AOL, the interactive unit of media conglomerate AOL Time Warner, entered a nonexclusive licensing deal to use On2's compression technology, or codecs. Under terms of the deal, AOL owns rights to grant content partners use of On2's technology for encoding programming that will be distributed through AOL services. AOL also can deliver certain undisclosed products and services to its members using On2's codecs.
Financial terms of the deal were not disclosed. AOL has not yet said how it intends to use the technology.
"This brings the opportunity to encode and view higher-quality video both archived and real-time," said Douglas McIntyre, chief executive officer of On2.
The On2 deal is just one more endorsement by AOL. Last summer, AOL-owned Nullsoft licensed On2's VP3.2 video codec for its multimedia player, Winamp3. At the time, AOLwith video capabilities that brought the program into competition with streaming media giants Apple Computer, Microsoft and RealNetworks.
The AOL-On2 deal could foreshadow AOL's increasingly autonomous direction for streaming technology, analysts say. Though AOL has a near three-year relationship with RealNetworks for use of its streaming media player, compression and server technology, it could see RealNetworks' content business, the RealOne subscription service, as a threat.
"RealNetworks has its own content business, RealOne. And at a certain point, that's not going to escape their notice," said Michael Gartenberg, an analyst for Jupiter Research. "This is AOL's first foray into keeping the high level of technology consistent while avoiding entanglements or conflicts with potential competitors down the road."
RealNetworks could not immediately be reached for comment.
On2, based in New York, has been on a licensing streak recently. Earlier this year, Disney-owned ABC News purchased 15 licenses for its Laptop News Gathering (LNG) system--technology that compresses video files at high bit rates to achieve broadcast-quality playback.
Sony is expected to launch a new plasma screen TV set that will tune in streaming video from home networks and the Internet, in a project called Altair. On2 Technologies will provide the video compression and decompression technology for the television.
On2 develops full-motion video compression and streaming technology--in three versions called TrueMotion VP4, VP5 or VP6--that's licensed for use in set-top boxes, wireless and consumer electronics devices. AOL has bought broad licensing rights for VP5 and VP6.
On2 recently said it expects to reach an earnings milestone with a first-quarter revenue of more than $1.2 million; it plans to announce earnings April 28.