A lossy compression method optimizes bandwidth and storage for a security surveillance network. An appliance on a local network attached to event capture terminals transforms image files into a key frame and at least one subsequent frame. Decompression combines a subsequent frame with its key frame to provide an image with graduated resolution/noise clutter. A camera records, and forwards a plurality of image files compatible with JPEG encoding. Key frames are selected from among the plurality of image files. A configurable low pass filter is reset for each train of a key frame and its subsequent frame or frames. Each low pass filter is selectively applied to each pixel block within a subsequent frame. The transformation operates on coefficients of frequency bins. Meta data enables decompression of a single subsequent frame by reversing some of the transformations to provide a JPEG compatible file having selectively reduced resolution or noise clutter.