is it truly a security issue here? Especially relative to the machine's effort to encrypt the stream.

Debatable, but historically quite a few consoles and handhelds have been popped wide open by leveraging defects or vulnerabilities in how media is handled. Without looking at an exhaustive list, I believe tif files have claimed the most victims with the next two being split between videos and then media within browsers. I'm aware this is more about out than in, but a gap is a gap and gamers will use whatever they can find.

My video stream sent to a public streaming audience might be seen by the public in transit!