Sweet, I didn't realize that. Sadly, the result flashes on and off and is essentially unusable for me (either in xterm or a TTY on Slackware64 14.0). I can tell it's working, though.
This also seems to work over ssh, though, which is cool.
I can confirm it works fine at a raw terminal, even on Linux TTY. You might have to unset DISPLAY as recommended in the other comment.
One big tip for that mode of mplayer, use the 'd' key to switch dithering modes. Keep switching until you get to Floyd-Steinberg for the best quality (IMHO).
Interesting - I just made something exactly like this (screenshot looks exactly the same): https://github.com/billyeh/termchat! I even had to publish a Node package to do it (pixelr).
Except it's got a chat function with other users as well :)
Please add encryption (on by default), sound, and hook this up to PGP so that it can be skype for hackers (and I don't mean just crackers, I mean in the most general sense)
Just in case it wasn't clear - I think this is awesome.
Hack it up with existing software. Shunt the output across the network with ssh, perhaps into a shared tmux session. That takes care of text chat too. (Of course libcaca kills the tmux session, so you might have to drop the frame-rate or keep the tmux panes small).
If you want to keep it hacky and horrible, have each side also set up pulseaudio and use it's networking capabilities over ssh to make each others computers the sink for your microphones. Or use existing proper VoIP software, if you want to be practical and boring.
If you want to get full performance, use xterm, gnome-terminal and others are very slow. Colorful one uses only 6^3 colors but it looks nice:
https://raw.githubusercontent.com/mustafaakin/terminal-webca...
(It is currently night here mywebcam sucks on night)
YouTube did something like this a few years ago for April Fools. I think on a modern Retina-level display it would look even more impressive due to the higher resolution and smaller character-pixels.