I change it so my cameras used the recompress video data from this device setting as I needed to use the overlay. I have it set to H.264 codec and for some reason it only creates maybe 1 out of 10 thumbnails for the recordings. Both the app and web page both have the same videos without thumbnails. I am using motion capture only for recording.
I'm not quite sure what could cause this problem with the H.264 movies, unless perhaps you are hitting the CPU limit of the Mac (recompression to H.264 can require lots of CPU resources). When you have the cameras set to recompress to H.264, what is the CPU usage of the Mac? The easiest way to check this is to view the main page of SecuritySpy's web interface - it has a CPU indicator there.
I went back to H.264 and watched the CPU and it only hit %50 total CPU usage and average around 30% total CPU usage. It also says Normal CPU thermal state and Normal memory pressure.