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Incoming streaming video (HLS) is choppy and keeps buffering with passthough codec

We are using Extron SMP 351 and SPM 111 encoders to push the video stream to our wowza server. To reduce compute overhead on the VM, I limited the transcoder templates to 720p and changed the codec from H.264 to passthrough. The results are not satisfying because the video is very choppy and keeps buffering. However when I change transcoder to use H.264 profile, the video playback goes normal with decent video quality.

We would like to use the passthrough option to be able to reduce CPU overhead on the server VM.

Our Wowza Server has below configuration:

Operating System: Windows Server 2022 Datacenter
vCPU cores: 4
RAM: 16 GB

I’ve also inspected the HTTP calls in web browser. On the HLS chunk playlist file (chunklist .m3u8) under preview tab, I’ve noticed the EXT-X-DISCONTINUITY-SEQUENCE:673 flag which isn’t there when the video playback is normal.

Interestingly, when I push the video stream using OBS studio (with passthrough enabled under Transcoding > 720p template > Codec), the HLS video playback is normal. Inspecting HTTP calls again, and in the chunk playlist (m3u8), I again noticed the EXT-X-DISCONTINUITY-SEQUENCE:0. So now it shows 0 in DISCONTINUITY-SEQUENCE when the video playback is normal.

OBS works fine with transcoding codec set to passthrough but the video being pushed from Extron SMP 351 and SPM 111 encoders (with transcoding codec set to passthrough) the video playback is choppy and keeps buffering.

Please advise.

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Engine Version: 4.8.14+9