Putting a squeeze on Net video

Not so much for the lip-syncing teenagers or kooky animal tricks that appear on sites such as YouTube and eBaumsworld, but because the craze over posting video clips to the Internet is partly responsible for spurring media companies to find faster means of transmitting video over the Web.

On2 provides software that enables large video files to be sped through broadband pipes faster than in the past while preserving greater image quality, the company says.

At the Consumer Electronics Show in Las Vegas this week, New York-based On2 demonstrated its TrueMotion VP6 and VP7 codecs, which can compress high-definition video down to 2 megabytes per second, according to CEO Bill Joll. On2 is vying to create high-definition codecs that will operate at the lowest bandwidths.

Codecs are mathematical formulas that enable massive digital-video files to be compressed and decompressed with minimal damage to image quality.

Such massive files are difficult to transfer via broadband networks and can result in long download times. This is partly responsible for the public's failure to embrace Internet downloads of films and TV shows. Depending on connection speeds, a two-hour movie can take three times as long to fully download and the image quality is often inferior to a DVD.

"The issue the Internet faces," Joll said, "is if you have a broadband connection and can't get your hands on the file in a reasonable time, you're going to be frustrated."

The 13-year-old company is trying to position itself to one day help distribute high-definition content over the Web.

Online video has come a long way since the late 1990s, when watching streams meant grainy, jerky images that often stalled. Not much fun. While the user experience is smoother now, the pictures flickering over the Net still aren't as clear or vivid as watching TV, and certainly nowhere near the quality of high definition (HD).

Plenty of media companies are waiting to stick cash into the pockets of those who can help speed up the process of delivering high quality video.

The number of competitors in online video has exploded in the past year. YouTube, Metacafe and Google Video are just a few of the more than 200 video-sharing sites. Skype and social-networking site Paltalk are in the video communication area; dozens of others, including Apple, are trying to marry the PC to the TV or deliver video to mobile devices.

The market's growth potential has helped lift On2's share price in recent months. Last summer the company's stock fell to a 52-week low of 55 cents but closed trading Thursday at $1.18.

On2 licenses its technology to such companies as China Mobile, Skype, Brightcove, XM Satellite Radio, and Adobe, which integrates VP6 into the company's Flash 8 and 9 players.

In the company's quarterly report filed last August, On2 said that it believed its compression software was more efficient than competitors' when customers streamed content over slower connections. On2 also stated that the technology offered higher resolution when passing over broadband connections.

"As connection speeds increase, however, the advantage that our highly efficient software has over competing technology may decrease," the company cautioned in its report.

On2 faces other threats, including one from Microsoft and DivX and the rise of H.264, a standards-based codec and successor to MPEG4 format. To demonstrate the company's own compression software, DivX has plans to launch a video-sharing site called ="http: stage6.divx.com="" "="">Stage6.divx.com, according to a company representative. The site, which is in a testing mode, definitely offers a high-quality image, but will require at least a software download.

The heavyweight in the division is Microsoft and the company's Windows Media Video, according to Josh Martin, an analyst with the Yankee Group. Microsoft has cut deals that make it tougher for companies using Microsoft's digital rights management technology to use competing video-compression software, according to On2. Microsoft did not return calls for comment.

"Microsoft's commitment to and presence in the media delivery industry has increased," On2 wrote in the quarterly report. "Microsoft distributes its competing streaming encoder, media server, player, tools and digital rights management (DRM) products by bundling them with its Windows operating systems and servers at no additional cost."

Still, the market for Internet video appears to be in its infancy. Joll points out that YouTube is working with Flash 7, and should the company ever upgrade to Flash 8 or 9, it would mean a boon for On2.

"I can't comment on YouTube," Joll said. "We're in dialogue with a lot of companies."