This paper proposes a video encoder with improved visual quality achieved through more accurate motion estimation and perceptual quantization. A quadtree-based variable size block motion estimation scheme jointly optimizes both motion vector coding and residual coding by minimizing the actual rate subject to a constraint on overall distortion. The residual coder includes perceptual quantization and direct block coding. Since the residual is encoded directly without any transform, the encoder achieves comparable speed with MPEG. The encoded video outperforms that of MPEG in terms of both PSNR and visual quality.
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