Google confirmed today that it plans to buy digital video compression outfit On2 Technologies in an all-stock agreement, valued at $106.5m.

Mountain View said On2 shareholders will be handed 60 cents worth of Google class A common shares for each outstanding share they hold in the company.

On2's VP6 codec is licensed by Adobe, for its Flash Player and Flash Lite 3 for mobile phones. Other major customers include AOL, Freescale, Nokia and Sun Microsystems.

"Today video is an essential part of the Web experience, and we believe high-quality video compression technology should be a part of the Web platform," said Google product management veep Sundar Pichai.

"We are committed to innovation in video quality on the web, and we believe that On2's team and technology will help us further that goal."

Google, which owns video sharing website YouTube, said the proposed acquisition was expected to close in the final quarter of this year. ®

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