This paper first proposes a computationally efficient spatial directional i
nterpolation scheme, which makes use of the local geometric information ext
racted from the surrounding blocks. The proposed error-concealment scheme p
roduces results that are superior to those of other approaches, in terms of
both peak signal-to-noise ratio and visual quality. Then a novel approach
that incorporates this directional spatial interpolation at the receiver is
proposed for block-based low-bit-rate coding. The key observation is that
the directional spatial interpolation at the receiver can reconstruct faith
fully a large percentage of the blocks that are intentionally not sent: A r
ate-distortion optimal way to drop the blocks is shown. The new approach ca
n be made compatible with standard JPEG and MPEG decoders. The block-droppi
ng approach also has an important application for dynamic rate shaping in t
ransmitting precompressed videos over channels of dynamic bandwidth. Experi
mental results show that the proposed coding and rate-shaping systems can p
rovide significant subjective and objective gains ol er conventional approa
ches.