A novel adaptive dimming technique with X-Y channels for light emitting diode (LED) backlight system of LCD TVs is proposed. It has matrix structured LED modules with row and column switches to control the brightness of individual division block. It shows local dimming effects such as reduced power consumption and high dynamic contrast ratio with even using much fewer number of LED drivers of proposed method than that of conventional local dimming method. Therefore, low cost and compact design of LED drivers can be achieved. This paper also contains a new adaptive dimming algorithm and image compensation technique for proposed system.