Ok so it seems that Vlc will never be able to decode the http stream as it's not really a stream just consecutive jpeg images.
So I turned to rtsp instead and the micro-rtsp project.
I used the instructions here mgo-tech.com, to install Arduino IDE and ESP plugin (translated by google), take care to use correct pin mapping, I used that instruction as it is for M5Camera type b the same as I have.
Tried the CameraWebServer also, much nicer then the original software.
Followed instructions here hackster.io to get a http/rtsp server. Worked fine except the picture was the wrong way around for my application so I copied a few lines from the CamereaWebServer example to flip it vertical and Horisontal and lowered resolution to vga.
Works fine with Vlc but a bit more sensetive to fast movement then the http stream.
Why may you ask? Vlc got recording and is easily implemented in my project.
