This paper proposes the differential energy watermarking (DEW) algorithm fo
r JPEG/MPEG streams. The DEW algorithm embeds label bits by selectively dis
carding high frequency discrete cosine transform (DCT) coefficients in cert
ain image regions. The performance of the proposed watermarking algorithm i
s evaluated by the robustness of the watermark, the size of the watermark,
and the visual degradation the watermark introduces. These performance fact
ors are controlled by three parameters, namely the maximal coarseness of th
e quantizer used in pre-encoding, the number of DCT blocks used to embed a
single watermark bit, and the lowest DCT coefficient that we permit to be d
iscarded. In this paper, we follow a rigorous approach to optimizing the pe
rformance and choosing the correct parameter settings by developing a stati
stical model for the watermarking algorithm, Using this model, we can deriv
e the probability that a label bit cannot be embedded. The resulting model
can be used, for instance, for maximizing the robustness against re-encodin
g and for selecting adequate error correcting codes for the label bit strin
g.