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mpeg2video vs. libx264: Why the huge difference in filesize?

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Hello

Out of curiosity, I converted the following video recorded by a camcorder...
Code:

Input #0, mpeg, from 'M2U00022.MPG':
Duration: 00:07:50.07, start: 7222.478100, bitrate: 9456 kb/s
Stream #0:0[0x1e0]: Video: mpeg2video (Main), yuv420p, 720x576 [SAR 64:45 DAR 16:9], 25 fps, 25 tbr, 90k tbn, 50 tbc
Stream #0:1[0x80]: Audio: ac3, 48000 Hz, 5.1(side), s16, 448 kb/sAt least one output file must be specified

... from mpeg2video to libx264:
Code:

ffmpeg -i M2U00022.MPG -c:v libx264 -c:a copy M2U00022.converted.MPG
The original file is 555.636.736 bytes while the output is down to 72.609.792 bytes. Why such a big difference? What does libx264 do to the video to achieve such big compression?

Besides using a smaller screen size (eg. 720x576 -> 360x288) and recompressing sound from ac3/5.1 to MP3/stereo, what other tricks could I use to further reduce the filesize?

This is for viewing on computers, so it should sound good but video doesn't need to be of the highest quality (which is why I reconfigured the camcorder from HD to STD).

Thank you.

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