The next step up the compression ladder is to use a variable bit rate when encoding. MPEG-2 uses this technique. If there is a scene change or the image is particularly difficult to compress MPEG-2 will devote more attention to those frames. The player also has to be able to adjust to this changing bit-rate. By comparison, MPEG-1 VCDs run at about 1.15Mbps while MPEG-2 DVDs run anywhere from about 4Mbps up to 9.8Mbps (about a 40:1 compression ratio).
More MPEG Bad News
While video compression algorithms have become fairly sophisticated they have also introduced other problems. For example, because of the nature of MPEG's IBP structure a player can't decode the B and P frames until it has an entire GOP in memory. This has multiple implications. First, MPEG doesn't degrade gracefully like analog TV. MPEG is an all-or-nothing algorithm. If there are problems in the MPEG stream you simply don't get any image at all (rather than a blurry or fuzzy one).
This also means that MPEG is poorly suited to streaming over the internet since packets can arrive at different times and not necessarily in the proper order. If one of the frames is incomplete then the whole process of decoding has to wait for that missing information to show up - or worse yet everything just crashes to a halt.
This also means that MPEG is harder to edit. You can't just say "cut from this sequence to another" since the cut might not fall on an I-frame or GOP boundary. MPEG editing software has to decode all the frames first and then re-encode everything after an edit is performed. Unfortunately, since MPEG is a lossy algorithm every time you decode and re-encode a sequence the quality of the image degrades further and further.
Finally, even at 4 to 6 Mbps, we're still talking about transfer rates and storage requirements that would make an IT manager choke.
Now that I've got you completely confused about MPEG-1 and MPEG-2 I should mention that there are other MPEGs in the works. MPEG-4 is just getting off the ground and MPEG-7 and MPEG-21 are right around the corner. These new MPEGs are basically extensions of the original MPEG algorithms but are optimized for things like multimedia, very low bit-rates (between 5 kbit/s and 10 Mbit/s), and incorporating things like 3D objects and positional audio into the stream. While these features might sound intriguing we're just going to have to wait a while to play with them since there are almost no tools available today and the few tools that do exist are still in the experimental phase or cost a fortune. On the plus side many of the first tools to make use of MPEG-4 will be software based so you should be able to make use of any existing hardware capture equipment you might buy today.
Good sources for links and information about MPEG can be found at: