A method and apparatus for processing overlay data in a multimedia system include processing that begins when the server of the multimedia system selects a set of channels from a plurality of channels based on a set of channel select signals. The processing continues as the server converts the set of channels into streams of channel data. The server then decodes the streams of channel data into video frames for each channel of the set of channels. The processing continues as the server generates overlay data for at least one channel based on an overlay selection input, which is provided by the client that requested the particular channel. The processing then continues as the server encodes the overlay data with video frames of at least one channel to produce channel overlay packets. The processing continues as the server encodes the video frames of the other channels into sets of channels to produce channel packets. The server then provides the overlay packets and channel packets as a stream of packets of channel data to the clients of the system. Upon receipt, each client decodes the stream of packets of channel data to isolate its channel data. The client requesting overlay data decodes the overlay packets to retrieve the overlaid video frames using the same decoding process that the other clients used to retrieve the video data of their requested channels.
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