Abstract: A source coder exploits the spatial and temporal masking properties of a LCD flat panel display to improve perceptual quality over a limited bandwidth channel. The LCD's black matrix generates a strong noise component centered at the Nyquist frequency that masks the portion of the signal spectrum that lies near the Nyquist frequency. The sluggish response times of liquid crystals creates a temporal mask that further reduces the spatial resolution of moving objects. In response, the source coder shifts bits from masked transform coefficients to unmasked coefficients thereby improving the perceived visual quality of the reconstructed image. The image coder can also be designed to match the color depth associated with the LCD.