Intel and McDonald's have signed multimillion-dollar advertising deals to place their chips, burgers and fries within the virtual world of the Sims Online, the highly anticipated Internet sequel to Electronic Arts' social-engineering game.

The product placement deals represent a groundbreaking first for the gaming industry, bringing it a lucrative new source of revenue -- and added legitimacy as a mainstream entertainment medium.

''This is the type of validation I think that Electronic Arts needs for the Sims Online,'' said James Lin, senior analyst for Jefferies & Co. investment bank, which has no business relationship with the Redwood City, Calif., game publisher. ``What better way to get endorsed than by McDonald's and Intel?''

Product placements have been standard promotional fare in Hollywood since the cinematic moment in 1982, when Reese's Pieces' sales shot up 65 percent after their prominent role in the movie ET.

Advertisers are eager to associate their products with stars -- be it Tom Cruise reaching into the fridge for a bottle of the Jamaican-brewed ''Red Stripe'' beer in the movie The Firm, or Mike Meyers tooling around in a Cooper Mini in this summer's comedy, Austin Powers in Goldmember.

''Product placement really is corporations tapping into the borrowed equity of entertainment,'' said Tera Hanks, a partner in Davie-Brown Entertainment marketing firm in Los Angeles. ``When a celebrity drinks a product or uses a product or drives a certain car in a movie or television show, that makes a statement of preference. That statement of preference is very powerful to consumers.''

Indeed, product placement is now a $1 billion industry, according to the Entertainment Resources & Marketing Association trade group in Santa Monica, Calif.

LAGGING BEHIND

But games have been a laggard. Even though interactive entertainment sales of $9.4 billion approach domestic box office receipts for film, advertisers have been reluctant to associate their brands with the violent fare of best-selling titles like Grand Theft Auto II.

''A lot of the companies that might be in product placements in regular features films and television question the appropriateness of having their brands identified with a lot of violence,'' said Eric E. Dahlquist, president of the trade group. ``We know this is all animation. It's digitized. It's not real. Yet, it might stimulate and trigger other responses on the part of the game players.''

In fact, the revenue typically flows the other way in video gaming.

PAYING FOR RIGHTS

Publishers typically pay automotive companies or professional sports leagues licensing fees for the right to use the image of a Porsche in a racing game, or a player like Tiger Woods in a golf game. It's essential to lend authenticity to game play.

Increasingly, companies -- like Reebok -- will pay game publishers to emblazon a brand name on billboards inside a football game like ''Madden NFL 2003.'' The EA deal with Intel and McDonald's represents a further sea change.

The fast-food restaurant paid an undisclosed seven-figure amount to allow the avatars who populate the Sims Online to open virtual franchises and earn ''Simoleans'' the game's currency, by selling burgers and fries to other players.

BETTER REACH

Likewise, players can purchase Intel-branded computers within the game and use them to operate virtual businesses or communicate with other players.

''We felt it was going to give us incredible reach against women and the young adult audience; give us a segment that's tougher to reach,'' said Alison Richards, Intel's director of co-marketing.

And momentum is building for sponsorship of online games.

EA spokesman Jeff Brown said Buddy Lee jeans, named for the suddenly hip bobble-head doll that has long been Lee's long-time mascot, signed a six-figure deal to sponsor ''SSX Snowdreams,'' an online snowboarding game. And Hyundai paid for advertising and in-game signs for EA's ``Pebble Beach Online.''

''I think we've reached a point in the evolution of interactive entertainment where advertisers have suddenly realized that the size of the market, the demographic and the unique interactivity make for a very compelling sponsorship opportunity,'' Brown said.