CHICAGO -- The broadcast networks' launch of yet another season of billions of dollars worth of primetime programming, most of it destined for cancellation, was not the most important financial or strategic industry story last week.

The more formidable news came from the E3 annual video game conference in Los Angeles: Time Warner's experiment with "eBay on TV," Google's launch of customized service pages and spiked traffic to ad-supported Web sites related to the boxoffice breaker "Star Wars: Episode III -- Revenge of the Sith."

They all are part of a plethora of new interactive and targeted advertising opportunities that threaten to suck the lifeblood out of TV's 30-second spot.

At best, the outdated, inefficient upfront broadcast TV network ritual is a land grab for $9 billion in advanced advertising bets (or half the Big Three's total season revenue) that is a fraction of the more than $250 billion annual domestic media spend by advertisers, as well as the billions of dollars more in ad spending generated by a groundswell of new options -- from the Internet and digital cell phones to video-on-demand and video games.

With upfront spending on track to decline single digits for the first time in five years, according to Goldman Sachs analyst Anthony Noto -- whose worse-case scenario is a 10% drop to $8.6 billion -- and ad unit sales expected to average only 5% gains across six broadcast networks, the entire process appears ill-conceived for today's fast-changing media market.

Even if the overall upfront television market grows 3% this year to $18.4 billion, as bullish ad guru Jack Myers now predicts, half of that is cable and syndicated TV. ABC, CBS and Fox will consider themselves victorious for getting more of a smaller upfront ad pie and taking dollars from NBC. But while the broadcast networks are feeding on each other, newer, more value-oriented media feeds on them all.

A radical, potentially life-saving move a year from now would be for the broadcast networks to focus on fewer higher quality, distinctive content delivered to viewers where, when and how they want it and packaged with premium-priced target marketing that interested consumers won't dare zap.

For now, the broadcast networks are permanently losing ad revenue to cable, video games, the Internet, cellular telephones and other interactive platforms. A 30-second broadcast network TV spot might perk a viewer's interest, but interactive cable TV or Internet advertising can allow consumers to drill down into the products and service that interest them, complete a transaction and establish marketing ties. That is a decisive value difference for which advertisers are paying in record numbers.

Domestic Internet advertising grew by one-third to $9.6 billion last year -- eclipsing what is expected to be the size of this year's broadcast network TV upfront market -- and is expected to approach $13 billion this year.

Forrester Research, which frequently takes it on the chin for its aggressive new media forecasts, expects total U.S. online advertising to reach $14.7 billion this year, and the search engine market to grow by one-third on the way to $11.6 billion in advertising revenues within five years.

By 2010, online advertising and marketing, with nowhere to go but up, will be 8% of overall ad spending, rivaling cable TV, satellite and radio.

The reason why the Internet threat is real this time -- versus the big bubble that went bust in the 1990s -- is because it is now entrenched in the fabric of everyday life and business. Everyone gets it. There is no going back.

Advertisers plan to increase their online spending this year an average of 25%, coming both from incremental spending and at traditional media's expense, according to Forrester.

But they also are shifting their branded marketing and promotion dollars to video games, the fastest-growing industry sector and home to 70% of highly sought males age 18 to 34, morphing from $10 million to more than $1 billion by 2008, according to market research firm DFC Intelligence.

The economics of video gaming will give such sector leaders as Sony Corp., Microsoft and Nintendo bang for the advertising buck. Already a $20 billion business, the average cost of produce a new video game is $5 million-$10 million, though it can be more than double that for a franchise like Microsoft's Halo. Embedded or packaged advertising would be more profitable, extending to interactive transactions with game players.

Video-on-demand will soar beyond an estimated $15 million generated from long-form advertising experiments today once accurate measurement can be secured, which will be less of an issue as interactive digital media allows for the tracking and profiling of consumers at the digital controls.

In the next several years, targeted, addressable local cable advertising will siphon client dollars not only from the broadcast networks but from their affiliated and owned local broadcast TV stations. For instance, dominant cable operator Comcast Corp. expects to double the advertising revenue generated per basic subscriber by 2010, when its annual ad revenues could top $2.5 billion -- which is more than what CBS wrote in last year's upfront.

Time Warner Cable's first stab at offering "eBay on TV" free to 50,000 interactive digital video recorder subscribers in its Austin, Texas, systems has more far-reaching implications than the latest WB Network series concocted to attract the younger viewers migrating to all forms of interactive media. "eBay on TV" will be one giant ongoing string of commercials and, most likely, a big hit.

And let's not forget the $356 million in revenue generated in movie theater ads last year. Add to the mix digital cellular phones and other new out-of-home media and you have an advertising revolution.

Of course, broadcasters' corporate parents saw this coming, which is why Time Warner, News Corp., Walt Disney Co. and General Electric aggressively expanded into cable and the Internet (even as major advertisers themselves). Still, none of these media giants is ready for the digital future already here.

After allowing AOL to initially zap $250 billion of combined value, Time Warner now has lost the opportunity to capitalize on what was once the Internet's largest captive paid audience at AOL to rivals Yahoo! and Google.

Online players already are snaring revenue from traditional media. With Yahoo! reporting a 47% gain in net advertising revenues and Google reporting a 109% gain in ad revenues in the first quarter, their combined 2005 advertising take is expected to rival the collective primetime ad revenues of the Big Three networks. And that's before a TiVo alliance helps Google and Yahoo! bridge TV and the Internet, resulting in more compelling animated, drill-down, transactional marketing. Google's Adsense and Web Accelerator are geared to linking specific buyers and sellers.

Traditional media conglomerates chastised by Wall Street analysts for their reliance on ad revenues simply need to reacclimate themselves to the new interactive, targeted marketing gold mine represented as much by the consumer-friendly DVR as the Web -- before it's too late.