(FORTUNE Magazine) – Now that TiVo is officially a verb ("I TiVo'd Alias so I wouldn't have to watch the commercials..."), how will advertisers reach increasingly elusive young consumers? Many companies are turning to a medium that captivates even the most distracted teens: videogames.

In early May, Intel announced plans to advertise in a new videogame featuring LEGO's line of Bionicle toys; Intel's logo is slated to appear on the opening screen along with the game's title. As part of another deal the chip giant struck last year with game developer Electronic Arts, when characters on The Sims Online use their PCs, players see the Intel logo and hear the company's signature musical bong.

And that's just the start of the invasion: Activision has developed a program that lets an advertiser integrate its products into the plot of the game. CEO Robert Kotick says the key to videogame advertising is to make these product placements seem authentic. A Chrysler Jeep featured in the Tony Hawk skateboarding game may feel realistic to a teenager; a plot line involving allergy medicine would not. Activision is also working with a third party, which it declines to name, to develop a Nielsens-like rating system that would help advertisers figure out how much to pay for a starring role in a videogame. "If this is going to be a $100 million a year market [for Activision], we have to have great measurement tools," says Kotick.

Videogames remain a relatively untapped market for advertisers. Of the $230 billion-plus spent annually on advertising in the U.S., only a tiny fraction is spent on videogames, yet they're one of the fastest-growing forms of entertainment in the U.S. And unlike movies or television programs, which audiences typically view only once, game can generate more than 30 hours of play time.

If the game companies can pull it off, they may end up fundamentally reinventing themselves. "It is my belief that companies such as Electronic Arts and Activision can emerge as the Viacoms of the world," says Keith Ferrazzi, CEO of YaYa Media, a unit of American Vantage that helps advertisers with their game strategies. "They need to think of themselves as media companies rather than shrink-wrapped game companies." They'd just better hope no one comes up with the videogame equivalent of TiVo. --Stephanie N. Mehta