Abstract: To embrace the imminent transition from traditional low-contrast video (LDR) content to superior high dynamic range (HDR) content, we propose a novel backward compatible HDR video compression (HDR MPEG) method. We introduce a compact reconstruction function that is used to decompose an HDR video stream into a residual stream and a standard LDR stream, which can be played on existing MPEG decoders, such as DVD players. The reconstruction function is finely tuned to the content of each HDR frame to achieve strong decorrelation between the LDR and residual streams, which minimizes the amount of redundant information. The size of the residual stream is further reduced by removing invisible details prior to compression using our HDR-enabled filter, which models luminance adaptation, contrast sensitivity, and visual masking based on the HDR content. Designed especially for DVD movie distribution, our HDR MPEG compression method features low storage requirements for HDR content resulting in a 30% size increase to an LDR video sequence. The proposed compression method does not impose restrictions or modify the appearance of the LDR or HDR video. This is important for backward compatibility of the LDR stream with current DVD appearance, and also enables independent fine tuning, tone mapping, and color grading of both streams.