A system and method are described below for encoding interactive video used in video games streamed from a server to a client. For example, one embodiment of a computer-implemented method for performing video compression, and detecting a maximum data rate of a communication channel between a server and a client. The method includes transmitting a video stream comprising a series of compressed frames from the server to the client. The method includes detecting that the maximum data rate will be exceeded if a particular frame or frames of the sequence of frames are transmitted from the server to the client over the communication channel. The method includes reducing the frame rate of the video stream by adjusting compression of the video frames being sent from the server to the client to avoid exceeding the maximum data rate.