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I don't have any specific knowledge of Apple's actual implementation, but I've always assumed it used the full-resolution still image as a keyframe (I-frame), and the video clip as B-frames before and afterwards, compensating for changes over time. Choosing a new key photo may be full resolution, but is likely to be degraded in sub-perceptual ways.

It does pull multiple full frames off the sensor in rapid exposure tho, and chooses whichever one it thinks best (blur, ML, whatever) for the initial key photo.

I think there's a (totally normal and full-res) photo and separate video, if you look at the actual files. I don't know how that works with the ability to choose a different still.

They were 1080p/24, last time I checked when I was adding support for them for PhotoStructure.

Picking a different frame doesn't impact visual quality on a mobile screen, but it was quite a noticeable IQ drop on a 4k/5k display.

Things might be different on newer iPhones and the latest iOS.

On my iPhone 7 Pro, yeah, they're much lower-res. Might be different on newer phones, I don't know.