A computer-implemented system and method are described for performing video compression by an online video game service is provided. One example method includes receiving user input by a server and the user input is received from a client device over a network established between the client device and the server. The user input is from an input device associated with the client device and the client device and the input device are used to access the server to play a video game. The method further includes executing the video game on the server while receiving user input from the input device, and the video game produces a video output including a sequence of video images of the video game. Encoding each of the sequence of video images in a video encoding resource of the server to generate a sequence of encoded video frames and transmitting the sequence of encoded video frames by the server over the communication channel to the client device for decoding to produce a corresponding sequence of decoded video frames. The sequence of decoded video frames is configured to be rendered on a display device associated with the client device. The method further includes detecting a change in a communication channel characteristic of the communication channel, and the detected change is based on feedback information received by the server. The feedback information is received from the client device and dynamically adjusting a compression ratio for said encoding of the sequence of encoded video frames based on the detected change in the communication channel characteristic.