server doesnt have enough power to transcode video.

When trying to run high bitrate movies I get the error saying computer isn’t powerful enough to transcode. I run of local HDD and still get same error.

I have direct play on.
CPU i7 3930k (6core)
16GB RAM

Is there any other settings I can try to eliminate this problem? Also Playing through windows media player is fine.

Convert the media to a direct play format so your server dont have to transcode.

What client are you playing to?

Generally, you can assure direct play if your media is mp4, h264 with AAC audio(AAC stereo for apple TV)

Quite curious as to why you get that error though.
I run my server on a old Phenom II x6 1090t, which is quite a lot weaker than your 3930k.
Though I guess it depends a bit on how high the bitrate is. My machine has no issue with movies up to 20mbps in bitrate.
So the question is, how high is it?

Also have you tried changing transcoder settings to faster rather than quality?