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All the Prepare Asset explanation is related to the options that are set in Project > Properties > Prepare Asset dialog.
Temp Directory is the local folder into which the local copy will be saved.
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If the archived file is not in a proper format for the NLE editing tool, you can transcode it during the retrieval process using either Metus MAM System or Carbon Coder. Thus, the local copy will be transcoded.
Please see Prepare Asset for detailed information.
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