You are going to have to google heavily. You have to convert the sfd to mpg, then degrade the mpg. Then you have to split the video to an .m1v (mp1 video) and .wav (audio) file. Then you must use a utility that will merge the 2 back into an sfd.
SFD2MPG
Basically, the sfd file is an mpeg with a special audio compressed format. I do not know if that utulity knows how to do decrypt the audio or not. You might end up with a silent film lol. And, I don't know how to get the movie back into an sfd.
You can look for the "dreamcast movie creator", but that is from the ddk, so it is considered illegal. It should decode and encode it all...