We investigate the use of video compression methods that require a simple encoder and a complex decoder for applications such as video surveillance, smart spaces, and sensor networks. In our proposed method, the encoder tries to identify the locations whose content cannot be predicted at the decoder, and codes such areas at higher fidelity. Typically, high-motion macro-blocks represent such significant state regions. A shape-adaptive (SA) SPIHT (set partitioning in hierarchical trees) encoder is then used to code these regions efficiently. On the decoder side, we perform motion extrapolation using the previously decoded frames to construct an estimate for the current frame. This estimate then serves as the side information at the decoder. Receiving the SA-SPIHT coded and the motion extrapolated frame, the decoder fuses the information in these two frames to produce a frame that is of higher quality than the component images. Experimental results show that the proposed codec outperforms H.264 intra mode by 3 dB.