From 2006 to 2007, ad spending on gaming was up 32 percent; video was up 39 percent; and mobile was up 54 percent, Kroese said, quoting figures from the Yankee Group, Parker Associates, and eMarketer. Search was up 17 percent, while advertising spend on major TV networks was down 5.7 percent, newspaper was down 2.8 percent and cable TV was down 1.4 percent and spot radio down 1 percent -- though these traditional media still represent the large majority of total advertising spending.

Microsoft can reach more than 100 million "monetizable users each month" through its offerings in gaming, mobile and video, Kroese said, noting that that's larger than the biggest cable operators.

Some of Microsoft's Entertainment and Devices plans include:

-- In gaming, the company intends to do more of the so-called advergames it has done with advertisers like Burger King and Toyota in 2008. It is also working on sponsored gaming tournaments, including one with the U.S. Army for "Halo 3."

-- A new advertising format currently being tested inside of Windows Media Center, which is included on 80 percent of PCs sold now. One part of Media Center called Internet TV gives users easier access to online video content. Kroese demonstrated an interactive video ad for "Halo 3" that played before a video segment about Pearl Jam. The "Halo 3" ad gave viewers a series of options at the end, including seeing more "Halo" video and buying the game itself or related products.

-- Microsoft is building ad opportunities inside its Zune media player, as well, Kroese said, without elaborating.

-- In mobile, the opportunities for advertising extend beyond shrinking down the banner and search ads on a PC to fit the smaller screen of a phone. These include voice-based services, such as an ad-supported 411 information service. So, instead of paying 75 cents for directory assistance, the service would be free, but the user would have to listen to an advertisement to get the information.

Another scenario involves location-based advertising. A phone equipped with GPS could present its user with a discount coupon for a slice of pizza as the user approached a pizza restaurant around lunchtime.

Digital coupons are another opportunity, Kroese said. Coupons could be targeted to users and stored on their phones, eliminating a problem with paper coupons: People often don't have them in the right place at the right time.