From what I've been told, game loading times are bottlenecked by the hdd, so increasing compression wouldn't affect performance, so I'm not worried about that.
What sort of compression do game developers use for fitting their games to a dvd? Because even winrar shrinks install sizes by 50% using the fastest setting.
First thing that comes to mind is the time it would take to compress the files, or people with slow cpus wouldn't be able to stay ahead of the hdd when decompressing files. Lots of game files are already compressed, audio and video for example, yet the performance of playback is not affected, as the cpu can decode files faster than the hdd supplies them.
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