Declan McCullagh/CNET

SEATTLE--Microsoft is planning to launch an ambitious plan in the next month to revamp advertising: television that watches you watching it.

The goal of NUads is to convince people to stop using their DVR to skip or fast-forward through ads by using the Kinect sensor for Microsoft's Xbox 360 console and Windows PCs to make ads far more interactive. (Here's CNET's Kinect review.)

"During the Super Bowl, you're watching TV, some great ads pop up," Lyn Watts, a Microsoft manager, said during a presentation at the PII conference here this afternoon. "You say something like, 'Xbox share,' it'll share automatically, on Facebook or Twitter, whatever you like. Advertisers are really impressed by this."

Microsoft previewed NUads, short for natural user-interface ads, at the Cannes International Advertising Festival last June. NUads advertising opportunities will "begin rolling out in late spring," a Microsoft spokeswoman told CNET today.

Kinect's potential applications go beyond video games and NUads, of course. Microsoft announced a software development kit, or SDK, for Kinect last year, which developers have been experimenting with. In February, a version of Kinect for Windows hardware became available, along with an SDK that allows the creation of commercial programs that use the Kinect motion-sensing and voice-recognition controls.

"The innovation that we're seeing is absolutely incredible," Watts said. Kinect, he said, can allow advertisers to "go after that holy grail" -- the living room.

Kinect's unique capabilities to record and compile detailed biometric data raise some novel privacy issues. Kinect's microphone array can record audio within earshot and transmit it to advertisers. It performs face recognition and can transmit video.

"How many people are in the living room? Are they taking any action based on the advertising they just saw?" Watts said. "Can we watch the customers' reaction, and if we can, do we have the capability of showing a different ad, or the same ad, depending on what the reaction was?"

Watts, who focuses on this topic for Microsoft, says Kinect developers need to pay attention to privacy from the beginning. "Make sure you do full disclosure," he suggested. "Make sure on the back end you know what you're going to do with your data."

Razorfish, for instance, created KinectShop as a demonstration of an augmented reality shopping experience that lets a user "try on" different types of clothing on the screen.

And if a retailer decided to take that kind of data, assemble it into a database of customers' photos, and use face recognition to detect when they entered a physical store?

"It says, 'Jane, welcome back, we haven't seen you in a couple of weeks, gosh, have you lost 10 pounds? And are you now a size six?'" Watts said.

Another Kinect demonstration is what Texas development lab Chaotic Moon did to motorize a Whole Foods shopping cart. It's kitted out with a Kinect sensor and other scanning gear, and can detect items as you place them in the cart, alert you to items that don't jibe with your preprogrammed dietary constraints, then charge your account (and even follow you around the store).

"The privacy issues here could be anything from fairly minor to pretty significant," Watts said. "What if the company decided it was going to keep track of your face, so you couldn't in the future grab $20 out of your purse, walk into Whole Foods, and walk out and not be tracked?"

Microsoft told CNET that it's taking potential privacy concerns with NUads seriously. A spokeswoman said in an e-mail message: "With respect to privacy, Xbox 360 and Xbox Live do not use any information captured by Kinect for advertising targeting purposes and NUads is no exception. Microsoft has a strong track record of implementing some of the best privacy protection measures in the industry. We place great importance on the privacy of our customers' information and the safety of their experiences." (Here's Microsoft's Kinect privacy FAQ.)

And here's how Microsoft's Mark Kroese described NUads at the time of its initial announcement last year:

NUads solve a significant and costly problem that had long plagued TV advertisers: lack of engagement. Studies clearly show that audiences are multi-tasking on other screens (mobile phones, tablets, laptops) while the TV is on. Who is watching that expensive 30 second spot? NUads deliver what is most scarce to TV advertisers today - audience engagement.