1. A method of encoding an input image to produce a very low bit rate bitstream, said method comprising the steps of: (a) segmenting the input image into a background and at least one object; (b) applying motion estimation (ME) and compensation (MC) to said segmented image to produce a compensated image; (c) applying a transform to said compensated image to produce a transformed image; (d) selectively updating a codebook by storing said transformed image or a portion of said transformed image into said codebook; and (e) selectively encoding said transformed image or a portion of said transformed image into the bitstream.