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Though I am curious on how to start the encoding, I couldnt find mkv or h264 on my Compression list with VDub, am I supposed to use VDubMod?...
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The appropriate way to encode H.264 would be the x264 CLI. For muxing to mkv, use mkvmerge (via mmg, if you like having a GUI) from the mkvtoolnix package. For mp4 it's MP4Box from GPAC.