The Wall Street Journal recently ran an article about proposed regulation of TV product placement disclosure that would have significant relevance for the growing web video business of advertiser sponsored, viral video campaigns.

The gist of the article is that the FCC is looking into requiring TV shows to include notices similar to what political candidates must say before or after campaign ads.

“You shouldn’t need a magnifying glass to know who’s pitching you,” said FCC Commissioner Jonathan Adelstein. “A crawl at the end of the show shrunk down so small the human eye can’t read it isn’t really in the spirit of the law.” Current rules require disclosure but allow it at the end of the show.

I’m all for staying “within the spirit of the law,” and it’s no secret that product placement irks writers and showrunners who feel it limits their creative flexibility (watch this 30 Rock clip then keep reading, I’ll wait).

Despite altruistic consumer groups like Ralph Nader’s Commercial Alert pushing the FCC to step in, the reality is that explicit disclosure of product placement (or as it’s been euphemized branded integration), would be an onerous and harsh exercise, both for the show producers  and the viewers who have grown desensitized to their exposure to ads.

Let’s look at the numbers.

According to Nielsen, American Idol had over 3,000 instances of product placement in the first quarter of 2008 (and they’re not even #1, see the chart). Even if that count represents multiple brands with replicated instances, in an FCC regulated scenario you’re looking at a earful of pre-roll callouts for the sponsoring advertisers. Sound like fun to produce?

While it probably didn’t take a whole lot of brain cells to come up with that not so subtle Coca-Cola cup placement on the American Idol judges’ table, it’s going to take an army of TV ad execs and marketing wizards in loft spaces and frosted-glass conference rooms to brainstorm creative ways to morph the traditional “brought-to-you-by” messaging into something more culturally relevant.

If you’re cringing through Ryan Seacrest’s intros now, just wait until the FCC regulation means he has to call out all the brands that sign his check with a hip and edgy delivery.

Who wins in this situation? Arguably the brands themselves. They’re essentially get a subsidy for premium placement on the show’s opening. It would be tough for the networks to justify charging the advertisers if the government is forcing their hand.

But I digress.

What’s more important to me and the plethora of content creators looking to make money online is the potential affect on digital brand integration campaigns if the FCC TV regulations were to slide down to digital platforms.

According to the WSJ article, last year saw a 33% annual increase in prodcuct placement spending on TV to 2.9 billion. I haven’t seen the numbers for the same spending for online content, but I’m keenly aware of an a similar growth trend.

Right now, there’s real money for content creators, ad agencies and independent producers in branded entertainment for online. The smartest brands, and the ones ready to spend right now, are increasingly interested in viral, unbranded, culturally relevant content. They don’t want their content to be thought of as a commercial, it’s entertainment, actually it’s the hybrid of the two, advertainment.

Yes, it’s important for the brand to get its message across and to create awareness and be associated with the content, but brands want to do it on their terms, on their schedule and once they know that they content itself has achieve a degree of success measured by word-of mouth.

A great example is the Levi’s Dude-Jumping-Into-Jeans Youtube clip that had no branding  until it was outted on Good Morning America after racking up millions of views.

Part of the allure of viral marketing is the power to offer a chance for consumers to discover the reality behind an unbranded campaign. It’s what is so unique about the web and is the same concept that drives interest in ARGs, Alternative Reality Games. Create a leading piece of content that has layers of discoverable and linkable ancillary background information that can enhance and deepen the consumers experience and value of a brand, movie, video game or TV franchise (Lost has a great ARG).

But if every piece of sponsored web content, be it unbranded viral campaign or ARG, is required by the FCC to announce itself upfront, the digital handcuffs will come out and restrict the creative ability and utility of viral web marketing. And that would be FCCK’d.