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P2P-Video-on-Demand (P2P-VoD) is a popular Internet service which aims to provide a scalable and high-quality service to users. At the same time, content providers of P2P-VoD services also need to make sure that the service is operated with a manageable operating cost. Given the volume-based charging model by ISPs, P2P-VoD content providers would like to reduce peers' access to the content server so as to reduce the operating cost. In this paper, we address an important open problem: what is the “optimal replication ratio” in a P2P-VoD system such that peers will receive service from each other and at the same time, reduce the access to the content server? We address two fundamental issues: 1) what is the optimal replication ratio of a movie if we know its popularity, and 2) how to achieve these optimal ratios in a distributed and dynamic fashion. We first formally show how movie popularities can impact server's workload, and formulate the video replication as an optimization problem. We show that the conventional wisdom of using the proportional replication strategy is “suboptimal,” and expand the design space to both “passive replacement policy” and “active push policy” to achieve the optimal replication ratios. We consider practical implementation issues, evaluate the performance of P2P-VoD systems and show how to greatly reduce server's workload and improve streaming quality via our distributed algorithms.