I am working on a project wherein a new hardware is to be created which kinda acts like a dvd player...This new hardware will contain the operating system and media player. Video files will be played using this hardware. But those video files will be further encrypted...and can be decrypted only through the hardware...so that they can be played only on our hardware...so say for example we use mkv file format...we shall further encrypt it....and customize the media player to first use our decryption algorithm and only then use the mkv
decoder to further decrypt it.
This is my first assignment related to any media players and hence need help with the following:-

1>Which is possibly the best file format and best media player that can serve our purpose?....We have thought of mkv + vlc...pls suggest otherwise..
2>How can I add my encryption to the file?
3> What other tools will I require?