I place the video clip in track one and the image in track 2.
With the image highlighted, I click the 'Modify' button and choose the center tab
Check the boxes for 'Fade In' and 'Fade Out'.
Now, slide the keyframes to shorten the duration of the fade.
Click the 'Ok' button
Back in Edit mode, I set the timeline to movie mode and all tracks except the one with the image is disabled with the little red X.
It also happens with a JPG and nothing else in the timeline. Can someone verify this? Could there be a useful purpose for this that I am missing, or just a bug?
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CORNBLOSSOM