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Audio Compression:
Make sure that VirtualDub is set to full processing mode under the Audio setting. Then select a compression codec. I recommend 128kbps MP3 compression, but if you want a bit more juice, go for 160kbps (or possibly 192kbps if you're encoding a music video).

Video Compression:
There are several methods of compressing the video and several compression formats. You can compress the video to AVI (DivX or any other AVI codec), you can compress the video to VCD (based on MPEG1) or even SVCD (based on MPEG2).

In this tutorial I will explain how to compress to DivX 3.11 and 2-Pass DivX 4.01 as non-AVI compression requires external programs (can't be done with VirtualDub alone).

Make sure that VirtualDub is set to full processing mode under the Video setting. Then select a compression codec.

1: DivX 3.11
Most people seem to like the DivX 3.11 VKI Low Motion codec. You should use low motion as fast motion can mess your image in certain scenes and it's not possible to predict the resulting video size when it's used (Since it's VBR).

Set the crispness to 100, with the VKI version (image scene detection) set the Key frames every 20-30 seconds, with the non VKI version, set it to 2-5 seconds.

The Video bitrate is the hardest thing to choose. I recommend 1200kbps for 640x480 PAL (25fps) and 1600kbps for 640x480 NTSC (29.97fps). This setting is of course relative to the resolution of your output video and the quality you want to achieve.

Now save the video by using the menu to File -> Save AVI (and select a file name).

1: DivX 4.01
DivX 4.01 can be used in several modes. I will only discuss the best quality 2-Pass mode. The 2-Pass modes doesn't encode directly to the AVI file. On the first pass it will scan the video for information about the complexity of the depicted scene and the motion within that scene. On the second pass it will used to gather information to better allocate the bitrate, and thus improve the overall image quality.

To initialize the first pass open the DivX 4 configuration dialog, select:
"Slowest" performance (best quality),
"2-Pass, first pass" (to tell the encoder you're about to perform the first pass),
and finally set the "Output video bitstream" (same as bitrate, this defines the file size in kbit/sec).

Now, through the VirtualDub menu select File -> Save as AVI, pick a file name, but before pressing the OK button, make sure that "Add operation to job list and defer processing" is checked. Now open the DivX configuration dialog again, and this time select "2-Pass, second pass" (leave all the other settings intact). And once again File -> Save to AVI and make sure that you check the checkbox.

Now both operations are queued and you can begin the encoding. Press "F4" to open the VirtualDub Job Control dialog and press the Start button. Both passes will be executed one after the other.

Saving the encode setting:
You may want to save yourself the trouble of repeating some of these steps in the future. VirtualDub can save the current filter states into a VCF file. Using the VirtualDub menu, select File -> Save Processing settings, pick a file name and that's it.

When loading the processing setting it's important to remember to load it before opening the video, otherwise some of the settings may not work properly.

Continue the Video Capture tutorial with Video Capture 102 - IVTC.

Related Links:
VirtualDub - http://www.virtualdub.org
VirtualDub Filters (Smart DeInterlace, etc...) - http://sauron.mordor.net/dgraft
AVI_IO - http://www.nct.ch/multimedia/avi_io
FreeVCR - http://gmouchard.multimania.com/index-en.html
IuVCR - http://www.iulab.com
HuffYUV - http://www.math.berkeley.edu/~benrg/huffyuv.html
PicVideo MJPEG - http://www.jpg.com
Doom9 - http://go.to/doom9