Google on Wednesday took another step in its Web video strategy by announcing it will acquire On2 Technologies, a creator of high-quality video compression technology in order to boost its YouTube site.

The Mountain View, California-based company said it will pay $106.5 million and On2 investors will get 60 cents in Google stock for each share they own.

Google engineering director Jeremy Doig said in a statement hat he could not talk specific product plans, but that Google was in favor of improved Web video.

Because we spend a lot of time working to make the overall web experience better for users, we think that video compression technology should be a part of the web platform, Doig wrote.

To that end, we're happy to announce today that we've signed a deal to acquire On2 Technologies, a leading creator of high-quality video compression technology, he added.

On2’s customers include Adobe, AOL, Skype, Nokia, XM Satellite Radio, Sony, Yamaha, TI, LSI Logic, Analog Devices, VideoEgg, Brightcove, and Cox.

The purchase is expected to close in the fourth quarter. On2 shareholders and regulators must approve the deal before it can be completed, the companies said.

On2 claims that more than 2 billion units of its On2 Video
In the meantime, we expect nothing to change for our customers and partners, John Luther, director of marketing at On2, in a blog post. We'll continue to do our best to provide the great technology and service that our customers expect, and we look forward to signing on the next generation of customers to On2 video. We remain as committed as ever to serving you.

Google California Video Software