I'm trying to save space on my harddrive...does compressing these files have a damaging effect?
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no -- but you will get next to no compression as they are already compressed .. ( i assume you mean divx avi files as UNCOMPRESSED avi can be compressed a lot more) ..
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The only way you could "compress" them would be to reencode them with a lower bitrate. This would reduce the filesize, but it would of course also compromise quality.
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