How can I make a watermark flow onto a picture file?

I’m making a perfectly ordinary Word 2000 document… except for some pretty pictures. I’m actually using the same picture for both the watermark and a specific graphic. I’d like the watermark to bleed over into the whitespace of the picture file. This is an operation I’m not certain about. I’m not aware of any specific function which enables this, although I can go edit a picture file into shape if nothing else works.

However, anyone have some shortcuts to the process?

Note: I am using .png files, and it seems to work automatically sometimes but not on others. Weird.

You probably need to set transparency in your image. If the image has low color depth (like a drawing or cartoon), you probably just want to set white as a transparent color. With ImageMagick you can do “convert -transparent white <old-file> <new-file>”; you can do a similar operation with any decent image editor, and even with some versions of Paint.

If the image has high color depth (like a photograph), you probably want to blend the transparent region in smoothly, so that near-whites are also nearly-transparent. This requires a little more work. You can use a grayscaled version of the image (possibly with brightness or contrast adjusted) as an alpha channel, or select near-white pixels and make them all transparent; there are other possibilities too, depending on what effect you’re looking for.