diff --git a/packager/app/test/packager_test.py b/packager/app/test/packager_test.py
index cedf1944b7..dff004229e 100755
--- a/packager/app/test/packager_test.py
+++ b/packager/app/test/packager_test.py
@@ -23,7 +23,7 @@ class PackagerAppTest(unittest.TestCase):
   def setUp(self):
     self.packager = packager_app.PackagerApp()
     self.input = os.path.join(
-        test_env.SRC_DIR, 'media', 'test', 'data', 'bear-1280x720.mp4')
+        test_env.SRC_DIR, 'packager', 'media', 'test', 'data', 'bear-1280x720.mp4')
     self.tmpdir = tempfile.mkdtemp()
     fd, self.output = tempfile.mkstemp(dir=self.tmpdir)
     os.close(fd)
diff --git a/packager/app/test/test_env.py b/packager/app/test/test_env.py
index 84c537f7b4..21a1b58fd6 100644
--- a/packager/app/test/test_env.py
+++ b/packager/app/test/test_env.py
@@ -20,7 +20,7 @@ import sys
 
 
 # Define static global objects and attributes.
-SRC_DIR = os.path.join(os.path.dirname(os.path.realpath(__file__)), '../..')
+SRC_DIR = os.path.join(os.path.dirname(os.path.realpath(__file__)), '../../..')
 
 
 # Parse arguments and calculate dynamic global objects and attributes.
diff --git a/packager/media/base/aes_encryptor.cc b/packager/media/base/aes_encryptor.cc
index c7e096ef09..564ad3e36d 100644
--- a/packager/media/base/aes_encryptor.cc
+++ b/packager/media/base/aes_encryptor.cc
@@ -337,7 +337,7 @@ void AesCbcCtsEncryptor::Encrypt(const std::vector<uint8_t>& plaintext,
   if (plaintext.empty())
     return;
 
-  return Encrypt(plaintext.data(), plaintext.size(), &(*ciphertext)[0]);
+  Encrypt(plaintext.data(), plaintext.size(), &(*ciphertext)[0]);
 }
 
 bool AesCbcCtsEncryptor::SetIv(const std::vector<uint8_t>& iv) {
@@ -461,7 +461,7 @@ void AesCbcCtsDecryptor::Decrypt(const std::vector<uint8_t>& ciphertext,
   if (ciphertext.empty())
     return;
 
-  return Decrypt(ciphertext.data(), ciphertext.size(), &(*plaintext)[0]);
+  Decrypt(ciphertext.data(), ciphertext.size(), &(*plaintext)[0]);
 }
 
 bool AesCbcCtsDecryptor::SetIv(const std::vector<uint8_t>& iv) {
diff --git a/packager/media/base/demuxer.cc b/packager/media/base/demuxer.cc
index 0d73dee2b5..85d60a4856 100644
--- a/packager/media/base/demuxer.cc
+++ b/packager/media/base/demuxer.cc
@@ -21,6 +21,8 @@
 #include "packager/media/formats/wvm/wvm_media_parser.h"
 
 namespace {
+const size_t kInitBufSize = 0x4000;  // 16KB, sufficient to determine the
+                                     // container and likely all init data.
 const size_t kBufSize = 0x40000;  // 256KB.
 }
 
@@ -55,7 +57,7 @@ Status Demuxer::Initialize() {
   }
 
   // Determine media container.
-  int64_t bytes_read = media_file_->Read(buffer_.get(), kBufSize);
+  int64_t bytes_read = media_file_->Read(buffer_.get(), kInitBufSize);
   if (bytes_read <= 0)
     return Status(error::FILE_FAILURE, "Cannot read file " + file_name_);
   MediaContainerName container = DetermineContainer(buffer_.get(), bytes_read);
@@ -80,16 +82,16 @@ Status Demuxer::Initialize() {
                 base::Bind(&Demuxer::NewSampleEvent, base::Unretained(this)),
                 key_source_.get());
 
-  if (!parser_->Parse(buffer_.get(), bytes_read))
-    return Status(error::PARSER_FAILURE,
-                  "Cannot parse media file " + file_name_);
-
-  Status status;
-  while (!init_event_received_) {
-    if (!(status = Parse()).ok())
-      break;
+  if (!parser_->Parse(buffer_.get(), bytes_read)) {
+    init_parsing_status_ =
+        Status(error::PARSER_FAILURE, "Cannot parse media file " + file_name_);
   }
-  return status;
+
+  // Parse until init event received or on error.
+  while (!init_event_received_ && init_parsing_status_.ok())
+    init_parsing_status_ = Parse();
+  // Defer error reporting if init completed successfully.
+  return init_event_received_ ? Status::OK : init_parsing_status_;
 }
 
 void Demuxer::ParserInitEvent(
@@ -147,6 +149,11 @@ Status Demuxer::Parse() {
   DCHECK(parser_);
   DCHECK(buffer_);
 
+  // Return early and avoid call Parse(...) again if it has already failed at
+  // the initialization.
+  if (!init_parsing_status_.ok())
+    return init_parsing_status_;
+
   int64_t bytes_read = media_file_->Read(buffer_.get(), kBufSize);
   if (bytes_read <= 0) {
     if (media_file_->Eof()) {
diff --git a/packager/media/base/demuxer.h b/packager/media/base/demuxer.h
index 3e51cd992c..4315d5c26e 100644
--- a/packager/media/base/demuxer.h
+++ b/packager/media/base/demuxer.h
@@ -70,6 +70,7 @@ class Demuxer {
   std::string file_name_;
   File* media_file_;
   bool init_event_received_;
+  Status init_parsing_status_;
   scoped_ptr<MediaParser> parser_;
   std::vector<MediaStream*> streams_;
   scoped_ptr<uint8_t[]> buffer_;
diff --git a/packager/media/formats/mp4/mp4_media_parser.cc b/packager/media/formats/mp4/mp4_media_parser.cc
index 395a3eac44..f48990f38d 100644
--- a/packager/media/formats/mp4/mp4_media_parser.cc
+++ b/packager/media/formats/mp4/mp4_media_parser.cc
@@ -332,10 +332,9 @@ bool MP4MediaParser::FetchKeysIfNecessary(
   if (headers.empty())
     return true;
 
-  if (!decryption_key_source_) {
-    LOG(ERROR) << "Content is encrypted, but content decryption not enabled.";
-    return false;
-  }
+  // An error will be returned later if the samples need to be decrypted.
+  if (!decryption_key_source_)
+    return true;
 
   // TODO(tinskip): Pass in raw 'pssh' boxes to FetchKeys. This will allow
   // supporting multiple keysystems. Move this to KeySource.
@@ -408,14 +407,14 @@ bool MP4MediaParser::EnqueueSample(bool* err) {
       buf, runs_->sample_size(), runs_->is_keyframe()));
   if (runs_->is_encrypted()) {
     scoped_ptr<DecryptConfig> decrypt_config = runs_->GetDecryptConfig();
-    if (!decrypt_config) {
+    if (!decrypt_config ||
+        !DecryptSampleBuffer(decrypt_config.get(),
+                             stream_sample->writable_data(),
+                             stream_sample->data_size())) {
       *err = true;
+      LOG(ERROR) << "Cannot decrypt samples.";
       return false;
     }
-    if (!DecryptSampleBuffer(decrypt_config.get(),
-                             stream_sample->writable_data(),
-                             stream_sample->data_size()))
-      return false;
   }
 
   stream_sample->set_dts(runs_->dts());
diff --git a/packager/media/formats/mp4/mp4_media_parser_unittest.cc b/packager/media/formats/mp4/mp4_media_parser_unittest.cc
index c2b8954135..2859f4a7a7 100644
--- a/packager/media/formats/mp4/mp4_media_parser_unittest.cc
+++ b/packager/media/formats/mp4/mp4_media_parser_unittest.cc
@@ -4,27 +4,46 @@
 // license that can be found in the LICENSE file or at
 // https://developers.google.com/open-source/licenses/bsd
 
+#include <gmock/gmock.h>
 #include <gtest/gtest.h>
 
 #include "packager/base/bind.h"
 #include "packager/base/logging.h"
+#include "packager/media/base/key_source.h"
 #include "packager/media/base/media_sample.h"
+#include "packager/media/base/stream_info.h"
 #include "packager/media/formats/mp4/mp4_media_parser.h"
 #include "packager/media/test/test_data_util.h"
 
+using ::testing::_;
+using ::testing::DoAll;
+using ::testing::Return;
+using ::testing::SetArgPointee;
+
 namespace edash_packager {
 namespace media {
+
+namespace {
+class MockKeySource : public KeySource {
+ public:
+  MOCK_METHOD1(FetchKeys, Status(const std::vector<uint8_t>& pssh_data));
+  MOCK_METHOD2(GetKey,
+               Status(const std::vector<uint8_t>& key_id, EncryptionKey* key));
+};
+}  // namespace
+
 namespace mp4 {
 
 class MP4MediaParserTest : public testing::Test {
  public:
-  MP4MediaParserTest() : configs_received_(false) {
+  MP4MediaParserTest() : num_streams_(0), num_samples_(0) {
     parser_.reset(new MP4MediaParser());
   }
 
  protected:
   scoped_ptr<MP4MediaParser> parser_;
-  bool configs_received_;
+  size_t num_streams_;
+  size_t num_samples_;
 
   bool AppendData(const uint8_t* data, size_t length) {
     return parser_->Parse(data, length);
@@ -46,76 +65,92 @@ class MP4MediaParserTest : public testing::Test {
   }
 
   void InitF(const std::vector<scoped_refptr<StreamInfo> >& streams) {
-    if (streams.size() > 0)
-      configs_received_ = true;
+    for (std::vector<scoped_refptr<StreamInfo> >::const_iterator iter =
+             streams.begin();
+         iter != streams.end();
+         ++iter) {
+      DVLOG(2) << (*iter)->ToString();
+    }
+    num_streams_ = streams.size();
+    num_samples_ = 0;
   }
 
   bool NewSampleF(uint32_t track_id, const scoped_refptr<MediaSample>& sample) {
     DVLOG(2) << "Track Id: " << track_id << " "
              << sample->ToString();
+    ++num_samples_;
     return true;
   }
 
-  void InitializeParser() {
+  void InitializeParser(KeySource* decryption_key_source) {
     parser_->Init(
         base::Bind(&MP4MediaParserTest::InitF, base::Unretained(this)),
         base::Bind(&MP4MediaParserTest::NewSampleF, base::Unretained(this)),
-        NULL);
+        decryption_key_source);
   }
 
   bool ParseMP4File(const std::string& filename, int append_bytes) {
-    InitializeParser();
+    InitializeParser(NULL);
 
     std::vector<uint8_t> buffer = ReadTestDataFile(filename);
-    EXPECT_TRUE(AppendDataInPieces(buffer.data(),
-                                   buffer.size(),
-                                   append_bytes));
-    return true;
+    return AppendDataInPieces(buffer.data(), buffer.size(), append_bytes);
   }
 };
 
 TEST_F(MP4MediaParserTest, UnalignedAppend) {
   // Test small, non-segment-aligned appends (small enough to exercise
   // incremental append system)
-  ParseMP4File("bear-1280x720-av_frag.mp4", 512);
+  EXPECT_TRUE(ParseMP4File("bear-1280x720-av_frag.mp4", 512));
+  EXPECT_EQ(2u, num_streams_);
+  EXPECT_EQ(201u, num_samples_);
 }
 
 TEST_F(MP4MediaParserTest, BytewiseAppend) {
   // Ensure no incremental errors occur when parsing
-  ParseMP4File("bear-1280x720-av_frag.mp4", 1);
+  EXPECT_TRUE(ParseMP4File("bear-1280x720-av_frag.mp4", 1));
+  EXPECT_EQ(2u, num_streams_);
+  EXPECT_EQ(201u, num_samples_);
 }
 
 TEST_F(MP4MediaParserTest, MultiFragmentAppend) {
   // Large size ensures multiple fragments are appended in one call (size is
   // larger than this particular test file)
-  ParseMP4File("bear-1280x720-av_frag.mp4", 768432);
+  EXPECT_TRUE(ParseMP4File("bear-1280x720-av_frag.mp4", 768432));
+  EXPECT_EQ(2u, num_streams_);
+  EXPECT_EQ(201u, num_samples_);
 }
 
 TEST_F(MP4MediaParserTest, Flush) {
   // Flush while reading sample data, then start a new stream.
-  InitializeParser();
+  InitializeParser(NULL);
 
   std::vector<uint8_t> buffer = ReadTestDataFile("bear-1280x720-av_frag.mp4");
   EXPECT_TRUE(AppendDataInPieces(buffer.data(), 65536, 512));
   parser_->Flush();
   EXPECT_TRUE(AppendDataInPieces(buffer.data(), buffer.size(), 512));
+  EXPECT_EQ(2u, num_streams_);
+  EXPECT_EQ(201u, num_samples_);
 }
 
 TEST_F(MP4MediaParserTest, Reinitialization) {
-  InitializeParser();
+  InitializeParser(NULL);
 
   std::vector<uint8_t> buffer = ReadTestDataFile("bear-1280x720-av_frag.mp4");
   EXPECT_TRUE(AppendDataInPieces(buffer.data(), buffer.size(), 512));
   EXPECT_TRUE(AppendDataInPieces(buffer.data(), buffer.size(), 512));
+  EXPECT_EQ(2u, num_streams_);
+  EXPECT_EQ(201u, num_samples_);
 }
 
 TEST_F(MP4MediaParserTest, MPEG2_AAC_LC) {
-  ParseMP4File("bear-mpeg2-aac-only_frag.mp4", 512);
+  EXPECT_TRUE(ParseMP4File("bear-mpeg2-aac-only_frag.mp4", 512));
+  EXPECT_EQ(1u, num_streams_);
+  EXPECT_EQ(119u, num_samples_);
 }
 
 // Test that a moov box is not always required after Flush() is called.
 TEST_F(MP4MediaParserTest, NoMoovAfterFlush) {
-  InitializeParser();
+  InitializeParser(NULL);
 
   std::vector<uint8_t> buffer = ReadTestDataFile("bear-1280x720-av_frag.mp4");
   EXPECT_TRUE(AppendDataInPieces(buffer.data(), buffer.size(), 512));
@@ -127,7 +162,48 @@ TEST_F(MP4MediaParserTest, NoMoovAfterFlush) {
 }
 
 TEST_F(MP4MediaParserTest, NON_FRAGMENTED_MP4) {
-  ParseMP4File("bear-1280x720.mp4", 512);
+  EXPECT_TRUE(ParseMP4File("bear-1280x720.mp4", 512));
+  EXPECT_EQ(2u, num_streams_);
+  EXPECT_EQ(201u, num_samples_);
+}
+
+TEST_F(MP4MediaParserTest, CencWithoutDecryptionSource) {
+  // Parsing should fail but it will get the streams successfully.
+  EXPECT_FALSE(ParseMP4File("bear-1280x720-v_frag-cenc.mp4", 512));
+  EXPECT_EQ(1u, num_streams_);
+}
+
+TEST_F(MP4MediaParserTest, CencInitWithoutDecryptionSource) {
+  InitializeParser(NULL);
+
+  std::vector<uint8_t> buffer =
+      ReadTestDataFile("bear-1280x720-v_frag-cenc.mp4");
+  const int kFirstMoofOffset = 1646;
+  EXPECT_TRUE(AppendDataInPieces(buffer.data(), kFirstMoofOffset, 512));
+  EXPECT_EQ(1u, num_streams_);
+}
+
+TEST_F(MP4MediaParserTest, CencWithDecryptionSource) {
+  MockKeySource mock_key_source;
+  EXPECT_CALL(mock_key_source, FetchKeys(_)).WillOnce(Return(Status::OK));
+
+  const char kKey[] =
+      "\xeb\xdd\x62\xf1\x68\x14\xd2\x7b\x68\xef\x12\x2a\xfc\xe4\xae\x3c";
+  const char kKeyId[] = "0123456789012345";
+
+  EncryptionKey encryption_key;
+  encryption_key.key.assign(kKey, kKey + strlen(kKey));
+  EXPECT_CALL(mock_key_source,
+              GetKey(std::vector<uint8_t>(kKeyId, kKeyId + strlen(kKeyId)), _))
+      .WillOnce(DoAll(SetArgPointee<1>(encryption_key), Return(Status::OK)));
+
+  InitializeParser(&mock_key_source);
+
+  std::vector<uint8_t> buffer =
+      ReadTestDataFile("bear-1280x720-v_frag-cenc.mp4");
+  EXPECT_TRUE(AppendDataInPieces(buffer.data(), buffer.size(), 512));
+  EXPECT_EQ(1u, num_streams_);
+  EXPECT_EQ(82u, num_samples_);
 }
 
 }  // namespace mp4
diff --git a/packager/media/formats/wvm/wvm_media_parser.cc b/packager/media/formats/wvm/wvm_media_parser.cc
index 6e37dc1cdd..9f30e66106 100644
--- a/packager/media/formats/wvm/wvm_media_parser.cc
+++ b/packager/media/formats/wvm/wvm_media_parser.cc
@@ -9,6 +9,7 @@
 #include <vector>
 
 #include "packager/base/strings/string_number_conversions.h"
+#include "packager/media/base/aes_encryptor.h"
 #include "packager/media/base/audio_stream_info.h"
 #include "packager/media/base/key_source.h"
 #include "packager/media/base/media_sample.h"
@@ -749,7 +750,11 @@ void WvmMediaParser::StartMediaSampleDemux(uint8_t* read_ptr) {
 bool WvmMediaParser::Output() {
   // Check decrypted sample data.
   if (prev_pes_flags_1_ & kScramblingBitsMask) {
-    content_decryptor_.Decrypt(sample_data_, &sample_data_);
+    if (!content_decryptor_) {
+      LOG(ERROR) << "Source content is encrypted, but decryption not enabled";
+      return false;
+    }
+    content_decryptor_->Decrypt(sample_data_, &sample_data_);
   }
   if ((prev_pes_stream_id_ & kPesStreamIdVideoMask) == kPesStreamIdVideo) {
     // Set data on the video stream from the NalUnitStream.
@@ -911,10 +916,7 @@ void WvmMediaParser::EmitSample(uint32_t parsed_audio_or_video_stream_id,
 
 bool WvmMediaParser::GetAssetKey(const uint32_t asset_id,
                                  EncryptionKey* encryption_key) {
-  if (decryption_key_source_ == NULL) {
-    LOG(ERROR) << "Source content is encrypted, but decryption not enabled";
-    return false;
-  }
+  DCHECK(decryption_key_source_);
   Status status = decryption_key_source_->FetchKeys(asset_id);
   if (!status.ok()) {
     LOG(ERROR) << "Fetch Key(s) failed for AssetID = " << asset_id
@@ -934,6 +936,10 @@ bool WvmMediaParser::GetAssetKey(const uint32_t asset_id,
 }
 
 bool WvmMediaParser::ProcessEcm() {
+  // An error will be returned later if the samples need to be decrypted.
+  if (!decryption_key_source_)
+    return true;
+
   if (current_program_id_ > 0) {
     return true;
   }
@@ -959,26 +965,29 @@ bool WvmMediaParser::ProcessEcm() {
   }
   std::vector<uint8_t> iv(kInitializationVectorSizeBytes);
   AesCbcCtsDecryptor asset_decryptor;
-  asset_decryptor.InitializeWithIv(encryption_key.key, iv);
-
-  std::vector<uint8_t> content_key_buffer;  // flags + contentKey + padding.
-  content_key_buffer.resize(
-      kEcmFlagsSizeBytes + kEcmContentKeySizeBytes + kEcmPaddingSizeBytes);
-  // Get content key + padding from ECM.
-  memcpy(&content_key_buffer[0], ecm_data,
-         kEcmFlagsSizeBytes + kEcmContentKeySizeBytes + kEcmPaddingSizeBytes);
-  asset_decryptor.Decrypt(content_key_buffer, &content_key_buffer);
-  if (content_key_buffer.empty()) {
-    LOG(ERROR) << "Decryption of content key failed for asset id = "
-               << asset_id;
+  if (!asset_decryptor.InitializeWithIv(encryption_key.key, iv)) {
+    LOG(ERROR) << "Failed to initialize asset_decryptor.";
     return false;
   }
 
+  const size_t content_key_buffer_size =
+      kEcmFlagsSizeBytes + kEcmContentKeySizeBytes +
+      kEcmPaddingSizeBytes;  // flags + contentKey + padding.
+  std::vector<uint8_t> content_key_buffer(content_key_buffer_size);
+  asset_decryptor.Decrypt(
+      ecm_data, content_key_buffer_size, &content_key_buffer[0]);
+
   std::vector<uint8_t> decrypted_content_key_vec(
       content_key_buffer.begin() + 4,
       content_key_buffer.begin() + 20);
-  content_decryptor_.InitializeWithIv(decrypted_content_key_vec, iv);
-  return(true);
+  scoped_ptr<AesCbcCtsDecryptor> content_decryptor(new AesCbcCtsDecryptor);
+  if (!content_decryptor->InitializeWithIv(decrypted_content_key_vec, iv)) {
+    LOG(ERROR) << "Failed to initialize content decryptor.";
+    return false;
+  }
+
+  content_decryptor_ = content_decryptor.Pass();
+  return true;
 }
 
 DemuxStreamIdMediaSample::DemuxStreamIdMediaSample() :
diff --git a/packager/media/formats/wvm/wvm_media_parser.h b/packager/media/formats/wvm/wvm_media_parser.h
index 82f9214845..3ddb931f53 100644
--- a/packager/media/formats/wvm/wvm_media_parser.h
+++ b/packager/media/formats/wvm/wvm_media_parser.h
@@ -12,7 +12,6 @@
 #include <vector>
 
 #include "packager/base/memory/scoped_ptr.h"
-#include "packager/media/base/aes_encryptor.h"
 #include "packager/media/base/media_parser.h"
 #include "packager/media/base/network_util.h"
 #include "packager/media/filters/h264_byte_to_unit_stream_converter.h"
@@ -20,6 +19,7 @@
 namespace edash_packager {
 namespace media {
 
+class AesCbcCtsDecryptor;
 class KeySource;
 struct EncryptionKey;
 
@@ -248,7 +248,7 @@ class WvmMediaParser : public MediaParser {
   std::deque<DemuxStreamIdMediaSample> media_sample_queue_;
   std::vector<uint8_t> sample_data_;
   KeySource* decryption_key_source_;
-  AesCbcCtsDecryptor content_decryptor_;
+  scoped_ptr<AesCbcCtsDecryptor> content_decryptor_;
 
   DISALLOW_COPY_AND_ASSIGN(WvmMediaParser);
 };
diff --git a/packager/media/formats/wvm/wvm_media_parser_unittest.cc b/packager/media/formats/wvm/wvm_media_parser_unittest.cc
index 7482f43c65..c97ace7ff2 100644
--- a/packager/media/formats/wvm/wvm_media_parser_unittest.cc
+++ b/packager/media/formats/wvm/wvm_media_parser_unittest.cc
@@ -30,6 +30,7 @@ const int kExpectedVideoFrameCount = 6665;
 const int kExpectedAudioFrameCount = 11964;
 const uint8_t kExpectedAssetKey[] =
     "\x06\x81\x7f\x48\x6b\xf2\x7f\x3e\xc7\x39\xa8\x3f\x12\x0a\xd2\xfc";
+const size_t kInitDataSize = 0x4000;
 }  // namespace
 
 using ::testing::_;
@@ -141,6 +142,23 @@ class WvmMediaParserTest : public testing::Test {
   }
 };
 
+TEST_F(WvmMediaParserTest, ParseWvmWithoutKeySource) {
+  // Parsing should fail but it will get the streams successfully.
+  key_source_.reset();
+  InitializeParser();
+  std::vector<uint8_t> buffer = ReadTestDataFile(kWvmFile);
+  EXPECT_FALSE(parser_->Parse(buffer.data(), buffer.size()));
+  EXPECT_EQ(kExpectedStreams, stream_map_.size());
+}
+
+TEST_F(WvmMediaParserTest, ParseWvmInitWithoutKeySource) {
+  key_source_.reset();
+  InitializeParser();
+  std::vector<uint8_t> buffer = ReadTestDataFile(kWvmFile);
+  EXPECT_TRUE(parser_->Parse(buffer.data(), kInitDataSize));
+  EXPECT_EQ(kExpectedStreams, stream_map_.size());
+}
+
 TEST_F(WvmMediaParserTest, ParseWvm) {
   EXPECT_CALL(*key_source_, FetchKeys(_)).WillOnce(Return(Status::OK));
   EXPECT_CALL(*key_source_, GetKey(_, _))