On2's video codec to go open-source

Video codecs are pieces of software that are used to compress large video files into smaller ones so that they can be sent over the Web, wireless devices, set-top boxes and electronic gaming devices.

New York-based On2 is releasing VP3.2, an earlier version of its video-compression technology, into the open-source community so that "the industry can use it to move the overall state of streaming forward," according to Douglas McIntyre, chief executive of On2.

The announcement comes shortly after On2 signed a deal with streaming media company RealNetworks to license On2's latest version of its video-compression technology, VP4, for set-top boxes and other devices.

The open-source version "certainly is a positive step for content providers in terms of being able to encode their content in a high-quality format that's not proprietary," said Jarvis Mak, an analyst at Nielsen/NetRatings. "It's a way for On2 to get their format as a widely accepted format. At the same time, they still need to make money before VP4 is sent off as a format...VP4 is a great step in getting video-on-demand closer to reality."

The company said it decided not to license VP4--which was released in May--because the technology is considered to be where it makes most of its money.

"That's something we wanted to keep for ourselves," McIntyre said. "That's the source for most of our revenue."

On2 is betting that the open-source version of its code will be a way for the company to market its technologies and appeal to developers, especially because the main alternatives, including RealNetworks and Microsoft's codec, still remain proprietary.

"People don't want to use proprietary codec such as the ones in (RealNetworks) and Microsoft because they're afraid those people will come to them and say they were going to charge more money," McIntyre said. "They don't know what will happen."