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What is the best tool for reducing the file size of AVI files to post for viewing on the web?

Also what is the recommended format?

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Yeah. The content is important here. But yet I'd recommend QuickTime format. I have personally tried Flash videos, they are no good at all when it comes to quality. But Quicktime videos gives superb qualities in the cost of less size.

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I tried several different solutions for screencast videos that I had to upload for a class I was teaching. Though I really prefer open formats, I had to bow to practical issues and finally went with .MOV files that I encoded with WinFF winff.org and then suggested that the students go with VLC as a viewer so at least they are using a good FOSS solution at their end. As mentioned in other places the actual editing was done in VirtualDub. If it's for posting to a video service I usually go with MP4 with great results. – Dennis Feb 8 '10 at 22:14
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For the conversion, I'd strongly recommend VirtualDub; it's free and fully featured.

The best format depends on the content of the video. Xvid is probably what you are after though.

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I use FFmpeg on Ubuntu Linux to convert AVIs to MP4s. It reduces the file size by about 90% and the quality is OK. I use it for all my Youtube uploads.

Here's the command I use. Replace MVI_0963 (referenced twice) with the name of your video file.

ffmpeg -i MVI_0963.AVI -vcodec mpeg4 -acodec libfaac -ab 128kb -s 640x480 -b 1200kb -mbd rd -flags +4mv+aic -trellis 2 -cmp 2 -subcmp 2 -g 300 -pass 1/2 -r 25 mvi_0963.mp4
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