Microsoft chairman Bill Gates has predicted that growing uptake of online video content and broadband TV will revolutionise viewing habits within the next five years.

The ability of web-based TV services to offer users what they want to watch, when they want to watch it, rather than being slaves to TV schedules, will make all the difference, Gates told the World Economic Forum in Davos.

He warned the changes will be bad news for those television companies which fail to adapt.

Gates said the internet will quickly usurp traditional broadcasting:

“Certain things like elections or the Olympics really point out how TV is terrible. You have to wait for the guy to talk about the thing you care about, or you miss the event and want to go back and see it. Internet presentation of these things is vastly superior.”

The lines between TV and the web will become increasingly blurred over the next few years. The key of course, other than suitable broadband speeds, will be enabling internet connectivity with TV hardware. After all, people like to watch TV from the comfort of their favourite armchair – unlike ‘the internet’, TV is not a lean-forward medium.

Delivering TV via broadband will be made easier with initiatives such as BT Vision as well as Microsoft’s next Xbox service, which will double-up as a set-top box. Hardware manufacturers like Phillips have been working in this space for years, so TV sets with integrated connectivity are also on the horizon.

As yet there is no clear winner in the battle for the living room, though Gates is clearly watching this space very closely and Microsoft’s success with Xbox makes it a contender. Microsoft has done extremely well with establishing Xbox Live, which is infinitely more joined up than Sony’s online efforts. It is a small step to think of the Xbox – essentially an entertainment platform - as a set-top box.

So in the next few years we should (hopefully) see some kind of seismic shift in the advertising landscape. Internet TV services offer the potential to target ads according to each viewer’s profile, unlike existing singlecast TV technology. Even if we don’t see personalisation to begin with, you should certainly see segmented programming / advertising (eg: ‘male only households’).

That means that the data owners are going to own quite a few bargaining chips…

Who will win the battle for the living room? Sky, Google, Microsoft, BT, BBC, NTL? Joost? Place your bets now.