A method of performing a rate-distortion optimization process comprising, for each of a plurality of target image portions to be encoded in each of a plurality of frames, selecting a preferred one of a set of encoding modes by optimizing a function comprising an estimate of distortion for the target image portion and a measure of bit rate required to encode the target image portion, wherein the estimate of distortion is based on source coding distortion and an estimate of a distortion that would be experienced due to possible loss over the channel; encoding the target image portion into the encoded video stream using the selected encoding mode; and transmitting the encoded video stream over the channel. The rate-distortion optimization process for a current one of the frames is performed in dependence on feedback received from the receiving terminal based on an earlier one of the frames.