Video compression software company, On2 Technologies , announced the acquisition of Hantro Products Oy , which makes video technology for mobile phones, for $58.4 million in cash and shares. The deal represents a big step toward bringing higher-quality video to mobile handsets and other consumer devices. (See On2 Acquires Hantro.)

The acquisition will take On2's video compression technology, which is used in Adobe Systems Inc. (Nasdaq: ADBE)'s Flash player, into mobile phones. Combined with Hantro's chip design capabilities, On2 says its video compression software can be embedded in consumer electronic devices, which should prolong battery life and result in cheaper devices. (See Hantro Demos Hardware and Austriamicro Licenses Hantro.)

"This technology allows us to go to the consumer electronics companies, embedded devices, and the handset guys," says Eric Ameres, On2's chief technology officer. "Embedded technology stretches the battery life, and chipset costs will come down."

One of the many barriers to the takeup of mobile content services is that the few mobile devices that can handle video applications are still very costly.

"The goal is for users on cell phones to experience the same videos that they can on the Web," says Eric Ameres, On2's chief technology officer. "With this type of technology we're embedding the ability to get all the same content… and it would look as good as on your PC."

Based on On2's closing share price of $3.38 on Friday last week, the acquisition is valued at about $58.4 million. On2 will pay $6.8 million in cash.

— Michelle Donegan, European Editor, Unstrung