American Online Inc. is investing in online video distributor Brightcove, and plans to offer the latter company's content publishers the option of showing their video on the AOL network, the companies said Tuesday.

In the investment deal, Dulles, Va.-based, AOL, a division of Time Warner Inc., joins e-commerce giant IAC/InterActiveCorp, Hearst Corp. and Allen & Co. LLC in investing a total of $16.2 million in Brightcove. In addition, media mogul Barry Diller, chairman and chief executive of IAC, is joining the Brightcove board.

The second-round of financing is to "fuel the company's growth and the launch of its products and services," Cambridge, Mass.-based, Brightcove said. First-round investors included Accel Partners and General Catalyst Partners.

"We are thrilled to get both the backing of such a strong group of strategic investors and a major distribution agreement with AOL," Jeremy Allaire, Brightcove chairman and chief executive, said in a statement.

Brightcove plans to launch next year an Internet TV service that distributes video from independent producers and large cable broadcasters. The company is looking to generate revenue from advertising and paid services. The distribution service is currently available in an invitation-only commercial preview.

In the AOL deal, video publishers using Brightcove will have the option of syndicating content directly to the AOL portal. The companies also plan to market a co-branded version of the Brightcove service as a self-service platform for publishing video on AOL.

Publishers will be able to generate revenue through advertising and paid services on AOL's network, Brightcove said. The deal makes AOL the biggest investor in the second-round of funding.

"AOL is morphing from an ISP (Internet service provider) to a content portal, and the addition of Brightcove into the mix will help increase the amount of personal video content that is available to AOL users," Gerry Kaufhold, analyst for market researcher In-Stat, said.

AOL and Warner Bros, another unit of Time Warner, last week announced plans to launch early next year an online TV network that would bring back favorites from TV's past, including "Welcome Back Kotter," "Growing Pains," "Chico And The Man," and "Kung Fu."

In2TV is expected to be the "cornerstone" of AOL's drive to offer broadband video as an attraction to its portal, which competes with Microsoft Corp.'s MSN and Yahoo Inc.

"The web is delivering more video diversity than the pay-TV services, and emerging, advertising-supported video content will become a service that complements today's broadcast TV networks," Kaufhold said. "AOL is positioned to carve out a profitable niche of these emerging services during the coming years."

With the growing use of broadband, an increasing number of U.S. consumers are getting use to watching video on their computer screens, experts say. More than 94 million people, or 56 percent of the online U.S. population, have watched streaming video online, according to Web metrics firm ComScore Networks. Over the last three months ending in June, the average consumer watched 73 minutes of online video a month.

Nevertheless, watching TV on a computer is not expected to match the quality of home entertainment systems, so some experts see online video as more of an introduction of programming that eventually could find its way onto cable or telephone companies' paid TV services, if the shows become popular.