Microsoft tests a better image format for Windows 11 backgrounds

Microsoft is also thought to be testing video backgrounds, but that's still missing from the latest preview build.
Windows Report

Windows 11 Canary Update KB5074168 Releases With WebP Wallpaper Support & Multiple Fixes

Microsoft rolls out Windows 11 Canary Build 28020.1495 (KB5074168) with bug fixes, .webp wallpaper support, and known File Explorer issues.

Windows 11 backgrounds are finally joining the modern era

Stop fighting with your PC just to set a wallpaper; Windows 11 is finally embracing WebP files natively.
Windows Report

Windows 11 KB5074157 Adds Modern Account Settings UI and Support for WebP Wallpaper

Windows 11 KB5074157 rolls out to the Beta Channel with modern account UI, faster Copilot prompts, and support for WebP format wallpapers.