Can I change compression settings on built-in archive utility?

If you launch Archive Utility directly from /System/Library/CoreServices/, you can create gzip-compressed .cpgz archives, which can have a higher compression rate than zip compression. However if you're compressing already compressed files (like most music and video files), you likely won't get much space savings, if any.

If you want to try however, open up Archive Utility, open the preferences, then change the Use archive format: setting to compressed archive, and create a new archive from the file menu (⌘K). This setting only affects archives created when you open the Archive Utility app. Ones created with the Compress option in the Finder's context menu will still be zip archives.