Hey Susmi,
Thanks for asking this question,
Interesting task, you're lucky.
Absolutely, AEM Assets is an extendable solution that would support any logic you would like add to it.
For further read please check:
Applying Workflows to Assets
Processing Assets Using Media Handlers and Workflows
In summary, there should be no problem that would prevent you to add a watermark with your very important cat image on top of a video in AEM Assets!
In fact I'm pretty sure you can do this via vlc vlc --sub-filter logo --logo-file cat.png video.avi (this would add a cat image watermark in top of your video.avi file)
As a side note, processing video on your Author might be an absolute killer feature for your content author. Which would make their instance very very slow and experience even more pleasant than usual. Therefore, consider using Web based solutions or https://api.encoding.com/reference#Watermarking to make external system take the CPU hit. You might even consider using another instance to do the heavy lifting, hello Multitenancy scenarios and use cases - Apache Sling - Apache Software Foundation
Regards,
Peter