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How to make a transparent background in Flash
 
Creating a transparent background (windowless mode) in flash can come in handy, when you would like the background of an html page to appear through a flash movie. You can also layer flash movies when using DHTML content.

Browsers that support windowless mode:

Internet Explorer 3 or higher for windows
Internet Explorer 5.1 and higher for Macintosh
Netscape 7.0
Mozilla 1.0 or higher
AOL

There are three different ways to make the background transparent:

Publishing from Flash MX

HTML for a Flash movie can be created using the Publish Settings feature in Flash. The Publish Settings dialog box provides an option to affect the WMODE setting. Options selected in the Publish Settings will be added to the HTML source code automatically:
  1. Choose File > Publish Settings. Select the HTML tab.
  2. Choose "Transparent" in the WMODE setting to make a Flash movie's background disappear in browsers which support this feature.
  3. Publish the document.
  1. In Dreamweaver MX, insert a Flash movie into an HTML page.
  2. Select the Flash movie in the Design View
  3. In the Properties panel, choose Parameters
  4. For the Parameter, enter "wmode" (without quotes). For the Value, enter "transparent"
  5. Save the document. The HTML page is complete.
Editing HTML code manually

To edit an existing HTML page, add the WMODE parameters to the HTML code.

Add the following parameter to the OBJECT tag:

< param name="wmode" value="transparent">

Add the following parameter to the EMBED tag:

wmode="transparent"

In the examples below you can see the same SWF file. One has windowless mode enabled and the other one does not. As you can see being able to make a flash file transparent, has its advantages.