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Video streaming applications are commonly used in both wired and wireless environment; however, wireless links are burden by higher packet loss ratio and delay variation. In order to make video transmission possible in wireless networks MPEG video coding is usually used to reach the bandwidth constrains of the links. The video quality and compression ratio depends on Group of Pictures (GOP) structure, but it also affects the distortion sensitivity of the video stream due to packet losses. In this paper the correlation between GOP size, packet loss ratio and video quality is investigated. By increasing the distance between the reference frames the effectiveness of coding can be improved, but on the other hand the effect of error propagation due to packet losses also increases. Our aim was to find the optimal GOP structure to maximize the coding efficiency and minimize the quality distortion due to error propagation. We have implemented a simulation tool to make the analysis of differently structured video streams transmitted over lossy channels.