Yesterday, the U.S. Federal Communications Commission (FCC) announced they will launch a formal inquiry into new rules requiring more disclosure of product placement. With the rise of DVRs and more people watching TV and movies online, thereby skipping commercials, product placement spending reached $2.9 billion in 2007, a 33.7% increase from the previous year.

Meanwhile, shows like The Biggest Loser, The Apprentice, America’s Next Top Model, Project Runway and American Idol have raised eyebrows. The FCC states that fans of AI, including millions of 2- to-11-year-olds, were bombarded with 4,151 product placements in the first 38 episodes this year. As a result, the FCC is devising a plan by which consumers will be told when companies have paid to use their products as props. (note: The Nielsen chart to the right only covers the first 29 episodes.)

To improve disclosure, the FCC will consider requiring “notices similar to what political candidates must say before or after campaign ads.” The agency will also “examine whether embedded advertisements violate FCC rules on children’s programming, which require a few-seconds break in between the show and an ad.” And, commissioners will “look at whether new product-placement rules need to be extended to cover cable programmers, which are currently exempt.”

It has been reported that three advertising industry trade groups urged the FCC to downgrade the Notice of Proposed Rulemaking (NPRM) to a mere Notice of Inquiry (NOI), an investigative procedure that cannot lead to rulemaking. The commission has not yet announced whether it will adopt an NPRM or an NOI.

According to the Wall Street Journal, Hollywood writers have recently complained about increased placement, particularly when asked to write product pitches into scripts. In the TV drama American Dreams, sources say the writers were told to rewrite several scenes to give Oreo Cookies a more prominent role. More industry insiders, who prefer to remain anonymous, admit to the WSJ, “it’s scary when a brand’s financial investment in a show gets them to rewrite the scene around a product.”

Of course, sometimes, the product placement was there long before screenwriters entered the picture – and in some cases it was not paid at all. Breakfast at Tiffany’s and Miracle on 34th Street come to mind.

Some don’t believe product placement has gone haywire, but they do say the industry needs a governing body to keep an eye on things. “The reality is if I’m watching a show and I feel like every other second they try to hock a brand to me, I’m going to flip the channel,” says Wes Brown, partner at research firm Iceology. “That’s the beauty of choice.”

Now, I am a believer in good product placement. When a relevant brand is smoothly integrated into a scene or program, it can be extremely powerful. As I’ve acknowledged here before, even I am not immune to that box of Special K sitting on the kitchen counter ofAmerica’s Next Top Model. And, just recently, while sobbing my way through an episode of Extreme Makeover Home Edition, I caught myself thinking, “I should get a Sears credit card for house stuff.”

So, let’s take a quick look at some examples of product placement on steroids. The movie Transformers, entertaining though it may be, is clearly a feature-length commercial for Hasbro. There was so much placement that by the end of the film, I was more distracted with counting the number of brands than watching the movie. From The Strokes tee-shirt Shia wears throughout to the Nokia phone he uses, and the discussion about who makes Nokia (the Swedes, apparently) plus, Radio Shack, Apple, Sony, Coke, Visa, eBay, PayPal, Chevy, Pontiac, Dodge, and Porsche; the movie was an orgy of brands.

Many have reported that the product placement in Sex & the City: The Movie was beyond anything we’d seen to-date. In fact, Vanity Fair sent two reporters to watch the movie and count the number of product placements built-in. They reported twenty-six different clothing and accessory designers; eight stores and services; seven gadgets (including Carrie’s Apple computer, an iPhone and a Blackberry); seven publications; seven drinks and snacks; five beauty products (like shampoo and moisturizer); and eight places or transportation brands (like American Airlines, Mercedes-Benz and the Four Seasons Hotel). The movie, in fact, proved to be such a prominent vehicle for advertising that a New Line Cinema executive dubbed it the “Super Bowl for women.” Likewise, there was so much demand for the fictional designer bag rental site featured in the film, that the site Bag, Borrow or Steal has become a reality. (please note correction below). Now, anyone familiar with SATC knows these characters have always been obsessed with brands, so the presence of these products made sense; overboard, though it may have been.

The best product placement is believable and subtle. I don’t know about you, but I certainly groaned when Iron Man’s Tony Stark, having just returned from months of imprisonment in the Middle East, insists he wants a hamburger and the next shot shows him eating Burger King.

Placement becomes a problem when it doesn’t work. And Iron Man’s BK bit is a great example. My pal, Patrick also noticed it and whispered to me, “a gazillionaire wants a burger and goes to BK?” It was so unbelievable, it pulled us out of the film and has us discussing the many other really good burgers he could have had. In other words, that expensive product placement only made us think about how lousy a BK burger is. Not exactly the reaction they were going for, I’m sure.

The magic of good product placement is that is is subliminal, even if it is scripted. If you don’t notice it or see it only in your mind’s eye, it works. I can’t imagine anything less subliminal than Ryan Seacrest listing every brand behind American Idol in his “off the cuff” delivery.

In truth, regardless of FCC disclaimers, it’s not likely that product placement and brand integration will go away any time soon. The practice has been around since the beginning of mass media like radio and television. In the 1950s and 60s, brands sponsored the entire show sandwiched between two commercials. “Geritol presents Twenty-One!” In fact, the disclaimers the FCC is suggesting sound like a return to these early sponsored-programs like the “Chesterfield Supper Club with Perry Como” a show brought to you by Chesterfield cigarettes. Or, “The Dinah Shore Chevy Show.”

We all know conventional advertising has lost its effectiveness. People fast-forward through commercials, so brands are forced to come up with creative ways to reach consumers.

In some ways, the abundance of products in film and television (and songs and computer games and Second Life…) is merely a reflection of reality. We are a society obsessed with brands. As I write this, I am in a Starbucks. I’m on a Mac with the Apple logo glowing brightly for all to see. The man next to me is listening to his iPod. Another customer has her Sony Visio. The guy in the corner is displaying the Nike swoosh on his hat. Another fella has Hilfiger across his chest.

Fact is, we are a brand-loving society. Product placement is just a part of who we are and how we approach consumerism. Does anyone really believe Randy, Paula and Simon are drinking Coke or that the AI kids really love those Fords they sing about? Probably not. But, then again, I did apply for that Sears card.

CORRECTION: BagBorroworSteal.com has been in business for four years and did not pay for the placement in SATC. (Please see the comments section). Thank you to Jodi Watson, the company’s CMO, and other readers for this correction. Your diligence is much appreciated.