If I have a single 2Mbps MKV with the following specs (see below), then Plex will Direct Stream the Audio/Video and Convert from MKV to MP4 with the default 2Mbps Quality Profile (See Image01 below).
If I have the same 2Mbps MKV and an additional version (typically higher quality), then Plex will select the same 2Mbps MKV (because of the same 2Mbps Quality Profile) but Transcode the Audio/Video instead of Direct Stream (See Image02 below).
It will do this any time there is a version that exceeds the current Quality Profile. So if I have a 12Mbps file, an 8Mbps MKV that can Direct Stream on its own, and an 8Mbps Streaming Limit set, then it will Transcode the 8Mbps file. If the 12Mbps file is removed then it will Direct Stream again.
My expectation would be that if Plex can Direct Stream a file when there is one version, that it should also be able to Direct Stream when there are multiple versions.
The only workaround I’ve found is to convert the MKV to MP4 so the Plex Web client can Direct Play to clients (see Image03 below).
Image01:

Image02:

Image03:

Specs of 2Mbps MKV that only Direct Streams when there’s a single version, but not when there are multiple versions:
General
Format : Matroska
Format version : Version 4
File size : 1.84 GiB
Duration : 2 h 12 min
Overall bit rate : 1 986 kb/s
Writing application : mkvmerge v74.0.0 ('You Oughta Know') 64-bit
Writing library : libebml v1.4.4 + libmatroska v1.7.1
Video
ID : 1
Format : HEVC
Format/Info : High Efficiency Video Coding
Format profile : Main@L3.1@Main
Codec ID : V_MPEGH/ISO/HEVC
Duration : 2 h 12 min
Bit rate : 1 918 kb/s
Width : 1 280 pixels
Height : 720 pixels
Display aspect ratio : 2.40:1
Original display aspect ratio : 2.40:1
Frame rate mode : Constant
Frame rate : 23.976 (24000/1001) FPS
Color space : YUV
Chroma subsampling : 4:2:0 (Type 0)
Bit depth : 8 bits
Bits/(Pixel*Frame) : 0.087
Stream size : 1.78 GiB (97%)
Language : English
Default : Yes
Forced : No
Color range : Limited
Color primaries : BT.709
Transfer characteristics : BT.709
Matrix coefficients : BT.709
Audio
ID : 2
Format : AAC LC SBR
Format/Info : Advanced Audio Codec Low Complexity with Spectral Band Replication
Commercial name : HE-AAC
Format settings : Explicit
Codec ID : A_AAC-2
Duration : 2 h 12 min
Bit rate : 66.2 kb/s
Channel(s) : 2 channels
Channel layout : L R
Sampling rate : 48.0 kHz
Frame rate : 23.438 FPS (2048 SPF)
Compression mode : Lossy
Delay relative to video : 40 ms
Stream size : 62.4 MiB (3%)
Language : English
Default : Yes
Forced : No
Text
ID : 3
Format : UTF-8
Codec ID : S_TEXT/UTF8
Codec ID/Info : UTF-8 Plain Text
Duration : 2 h 3 min
Bit rate : 80 b/s
Frame rate : 0.245 FPS
Count of elements : 1820
Stream size : 72.8 KiB (0%)
Language : English
Default : No
Forced : No
Specs of the 2Mbps MP4 that Direct Plays regardless of how many versions there are:
General
Format : MPEG-4
Format profile : Base Media
Codec ID : isom (isom/iso2/mp41)
File size : 1.85 GiB
Duration : 2 h 12 min
Overall bit rate mode : Variable
Overall bit rate : 1 994 kb/s
Writing application : Lavf59.27.100
Video
ID : 1
Format : HEVC
Format/Info : High Efficiency Video Coding
Format profile : Main@L3.1@Main
Codec ID : hev1
Codec ID/Info : High Efficiency Video Coding
Duration : 2 h 12 min
Bit rate : 1 918 kb/s
Width : 1 280 pixels
Height : 720 pixels
Display aspect ratio : 2.40:1
Original display aspect ratio : 2.40:1
Frame rate mode : Constant
Frame rate : 23.976 (24000/1001) FPS
Color space : YUV
Chroma subsampling : 4:2:0 (Type 0)
Bit depth : 8 bits
Bits/(Pixel*Frame) : 0.087
Stream size : 1.78 GiB (96%)
Writing library : x265 3.5+1-f0c1022b6:[Windows][GCC 10.2.0][64 bit] 8bit+10bit+12bit
Encoding settings : cpuid=1111039 / frame-threads=4 / numa-pools=24 / wpp / no-pmode / no-pme / no-psnr / no-ssim / log-level=2 / input-csp=1 / input-res=1280x720 / interlace=0 / total-frames=0 / level-idc=0 / high-tier=1 / uhd-bd=0 / ref=5 / no-allow-non-conformance / no-repeat-headers / annexb / no-aud / no-eob / no-eos / no-hrd / info / hash=0 / no-temporal-layers / open-gop / min-keyint=24 / keyint=240 / gop-lookahead=0 / bframes=8 / b-adapt=2 / b-pyramid / bframe-bias=0 / rc-lookahead=40 / lookahead-slices=0 / scenecut=40 / no-hist-scenecut / radl=0 / no-splice / no-intra-refresh / ctu=32 / min-cu-size=8 / rect / amp / max-tu-size=32 / tu-inter-depth=3 / tu-intra-depth=3 / limit-tu=4 / rdoq-level=2 / dynamic-rd=0.00 / no-ssim-rd / signhide / no-tskip / nr-intra=100 / nr-inter=0 / no-constrained-intra / strong-intra-smoothing / max-merge=4 / limit-refs=1 / limit-modes / me=3 / subme=4 / merange=57 / temporal-mvp / no-frame-dup / no-hme / weightp / weightb / no-analyze-src-pics / deblock=0:0 / sao / no-sao-non-deblock / rd=4 / selective-sao=2 / no-early-skip / no-rskip / no-fast-intra / no-tskip-fast / no-cu-lossless / b-intra / no-splitrd-skip / rdpenalty=0 / psy-rd=4.00 / psy-rdoq=5.00 / no-rd-refine / no-lossless / cbqpoffs=0 / crqpoffs=0 / rc=abr / bitrate=1918 / qcomp=0.60 / qpstep=1 / stats-write=0 / stats-read=2 / cplxblur=20.0 / qblur=0.5 / ipratio=1.20 / pbratio=1.10 / aq-mode=1 / aq-strength=0.50 / no-cutree / zone-count=0 / no-strict-cbr / qg-size=32 / no-rc-grain / qpmax=69 / qpmin=0 / no-const-vbv / sar=255 / sar-width / : / sar-height=1080:803 / overscan=0 / videoformat=5 / range=0 / colorprim=1 / transfer=1 / colormatrix=1 / chromaloc=1 / chromaloc-top=0 / chromaloc-bottom=0 / display-window=0 / cll=0,0 / min-luma=0 / max-luma=255 / log2-max-poc-lsb=8 / vui-timing-info / vui-hrd-info / slices=1 / no-opt-qp-pps / no-opt-ref-list-length-pps / no-multi-pass-opt-rps / scenecut-bias=0.05 / no-opt-cu-delta-qp / no-aq-motion / no-sbrc / no-hdr10 / no-hdr10-opt / no-dhdr10-opt / no-idr-recovery-sei / analysis-reuse-level=0 / analysis-save-reuse-level=0 / analysis-load-reuse-level=0 / scale-factor=0 / refine-intra=0 / refine-inter=0 / refine-mv=1 / refine-ctu-distortion=0 / no-limit-sao / ctu-info=0 / no-lowpass-dct / refine-analysis-type=0 / copy-pic=1 / max-ausize-factor=1.0 / no-dynamic-refine / no-single-sei / no-hevc-aq / no-svt / no-field / qp-adaptation-range=1.00 / scenecut-aware-qp=0conformance-window-offsets / right=0 / bottom=0 / decoder-max-rate=0 / no-vbv-live-multi-pass / no-mcstf
Language : English
Color range : Limited
Color primaries : BT.709
Transfer characteristics : BT.709
Matrix coefficients : BT.709
mdhd_Duration : 7953612
Codec configuration box : hvcC
Audio
ID : 2
Format : AAC LC SBR
Format/Info : Advanced Audio Codec Low Complexity with Spectral Band Replication
Commercial name : HE-AAC
Format settings : Explicit
Codec ID : mp4a-40-2
Duration : 2 h 12 min
Bit rate mode : Variable
Bit rate : 66.2 kb/s
Maximum bit rate : 130 kb/s / 65.8 kb/s
Channel(s) : 2 channels
Channel layout : L R
Sampling rate : 48.0 kHz
Frame rate : 23.438 FPS (2048 SPF)
Compression mode : Lossy
Stream size : 62.4 MiB (3%)
Language : English
Default : Yes
Alternate group : 1
Text
ID : 3
Format : Timed Text
Muxing mode : sbtl
Codec ID : tx3g
Duration : 2 h 4 min
Bit rate mode : Variable
Bit rate : 95 b/s
Frame rate : 0.487 FPS
Stream size : 86.4 KiB (0%)
Language : English
Forced : No
Here’s an example of what I see when there’s just a single version in Plex:

Here’s an example of what I see when there are multiple versions in Plex:
Server Version#: 1.31.0.6654
Player Version#: 4.101.1
