Over in Europe, a trial has just kicked off that enables folks to download movies for free in return for watching ads.

But there's a catch, one with huge potential significance. The ads run within the movie and cannot be zapped or fast-forwarded through.

Further, the ads can be highly targeted to that specific user, and if that user passes the movie onto a friend, the advertiser can retarget the ads to that new user. The advertiser maintains control, being able to change ads no matter where the movie ends up.

“The content can’t be pirated, no matter how you distribute it. The content owner will always make money,” says Ronny Golan, co-CEO of Hiro Media, the Israel-based company that developed the technology.

While things are changing quickly, downloaded movie ads typically come before or after the movie. There's no real targeting, and the advertiser hasn't nearly the flexibility in changing ads.

That Hiro technology is now being tested by BT Vision in its download store. BT Vision, a unit of British Telecommunications, is a major broadband TV service, and it believes if the test is successful it could change the model of their video download business.

“We believe that sympathetically placed, targeted advertising combined with a viral film-sharing capability will be attractive to many customers in conjunction with free or reduced content prices,” says a statement from Antony Carbonari, BT Vision’s interactive and commercial media director.

BT Vision faces a problem that troubles the movie business generally. With so much free content on the internet, consumers are increasingly unwilling to pay for movies. Movie studios have traditionally made about half of their money from DVD sales.

“That is a significant problem for the industry,” says to Arash Amel, head of broadband media at Screen Digest, a London-based research firm.

This new technology could encourage studios to move toward an ad-supported model.

It would solve another problem. So far, much of the purchasing of digital movies has actually come through the purchase of devices such as iPods or the xBox to view them. The consumer buys the device and then buys movies for that device from that same manufacturer.

“Downloads are being offered by companies to add value to existing businesses. So for anyone wanting to start a business selling movie content on a standalone basis, it is hard,” says Amel.

This may help explain BT Vision’s interest in testing Hiro Media’s product.

It works like this. After downloading a film, and just as he or she is about to view it, the user fills in a sign-in sheet asking for age, gender and interests. The viewer may then choose to specify the type of products they are interested in seeing commercials for. The program then downloads the movie and with it ads targeted to those interests.

Now say the viewer watches the movie and then passes it on to a friend. The friend would then go through the same registration process.

The advertiser can choose how often it wants a viewer to see an ad, and it can run time-sensitive ads timed to a deadline, for example, a three-day sale on dress shirts that ends on Dec. 9. The ad then expires.

Viewers have the same abilities with the Hiro-rigged movie as they would with any movie, in terms of fast-forwarding, except for the ads. They have to watch them all the way through.

In the BT Vision trial, three films are being offered for free viewing, “Mischief Night,” “Played” and “The Punk Rock Movie.” The consumer is able to watch the film for up to 30 days.

Each film has three 30-second spots, one at 20 minutes, one at 50 minutes and one at 75 minutes.

Hiro has tested its product in the U.S. on NBC’s dotComedy, a site with comedy clips, and elsewhere. The company says that it will begin making the product for devices beyond the PC next year, such as mobile phones.