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All our videos come in two formats, one for instant streaming for which we use FLVs, and one for downloading the HD videos, for which we use WMVs.
If you do Flash I highly recommend investing in the Flash Media Server because then members can watch the FLVs in real-time stream so there's no downloading to cache (as in "progressive download") and users can fast forward and rewind to any point at any time without waiting.
Very sweet actually, our members love it.
Windows Media (WMV) has really improved over the past few years. Compared to MPEG2 you should see some noticeable improvements in file size and quality. Be sure you'll encode using WMV9 codec (Advanced profile not necessary).
WMVs can be played by MAC users as well as long as they have FLIP4MAC.
H.264 is MPEG4 and it's what Quicktime files are based on (short, generalized explanation of course). Looks good but can't be played by Windows Media Player which is what most regular users on the web using a PC uses. Encoding tends to be slower compared to WMV encoding but this may depend on your system.
Personally I stay away from DIVX and other formats that require most users to download additional plugins or software. Most users already have Flash and Windows Media Player (or VLan or Media Player Classic) and are all set.
Hope this helps a little
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