diff --git a/app/models/file_set.rb b/app/models/file_set.rb
index 81cf5a78..d9f09eb9 100644
--- a/app/models/file_set.rb
+++ b/app/models/file_set.rb
@@ -16,6 +16,10 @@
 # ---  END LICENSE_HEADER BLOCK  ---
 
 # Generated by hyrax:models:install
+
+# Require this here in order to load the derivative service which will prepend it to the list of available services
+require 'avalon_derivative_service'
+
 class FileSet < ActiveFedora::Base
   include ::Hyrax::FileSetBehavior
   include Hyrax::ActiveEncode::FileSetBehavior
diff --git a/app/services/avalon_derivative_service.rb b/app/services/avalon_derivative_service.rb
new file mode 100644
index 00000000..e2e76981
--- /dev/null
+++ b/app/services/avalon_derivative_service.rb
@@ -0,0 +1,24 @@
+class AvalonDerivativeService < Hyrax::ActiveEncode::ActiveEncodeDerivativeService
+  # HACK: Prepend this derivative service
+  Hyrax::DerivativeService.services = [AvalonDerivativeService] + Hyrax::DerivativeService.services
+
+  def create_derivatives(filename)
+    super
+    # Create thumbnails and posters outside of ActiveEncode for now.
+    # Hydra-derivatives's video runner/processor don't have a way to
+    # set the size of image derivatives so thumbnail and poster are both the same size for now.
+    Hydra::Derivatives::VideoDerivatives.create(filename, outputs: [{ label: :thumbnail, format: 'jpg', url: derivative_url('thumbnail') },
+                                                                    { label: :poster, format: 'jpg', url: derivative_url('poster') }])
+  end
+
+  # The destination_name parameter has to match up with the file parameter
+  # passed to the DownloadsController
+  def derivative_url(destination_name)
+    if destination_name.to_s == 'thumbnail' || destination_name.to_s == 'poster'
+      path = Hyrax::DerivativePath.derivative_path_for_reference(file_set, destination_name)
+      URI("file://#{path}").to_s
+    else
+      super
+    end
+  end
+end
diff --git a/spec/services/avalon_derivative_service_spec.rb b/spec/services/avalon_derivative_service_spec.rb
new file mode 100644
index 00000000..17d121f3
--- /dev/null
+++ b/spec/services/avalon_derivative_service_spec.rb
@@ -0,0 +1,180 @@
+# Copyright 2011-2018, The Trustees of Indiana University and Northwestern
+# University. Additional copyright may be held by others, as reflected in
+# the commit history.
+#
+# Licensed under the Apache License, Version 2.0 (the "License");
+# you may not use this file except in compliance with the License.
+# You may obtain a copy of the License at
+#
+#    http://www.apache.org/licenses/LICENSE-2.0
+#
+# Unless required by applicable law or agreed to in writing, software
+# distributed under the License is distributed on an "AS IS" BASIS,
+# WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+# See the License for the specific language governing permissions and
+# limitations under the License.
+# ---  END LICENSE_HEADER BLOCK  ---
+
+require 'rails_helper'
+require 'hyrax/specs/shared_specs'
+
+RSpec.describe AvalonDerivativeService, clean_repo: true do
+  before(:all) do
+    class CustomOptionService
+      def self.call(_file_set)
+        [{ foo: 'bar' }]
+      end
+    end
+  end
+
+  after(:all) do
+    Object.send(:remove_const, :CustomOptionService)
+  end
+
+  let(:valid_file_set) { FileSet.new }
+  let(:valid_mime) { service.send(:supported_mime_types).sample }
+
+  before do
+    allow(valid_file_set).to receive(:mime_type).and_return(valid_mime)
+  end
+
+  let(:file_set) { FileSet.create }
+  let(:encode_class) { ::ActiveEncode::Base }
+  let(:options_service_class) { Hyrax::ActiveEncode::DefaultOptionService }
+  let(:service) { described_class.new(file_set, encode_class: encode_class, options_service_class: options_service_class) }
+
+  it_behaves_like "a Hyrax::DerivativeService"
+
+  describe '#valid?' do
+    subject { service.valid? }
+
+    context 'all supported mime types' do
+      let(:supported_mime_types) { service.send(:supported_mime_types) }
+
+      it 'supports expected mime types' do
+        supported_mime_types.each do |mime|
+          file_set = FileSet.new
+          allow(file_set).to receive(:mime_type).and_return(mime)
+          expect(described_class.new(file_set).valid?).to be true
+        end
+      end
+    end
+
+    context 'with video original file' do
+      before do
+        allow(file_set).to receive(:mime_type).and_return('video/mp4')
+      end
+
+      it { is_expected.to be true }
+    end
+
+    context 'with audio original file' do
+      before do
+        allow(file_set).to receive(:mime_type).and_return('audio/wav')
+      end
+
+      it { is_expected.to be true }
+    end
+
+    context 'with non-AV original file' do
+      before do
+        allow(file_set).to receive(:mime_type).and_return('application/pdf')
+      end
+
+      it { is_expected.to be false }
+    end
+  end
+
+  describe '#create_derivatives' do
+    let(:options) { options_service_class.call(file_set) }
+    let(:outputs) { options.map { |o| o.merge(internal_options) } }
+    let(:derivative_url) { service.send(:derivative_url, 'high') }
+
+    before do
+      allow(Hydra::Derivatives::VideoDerivatives).to receive(:create)
+    end
+
+    context 'with local streaming' do
+      let(:internal_options) { { file_set_id: file_set.id, local_streaming: true } }
+
+      it 'calls the ActiveEncode runner with the original file, passing the encode class and the provided output options' do
+        allow(Hydra::Derivatives::ActiveEncodeDerivatives).to receive(:create).with("sample.mp4", encode_class: encode_class, outputs: outputs)
+        service.create_derivatives("sample.mp4")
+        expect(Hydra::Derivatives::ActiveEncodeDerivatives).to have_received(:create).with("sample.mp4", encode_class: encode_class, outputs: outputs)
+      end
+
+      context 'with custom options service class' do
+        let(:options_service_class) { CustomOptionService }
+
+        it 'calls the ActiveEncode runner with the original file, passing the encode class and the provided output options' do
+          allow(Hydra::Derivatives::ActiveEncodeDerivatives).to receive(:create).with("sample.mp4", encode_class: encode_class, outputs: outputs)
+          service.create_derivatives("sample.mp4")
+          expect(Hydra::Derivatives::ActiveEncodeDerivatives).to have_received(:create).with("sample.mp4", encode_class: encode_class, outputs: outputs)
+        end
+      end
+    end
+
+    context 'with external streaming' do
+      let(:service) { described_class.new(file_set, encode_class: encode_class, options_service_class: options_service_class, local_streaming: false) }
+      let(:internal_options) { { file_set_id: file_set.id } }
+
+      it 'calls the ActiveEncode runner with the original file, passing the encode class and the provided output options' do
+        allow(Hydra::Derivatives::ActiveEncodeDerivatives).to receive(:create).with("sample.mp4", encode_class: encode_class, outputs: outputs)
+        service.create_derivatives("sample.mp4")
+        expect(Hydra::Derivatives::ActiveEncodeDerivatives).to have_received(:create).with("sample.mp4", encode_class: encode_class, outputs: outputs)
+      end
+    end
+
+    context 'image derivatives' do
+      let(:outputs) do
+        [{ label: :thumbnail, format: 'jpg', url: service.derivative_url('thumbnail') },
+         { label: :poster, format: 'jpg', url: service.derivative_url('poster') }]
+      end
+
+      it 'calls Hydra-Derivatives to create thumbnail and poster' do
+        allow(Hydra::Derivatives::VideoDerivatives).to receive(:create).with("sample.mp4", outputs: outputs)
+        service.create_derivatives("sample.mp4")
+        expect(Hydra::Derivatives::VideoDerivatives).to have_received(:create).with("sample.mp4", outputs: outputs)
+      end
+    end
+  end
+
+  # describe '#cleanup_derivatives' do
+  # end
+
+  describe '#derivative_url' do
+    let(:file_set) { FileSet.create }
+    let(:external_uri) { "http://test.file" }
+    let(:derivative) do
+      file_set.build_derivative.tap do |d|
+        d.label = 'high'
+        d.file_location_uri = external_uri
+      end
+    end
+
+    before do
+      derivative
+    end
+
+    it 'returns the external uri' do
+      expect(service.derivative_url('high')).to eq external_uri
+    end
+
+    it 'returns nil if no matching derivative' do
+      expect(service.derivative_url('missing')).to be_nil
+    end
+
+    context 'with thumbnail' do
+      it 'returns the tmp filesystem path' do
+        expect(service.derivative_url('thumbnail')).to match(/^file:.*-thumbnail.jpeg$/)
+      end
+    end
+
+    context 'with poster' do
+      it 'returns the tmp filesystem path' do
+        # EWWW poster.poster!?!
+        expect(service.derivative_url('poster')).to match(/^file:.*-poster.poster$/)
+      end
+    end
+  end
+end