[userbinator]

You can still use wavelet compression to encode the residual from MC, but I think the biggest problem is performance: DCTs have been optimised far more than wavelet transforms.

Even in still-image compression, the difference is noticeable --- I have some high-resolution PDFs containing JPEG2000 scanned images, and they take significantly longer to render than the equivalent containing JPEG images.

[profpandit]

Well, you could. But the way current schemes are structured, the motion compensation is done on a 16x16 macroblock basis Using an 8x8 DCT to clean up the 4 quadrants within a macroblock makes sense. But performing a global wavelet transform on a motion compensated difference image would mess you up at the boundaries of the macroblocks since you would potentially have discontinuities there. Of course it would be possible to devise a scheme that had a different approach to motion compensation like say a per pixel one that used optical flow. Also, not all macroblocks are encoded using motion compensation Even in P and B frames, some are encoded intra. You would lose that small optimisation in a wavelet based scheme.

Similar techniques as the ones used to optimise DCTs could be used for wavelets. There has just not been a demand. The standardisation effort tends to swamp out all alternatives once the decision to choose the algorithm has been made. There's a huge amount of momentum behind the standard which makes alternatives very hard to pitch. This is part of the reason why the same basic technique has been in prevalent use for 20 odd years and nothing else has come into play