Encrypted video File Playing

I think you have two options here:

_ you can develop your own encoder that both compresses & encrypts the data. If the compression is done first and then the encryption, then the compression doesn't necessarily need to be lossless, but the encryption/decryption would need to be. Note that this process is not easy and requires good knowledge in DirectShow or Media Foundation programming and other low level programming skills.

_ you can use a toolkit that provide both compressor and encryption methods. This is discussed in this forum post.