BlackArrow inserts ads for cable companies, raises $12M

blackarrow.gifBlackArrow, a San Mateo, Calif., startup, is offering a new technology to help keep TV advertisers happy.

The company, in secrecy until now, will announce tomorrow (Monday) that it wants to insert targeted ads into on-demand viewing by placing a piece of hardware between cable operators and consumers. Prior to the user watching an on-demand show, BlackArrow helps deliver a brief ad, tailored to the theme of the show and the user’s apparent preferences. For example, a teenage boy might be delivered an ad for an upcoming game like Halo 3.

The company isn’t just another video ad company. It is backed with a $12 million funding round, led by Comcast Interactive Capital, the investment arm of the cable giant.

While DVRs like the TiVo will still allow users to fast forward past advertising, BlackArrow will open up the field for cable companies to profit from acting as remote ad servers. BlackArrow will count on the cable companies to offer their own DVR technology. The advantage for the consumer is not having to worry about buying or installing a hardware DVR. A majority of viewers still haven’t.

BlackArrow is less revolutionary than we’d thought. The company spent more than a year in stealth mode developing its product, and good sources of ours originally suggested that the original aim of the company was to destroy the ad-skipping capabilities of the TiVo. That apparently is no longer the case, if it ever was.

Indeed, the amount of advertising you’ll have to put up with should decrease dramatically, sad CEO Dean Denhart. Advancing standards allow for targeting that is much more valuable to advertisers. Consumers who are dead-set against seeing ads will still be able to rely on their old workarounds.

Like some other advertising startups, BlackArrow can also work with broadband video delivered over the internet. Its best advantage is in its proprietary hardware. The company doesn’t yet have any notable competitors, Denhart claimeed. Large companies like Microsoft, hungry for advertising dollars, are likely to pile in.

Cisco, another investor, has also been testing the company’s equipment. Other investors in the round include Intel, the Mayfield Fund and Polaris Venture Partners. The previous round of $5 million, taken in 2006, was led by Mayfield. The company has raised a total of $17 million. (We’re still trying to reconcile this with our original report that it had raised $14.75 million).