h264 like mpeg2 is rubbish for use in catalyst.
it uses interframe compression.
you cant access each frame without getting a dreadful performance hit - as you need to decode several frames to get one.
looping, changing in and out points. fast random access to individual frames - are all impossible - all things that are essential on a 'media server'.
some media servers use mpeg2 - but they have to convert the mpeg2 to a special format - with all i-frames...
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i have tested all this stuff thoroughly.
photojpeg 50% is the thing that works - and photojpeg is a really good codec.