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Other companies do use proprietary formats, and the success of that format depends upon many different factors, but especially how widely popular that format becomes. I get the sense that .MOD has more to gain in this area before we see it become more widely adopted.
In the case of .MOD, you are actually getting a MPEG-2 file. The way video files work is that there is a codec (COmpressor/DECompressor) algorithm and a file wrapper (or extension). A JVC .MOD file is a MPEG-2 encoded file, with a .MOD extension. You’re faced with two challenges, first the .MOD file type is only recognized and support by a few applications. I think we covered some of those already. The interesting thing about wrappers and extensions is that they can be dealt with in a variety of ways. Sometimes all you need to do to convert the video file to a compatible video file is to change the extension. In the case of .MOD files that’s not enough. The .MOD wrapper apparently does a few more things than just bare a unique extension name. It requires a slightly more complicated method to convert that file. That is why there is supplied software and that certain third party applications have .MOD support.
The second problem you’re experiencing is with the MPEG-2 format. It’s not an edit friendly format to begin with. Many camcorders do use MPEG-2 and MPEG-4 codecs, and those file types still need to be converted or have additional support added to the software in order to accurately edit the file.
To answer you question regarding whether or not you should return you camcorder, I think the answer is yes and no. Before you run back to the store, consider that no matter what kind of camcorder you buy, there will have to be some level of post-production upkeep. Easily, with a modern computer supporting a FireWire connection, the most edit-able video format is Mini DV (or DV25). But, with Mini DV, you do have to take time to capture you footage from tape to computer in order to edit. This could take as long as converting you .MOD files and in some cases maybe even longer. So… I encourage to try to find a post-production work flow that is most efficient using your current camcorder. I tried to load up Adobe Premiere Elements 3.0 at the office and found out that you can’t install this software on a system with Premiere Pro installed… so I’ve got to find a machine here that doesn’t have Premiere Pro (these are the kinds of problem you’d want to have, I’m sure) before running some tests. Furthermore, our contact at JVC as informed us that Pinnacle Studio 10 and the most current version, Studio 11 do support .MOD files. So maybe we can test that out too.