Google said it plans to repurchase an equal number of shares on the open market that it issued as part of the transaction, to be funded from the available working capital.
On2 had planned to bring in revenue by licensing a new generation of its VPx codec platform, called "VP8".
A video codec is a device or software that enables video compression and/or decompression for digital video.
Online analysts say only a small company such as On2 can profit from a business model like this. They believe Google acquired On2 only to close it down and disable a competitor.