The games cable channels want to play

As Sega launches a TV channel that will unashamedly plug its own products, other groups with something to sell are looking on enviously.

It is surely every parent's worst nightmare: a new television channel promising the latest computer games relayed direct to your home, 24 hours a day. Wake up and smell the roses. Sega Channel has launched in the UK, offering cable TV subscribers games, tips, news and competitions. A kid's dream come true. And Sega's too, as it enjoys an unprecedented, unashamed, round-the-clock plug.

"Sega Channel will enable us to preview new titles up to two months ahead of their retail launch," Sega's European marketing director, Andy Mee, proudly told those gathered at the channel's all singing and dancing launch in central London last week. "We are confident it will have a positive impact on sales - that when people have sampled the product at home, they will go out and buy the software."

Other advertisers are taking note. For while still bound by broadcast regulations designed to distance the relationship between advertising and editorial content, the fast-changing media landscape promises a loosening of restrictions on advertiser involvement in programmes, themed strands and entire channels. It is not so much a question of if, but when, many advertisers believe.

Under existing legislation, anyone can apply to operate a TV or radio licence, so long as they are "fit and proper". "There's nothing in the Broadcasting Act to prohibit an advertiser applying for and receiving a licence," says the ITC's senior sponsorship and advertising officer, Eve Salomon. Newspaper groups have done it. "In theory there's nothing to stop a Sainsbury Channel, although rules don't extend to programming - Playboy Channel can't have the Playboy programme."

Sega Channel neatly sidesteps this, as it doesn't need a licence to operate. "It's not a broadcast programme service," the ITC explains. The "channel" involves computer games software being relayed from the cable operator to the subscriber's home where it is downloaded: 25 games and information will be available for around pounds 10 a month.

Even so, Sega - like Disney and Virgin before it - has in effect become a media owner. Disney, which has its own TV station, is considering a move into commercial radio. Virgin, already with radio stations, plans a satellite music and entertainment channel, Virgin TV. While the business of all three is based in entertainment programming, these branded media outlets unarguably promote their product. So would it work for other advertisers? A number are eager to find out.

Mike Smallwood, media director at the advertising agency Lowe Howard Spink (clients include Reebok, Tesco, Vauxhall), says: "New channels, and the prospect of digital broadcasting enabling even more, offer advertisers enormous potential for customisation. One step is thematic channels, the next a channel where an advertiser directly controls content. We've already discussed the potential for a car shopping channel, for example, with Vauxhall."

Mike Wood, media director at J Walter Thompson, is more cautious. "It works for Disney because the name is synonymous with its entertainment product and subsidiary brands - like Jungle Book or Mickey Mouse," he says. "It would be harder for a soap powder. The Ariel Channel would be a laboured association. If something's not relevant, it becomes background - like a tired copyline in a long-running ad campaign."

However, he believes that Sega Channel "raises an interesting point". "It's not a conventional TV channel in the traditional sense, and as such it's the forerunner to a future generation of services using TV as a conduit for information, entertainment and interaction. In this new media world, traditional rules just won't apply." And already, the boundaries are blurring. On cable and satellite, where sponsorship restrictions are more flexible, advertisers can work closely with broadcasters on co-producing shows and influencing content.

Meanwhile, a number of retailers now operating their own branded radio stations are finding people outside their stores are tuning in as well. BhS radio, Granada FM and Texas FM, a DIYstation, are all broadcast both in-store to shoppers and to listeners elsewhere via satellite. And a handful of advertisers are even considering launching their own fully-fledged local commercial radio stations, by applying for commercial licences from the RA.

All are driven by the same concern: more channels mean fragmenting audiences and viewers who are becoming are less tolerant of conventional "spot advertising" TV campaigns. "Cable and satellite viewers in cable and satellite homes believe they see more advertising than on terrestrial TV, and they don't like it," according Marco Rimini, deputy managing director of media specialist CIA Medianetwork.

According to Sensor, a survey published by CIA earlier this month, 63 per cent of those surveyed claimed any more ads would be "very irritating or seriously affect their enjoyment" of TV; 26 per cent claimed they would be happy to pay to avoid TV advertising altogether. "This makes it an increasingly difficult environment for advertisers to successfully operate in."

Small wonder, then, if advertisers are petitioning the ITC to relax current sponsorship guidelines. Among those shouting loudest is the publishing industry. Under the present code, magazine publishers' TV ambitions are limited by restrictions on broadcast sponsorship. So, while a magazine can be launched off the back of a successful TV programme - such as the BBC title Top Gear - a programme cannot be developed using a magazine's content and share the same name; for example, TV programmes called Loaded or Marie Claire.

"Our problem is that magazines are treated no differently to Daz or petfoods," explains Ian Locks, chief executive of the Periodicals Publishers Association. "Videos, movies and plays are treated as an exception. Yet magazines are just as much a legitimate intellectual property." A growing number of broadcasters and programme-makers agree.

"Themed channels address the TV market in the way magazines have done for a very long time. Magazine publishers have significant resources to offer," says Stuart Prebble, chief executive of Granada Sky Broadcasting, which launches seven magazine-style, themed channels on satellite this autumn, including Granada Men & Motoring, Health & Beauty, Home & Garden and Food & Wine. "They mark the first attempt by TV to address specific niches in the market in the same way magazines have successfully done for a very long time."

But the challenge the broadcasters face is the cost of developing a plethora of new niche channels and the technical expertise inevitably required. For GSB's Men & Motoring channel, content must be more specific than "the average arts graduate working in TV production might be able to convey". Magazines offer an obvious and authoritative source, although with one important caveat, Prebble stresses: "That people's trust in the programme's integrity is guaranteed."

Meirion Alcock, sponsorship head at United Artists Programming, is already doing just that: learning channel TLC's rural rambling series, Off the Beaten Track, was made with the Emap magazine Country Walking. He believes that further relaxation of the ITC's advertising and sponsorship restrictions are essential if new channels envisaged are ever to launch. "Something must be done to encourage new funding [from advertisers] to enable these services to launch, otherwise they just can't afford to launch."

The potential for closer advertiser involvement not just in programmes but entire channels is being rigorously debated throughout the advertising industry. "Increased channel capacity will mean broadcasters are more receptive to the programmes advertisers choose to supply," Mike Wood believes. "At the moment, ITV and Channel 4 are reluctant to accept advertiser-funded programming which allows them to lose editorial control over content. But for a growing number of other channels, it will be open season."