A method, system and apparatus of lossy compression technique for video encoder bandwidth reduction using compression error data are disclosed. In one embodiment, a method includes storing an error data from a compression of an original reference data in an off-chip memory, accessing the error data during a motion compensation operation, and performing the motion compensation operation by applying the error data through an algorithm (e.g., determined by the method of storing the error data). The method may include generating a predicted frame in the motion compensation operation using a motion vector and an on-chip video data. In addition, the method may include determining the error data as a difference between a compressed reference data (e.g., is created by compressing the original reference data) and an original reference data (e.g., reconstructed from a prior predicted frame and a decompressed encoder data).