'These are moments of seismic change in the television world'

The internet will save television, according to the BBC's former digital chief who is now heading up Microsoft's online operations. Ashley Highfield, managing director of consumer and online for Microsoft UK, told executives at the Edinburgh International Television Festival to embrace the latest technology, new audience demands and fresh business models to pull in the cash.

Major channels have been quietly shrugging their shoulders at the fall in advertising, and Highfield acknowledged these "negative issues". "You can't ignore the 17 per cent decline in revenues from commercial advertising," he said. "These are moments of seismic change. A lot of pundits are saying this is television's iTunes moment." And like the recording industry, if it doesn't adapt, it will be in trouble. "I'm optimistic that it will adapt."

Highfield, who was behind the launch of the BBC iPlayer, left the corporation last April to join the now defunct video-on-demand Project Kangaroo. In November he took this newly created role at Microsoft, with responsibility for products including MSN Video Player, Hotmail, and the search engine Bing.

Now he is fighting for television companies to open their archives, and eyes, to a multi-screened new world. "Content is king, therefore their intellectual property should put them in a position to succeed," he said. "There are three elements: taking advantage of new technologies, being cognisant of changes in audience behaviour, and working out where new business models lead them."

The first major change is in traditional screens, which are becoming interactive. Highfield demonstrated Microsoft's new Xbox, which picks up the player's movements rather than tracking a device, and plugged a "multi-touch" version of Windows.

"TV will look out of date if it doesn't have these ways the audience can interact with it above the remote control," he said. "The next big trend is the rise of plastic rather than silicone. Plastics are out there, allowing even cheaper, smaller, lighter and more flexible screens. The television industry needs to get into the mindset that it will be consumed through iPods, small screens, laptops, televisions and often multiple screens at once."

We don't need someone at television central to decide our viewing schedule either. "One of the biggest shifts has been that viwers want their media on demand and if they don't get it, they will pirate it. That's fair enough – well, it's not, but it is understandable. I want to work as an industry to make sure content is available."

Nor is he a fan of cutting off people's internet connections as punishment for piracy, as Lord Mandelson has proposed. "A draconian body set up to police this is not necessarily the solution. The industry needs to work to find solutions that are not legal recourses but collaborative incentives."

Highfield wants to "keep his powder dry" on the details of how precisely this good-citizen scheme could work, but he believes advertisers rather than subscribers will foot the bill in the future. "Subscription or micropayment models are hard," he said. "We have a pretty clear view that advertising, particularly targeted advertising, is probably going to be – for most people, most of the time – the solution."

Television companies have been expert at raking in the advertisers' pounds until recently, while most of us have taken advantage of a welcome tea break. But when all audiences have the option of fast forwarding adverts, on whatever television device, why would anyone bother to watch them (again)?

Highfield is bullish. People must want them "otherwise no one would click on the adverts on Google and Bing," he said. "You click because it is actually relevant to what you are looking for. For Sky, Virgin, Project Canvas [a BBC on-demand service], the next explosion will be sending different advertising to different people. You and I will be watching The X Factor, Nissan has bought the first slot, but you see the sporty model, and I get the staid one. This is happening now with MSN. You are dealing with qualified leads, therefore the advertisers are going to be happy to pay higher rates."

Another issue is the availability of popular programmes past and present. "You have to whole-heartedly put your content online," he said.

"For Microsoft, with MSN Video Player, if you are going to get dollars across you have to have a big audience aggregated in one place. It is still incredibly hard to get back-catalogue content. New viewing is about not withholding rights."

He doesn't want to comment on whether viewers of the BBC online should pay a licence fee, but says the iPlayer "helped all players rise on the tide".

If the television executives listen and the economy bounces back, will the pounds roll in again? Highfield prefers to think about it as a reset: "The numbers will grow from a new base but they are not going to get back to the previous level. We need to address our cost base, getting the audience to do a lot of the work for free."

Audience demand could take the place of traditional commissioning, for instance. He sites the example of The Ann Arbor News in Michigan, which has made such a success of going solely online last month (annarbor.com) that it has employed more staff, including bloggers, to meet that demand.

So, will the television companies, including internet players, be flourishing in a decade? Watch this screen. (Or that one, whenever you like.)