Italian jewellers.

Technology is opening up new opportunities such as in-game advertising and IPTV, and Damian Blackden, director of strategic marketing technologies at Universal McCann, believes this is becoming increasingly important. "Messages must become non-interruptive and based on a closer connection between the creative message and the environment," says Blackden. "The opportunity with games is that they are going for more and more realism and one of the things that makes life seem more real is the existence of brands."

There are two types of in-game advertising - dynamic ad-serving within video games that connect to the internet, such as Xbox Live, and advertising in massive multi-player online games (MMOGs) such as Second Life.

Advertisers are flocking to the new medium - in the US, players of Second Life can order a Domino's pizza through the game, while in the UK Channel 4's Four Radio recently became the first radio station to open up inside the virtual reality game.

IPTV - TV via broadband - is another potential growth area and one that broadcasters are eyeing keenly. ITV's Knight says the channel is planning to launch its broadband offering next March and is exploring the possibilities for product placement on this platform.

"Once you get into broadband, it is slightly easier, because it is not on linear TV," he says. "Rather than the full 60-minute show, you might have a brand extension for 10 minutes and there are more opportunities to build product placement around it."

Pitfalls of how it is being done now

There is an entire industry around free prop placement, but because it is handled by specialists such as 1stPlace and SeeSaw Media, it is usually an add-on to an overall media strategy rather than part of its core.

Some media agencies do product placement work - for example, Universal McCann's in-house brand placement specialist Rogers & Cowan has done some strategic placement work for Bombay Sapphire gin.

However, most mainstream media agencies leave the area well alone. Tony Manwaring, communications planning director at Initiative, says media agencies are likely to take a greater role if paid product placement becomes legal. "If deregulation happens, then that is an opportunity to be more strategic about product placement," Manwaring says. "It means it becomes a different thing to the tactical beast it is now and I could imagine planned campaigns based on product placement."

The biggest limitation with free prop placement is the lack of control over how the products are used and the fact that current regulations prohibit products from being given "undue prominence".

The client and prop placement agencies can vet the script before providing free product to producers to ensure the context is not harmful to the brand, but they are not in a position to demand changes to the script.

For example, 1stPlace's Read says his brief from Sony is to loan out PlayStations only when the script shows them used in a social setting and he turns away inappropriate requests every day of the week. "The aim is not just to get exposure, it is to manage that exposure," says Read. "We are very choosy - we don't do that many, but we do the right ones."

This is not a problem that will go away entirely even if paid product placement comes into effect - if 1stPlace and Sony withhold the PlayStation, there is nothing to stop the producer buying or borrowing the console if the script demands it.

There is limited product placement in publishing, mainly because of a deep-seated cultural reaction: books are considered art, rather than simply entertainment. Some publishers believe there is growing potential for product placement in fiction, though most advocate it more for short stories and podcasts because the audience is judged to be more accepting.

The newer forms of product placement are limited by size at this stage. IPTV is still largely theoretical, although it is expected to take off, while the in-game advertising market is still quite niche.

Universal McCann's Blackden cautions that the potential size of the market is sometimes overstated, since advertising only makes sense within reality-genre games such as Second Life, but by far the most popular genre is fantasy.

"You're not going to be sponsoring dragons in a fantasy game - someone might have a crack at it, but I can't see it," Blackden says. "The people who choose to play in Second Life are going to be those who are more brand-conscious, because they are more interested in playing a game that is related to their lives."

Initiative's Manwaring says an additional problem is that the audiences for IPTV and video games, and even most films, are so fractured and difficult to predict or measure that the tactic is likely to remain niche.

So whatever the hallowed halls of Brussels decide, it seems product placement may not be as straightforward as some may have hoped after all.

TIME LINE

- 1954

Television Act paves the way for commercial television in Britain and establishes the principle of separation between programming and advertising. Product placement and programme or channel sponsorship are not permitted under this principle

- 1989

Television Without Frontiers Directive comes into force across Europe (revised in 1997). It maintains separation principle and bans "surrepticious advertising". Product placement is not explicitly mentioned

- 2005

Ofcom undertakes public consultation on product placement ahead of discussions at European level on amending the Television Without Frontiers Directive to lift the ban

- October 2006

Ofcom announces it will amend Broadcasting Code to allow sponsorship of television channels or radio stations

- November 2006

European Council of Ministers and a committee of the European Parliament indicate they would like to allow product placement, with some restrictions. The draft text retains a prohibition on product placement, but proposes to allow member states to permit in certain programmes providing certain conditions are complied with. It will be 2009-2010 before anything changes

RESEARCH

Product placement could actually enhance rather than hamper viewers' enjoyment of a television programme, research suggests.

MEC MediaLab, the research division of WPP-owned Mediaedge:cia, has published a report showing the introduction of paid-for product placement onto UK television could be beneficial for advertisers, broadcasters and viewers.

David Fletcher, head of research for Mediaedge:cia, says the highly prominent Coke cans on American Idol were "a step too far" for British audiences.

"What works for UK viewers is respecting their intelligence and allowing them to join up the dots for themselves," he says.

The study participants, who were told the research was on programme formats, were shown a specially created entertainment news programme and asked to rate their enjoyment of it.

There were four test brands and four versions of the show for each brand - the control group with no advertising or placement, one with traditional spot advertising, one with an ad followed by product placement of the brand within the programme and one with an ad followed by product integration - where the brand is mentioned by name in the programme rather than just placed.

The study found higher enjoyment scores for the programmes with product placement or integration than those without.

Significantly, product placement lifted awareness by 16% over the 30-second slot and a massive 45% of viewers said they would be more likely to purchase a product if they saw product placement or integration in a TV programme.

However, while integration lifted awareness by 24% against commercial exposure, it was not the best way to improve viewers' affinity with a brand; product placement improved affinity by 22%, but integration lifted it just 8%.

The quantitative part of the study was based on 318 UK adults aged 18-40 in March 2006.

By contrast, Ofcom's public consultation into product advertising revealed that, while some individuals are supportive of moves to allow paid product placement, organised viewers groups remain opposed.

Organisations such as Voice of the Listener and Viewer, NCC, Sustain, Public Voice, National Heart Forum and ±±¾©Èü³µpk10 for Press and Broadcasting Freedom argue strongly that the ban should remain in place, citing concerns that the blurring of the line between editorial and advertising would be to the detriment of viewers and may even amount to surreptitious advertising.