TY for your post. My understanding is that it has to do with the software that communicates from iTunes to ATV called Bonjour.
This is from the engineers at Apple:
1. Different video formats exist for 3rd and 4th Gen ATV:
Video Formats: ATV 4th Gen
H.264 video up to 1080p, 60 frames per second, High or Main Profile level 4.2 or lower
H.264 Baseline Profile level 3.0 or lower with AAC-LC audio up to 160 Kbps per channel, 48kHz, stereo audio in .m4v, .mp4, and .mov file formats
MPEG-4 video up to 2.5 Mbps, 640 by 480 pixels, 30 frames per second, Simple Profile with AAC-LC audio up to 160 Kbps, 48kHz, stereo audio in .m4v, .mp4, and .mov file formats
Video Formats: ATV 3rd Gen
H.264 video up to 1080p, 30 frames per second, High or Main Profile level 4.0 or lower, Baseline profile level 3.0 or lower with AAC-LC audio up to 160 Kbps per channel, 48kHz, stereo audio in .m4v, .mp4, and .mov file formats
MPEG-4 video up to 2.5 Mbps, 640 by 480 pixels, 30 frames per second, Simple Profile with AAC-LC audio up to 160 Kbps, 48kHz, stereo audio in .m4v, .mp4, and .mov file formats
Motion JPEG (M-JPEG) up to 35 Mbps, 1280 by 720 pixels, 30 frames per second, audio in ulaw, PCM stereo audio in .avi file format
2. "I’d suggest your customer workaround the behavior how ever best suits their needs. As I mentioned previously, one potential workaround would be finding and using a 3rd party app on the App Store that has features similar to Home Sharing but is less strict about acceptable formatting for video files than the Computers app."
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Plex app works for me. Apple has no plans to fix this issue in the near future from what I understand after talking to the Apple Specialist. It's very disappointing.