Compressing iTunes Library
The problem with files like MP3 or AAC is that they are actually already compressed.  The MP3 and AAC codecs have advanced compression schemes designed specifically for audio.  You'll find that doing additional layers of compression on these types of files will make very little difference in disk space usage and will probably not make it worth your trouble.

EDIT: Sorry I got confused.  The OP asked about video, but the same applies.  Video content is compressed and you'll get very little benefit from further compression.  It's really not worth messing with.