Can You Merge With Background in a Video Demo

Hi all, hope someone has some ideas on this! I have Captivate 2016 and I primarily create video demo projects, recording my screen as I walk through a process.* I'm currently creating a series of videos where I'll need to blur out certain information while it's onscreen (simply panning away from this info isn't possible in most cases). I assumed I could just insert an image of pixelation and merge it with the background at the necessary spot--but when I try this, the image disappears rather than remaining visible as part of the video. Does anyone have any ideas on how to fix this?

The options that work to fix this issue on a slide (like in a software simulation) don't seem to apply/be possible in the video demo format. Is there actually no way to achieve the merge with background effect in a video demo?

If anyone has any ideas or workaround I'd really appreciate it! 

(*If you're wondering, I've found that for my purposes creating a video demo project makes it much easier to achieve what my team is looking for than with a software simulation)