Relevant discussion in p9dueE-xm-p2.

Uploading videos with the Media Library
Note that the issue is specific to the “Upload” button. Videos uploaded through “Media Library” are transcoded without any problem.

This is a good indicator of what is going on. So let’s start analyzing how Jetpack uploads videos when using the Media Library.

The VideoPress module enqueues some scripts when it detects we are in a page where we can upload files (#). These scripts changes how plupload creates new media items (plupload is the file uploader library used in the media modal).

Specifically, it makes an extra AJAX call when we select a video (#) for retrieving a token and a /rest/v1.1/sites/:site/media/new URL (#) that are used as an authorization header and as the new upload URL (#).

In other words, videos are uploaded by making a request to https://public-api.wordpress.com/rest/v1.1/sites/:site/media/new that is authenticated with a X_UPLOAD_TOKEN token.

That means that we’re actually creating the new media items in WordPress.com.

The real issue: /wp/v2/media endpoints
Going back to original issue, what happens when we select a file using the “Upload” button? Gutenberg creates new media items using the /wp/v2/media endpoint.

Since the request is to the self-hosted site (https://example.com/wp/v2/media) and we don’t have in place any logic for handling these uploads, the video is not transcoded.

I've updated this support doc to remove references to the Video block, until this is addressed:

• https://jetpack.com/support/video-hosting/

I've updated this support doc to note that you cannot upload via the Video block until this is addressed:

• https://jetpack.com/support/video-block/

We should revert these changes to our user-facing documentation once this issue has been addressed.

Edit to add: Follow up in 2038608-zen once this is fixed.

confusion about this reported in 2084562-zen

Likely related to #7073.