Personally, i want the highest-quality videos possible. DiVX is likely the best choice in providing lower file sizes while keeping higher quality than MPEG-1. i'm on cable now, but i was on dialup before and had no problem downloading large files, so i know what it's like to wait an hour for a video.
Obviously, there's many people here whose computers won't play DiVX files well, or don't have high-speed connecitons. If anything, i think you need to poll the PGC audience to see what they want, and to see what you will work best for you.
i think DiVX would work best, despite the fact that it requires CPU power. You can download the player/codec for free, and use free tools to encode in DiVX, although i'm not
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The server is extremely slow. Maybe you should use bit torrent.
i was about to suggest this myself. The only snags i'd forsee is that it requires a separate, although free and ridiculously simple, program to install, and the fact that there'd need to be some education on how to use it. BT links would have to be released alongside regular HTTP links in order to ease people over to BT. Just a thought, but how about offering “regular” (MPEG-1, WMV, or whatever) downloads via HTTP, and high quality DiVX files via Bittorrent? I'd wager that the users familiar with BT have higher-end computers than others. That way you serve both audiences, while not killing your servers.
i'm still waiting for 1080 to download. Slow...