In this paper we propose to use the normalized cross correlation (NCC) as the similarity measure for block-based motion estimation (ME) to replace the sum of absolute difference (SAD) measure. NCC is a more suitable similarity measure than SAD for reducing the temporal redundancy in video comparison since we can obtain flatter residual after motion compensation by using the NCC as the similarity measure in the motion estimation. The flat residual results in large DC term and smaller AC term, which means less information is lost after quantization. Thus, we can obtain better quality in the compressed video. Experimental results show the proposed NCC-based motion estimation algorithm can provide similar PSNR but better SSIM than the traditional full search ME with the SAD measure.