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Object-based video coding has been of interest for many years. Recent work by the authors has shown that a video coding system using background Sprites with automatic segmentation and background subtraction can indeed perform better than the H.264/AVC coder. In this paper, we extend this work by developing a rate-distortion optimization approach for an object-based coder. A key issue addressed by this approach is the joint choice of quantization parameters for the foreground and background. The performance of the resulting rate-distortion-optimized coder is far superior to that of H.264/AVC for source material with dominant global motion, across a range of bit rates.