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According to a dictionary, "live action" means:
(in filmmaking) action involving real people or animals, as contrasted with animation or computer-generated effects.
It does not mean "live". Live action can be prerecorded as well as live.
Is there a better term for live action? I would like one that doesn't lead to the confusion with the definition of "live".
No, there is no BETTER term. But if you really require a DIFFERENT word (for undisclosed reasons), you could perhaps re-define the term "Cinéma vérité". If we had some clue about the motivation for needing a different term, we may have a better idea how to respond.
You don't need another term. Live Action is the accepted term for differentiation between, well, live action film and other kinds of movies, such as animation/3D films. It's also used consistently for this purpose, e.g. the Oscars use it in their category names:
Short Film (Animated)
Short Film (Live Action)
Conversely, I have never seen this term used to indicate a live stream, so nobody will get confused.
There are other terms for feature-length such as feature film or motion picture, however those are rather used to differentiate between feature lenght movies and short films and can also be used for animated films.
If you have a feature-length film, you could amalgamate the terms to something like live action feature film or live action motion picture, but I really wouldn't recommend that.
The only other candidate that comes to mind is photographic, as used in the same sense as in Principal Photography. And photography does literally mean the capture of light.
Only hitch is that photography in lay use is firmly associated with the capture of still images.
