Google to get better video compression

MOUNTAIN VIEW, Calif. — Google Inc. said Wednesday it is buying On2 Technologies Inc., a provider of digital video compression technology, giving the Internet search leader a way to cut costs for its popular video-sharing site, YouTube.

The all-stock deal valued at $106.5 million gives Google access to technology that can help shrink video files so they can be sent more easily across the Web.

Such compression is important, given that YouTube users upload some 20 hours of footage per minute; by shrinking the files, YouTube needs to buy less bandwidth from Internet access providers.

"They're trying to lower their bandwidth costs," said Laura Martin, an analyst with Soleil-Media Metrics. The cost of bandwidth is seen as one reason YouTube still operates at a loss.

Mountain View, Calif.-based Google said On2 shareholders will receive 60 cents worth of Google class A common shares for each outstanding share of On2 they hold. That represents a 57 percent premium to the Clifton Park, N.Y., company's closing price Tuesday.