The European Commission will on Tuesday launch a sweeping plan to liberalise television advertising under the biggest shake-up of European Union broadcasting rules since 1989.

For the first time it will let TV producers, advertisers and broadcasters tap into the lucrative world of product placement as well as enjoy greater flexibility on timing commercial breaks.

Product placement ? featuring a branded product in a programme in return for payment ? is a multi-million dollar business in the US, but most EU countries ban it.

Viviane Reding, the media commissioner leading the review of the ?television without frontiers? directive, believes the changes will help broadcasters compete in the new media era.

But the revised legislation faces intense criticism both from some of Ms Reding?s fellow commissioners and also new media - which are covered by the directive for the first time and are bridling both at being regulated at all, and at the nature of the new rules, which they say are unclear.

Richard Nash of Euro ISPA, which represents internet service providers, said: ?We?re very disappointed with the draft that will be published. We don?t see it fully reflecting the interests of all stakeholders.?

In an interview with the Financial Times, Ms Reding said the directive would help create jobs, spur the production of European programmes and allow new technologies to flourish.

She rejected accusations that she was stifling the development of products such as web-based television and mobile telephone broadcasting by introducing limited rules on the audiovisual content they broadcast.

Relaxing the 1989 rules on product placement could unlock a fresh income stream for traditional broadcasters facing not only competition from digital and cable channels but also growing sales of devices allowing viewers to skip advertisements.

But the directive has sparked industry confusion by creating a distinction between ?linear? ? or scheduled television broadcasting ? and ?non linear? services, which include products such as video-on-demand and clips downloaded on mobile telephones.

Industry executives say this distinction is too vague, could prove arbitrary and will create uncertainty as to where the new rules will apply.

Ms Reding?s proposals have also come under fire from Charlie McCreevy, the EU internal market commissioner.

An internal paper drafted by Mr McCreevy?s internal markets directorate dismisses the draft directive as unconvincing, and argues that it could end up stifling new media services.

His paper, a copy of which has been obtained by the FT, says: ?Neither the proposal nor the impact assessment identify barriers to the functioning of the internal market that would justify the new proposal.?

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