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MP3 is a digital music-compression format that squeezes song files down to about one-tenth of their normal size. Smaller file sizes mean that MP3 users can download music from the Internet quickly, and there is almost no loss of sound quality. It also means that less storage space is needed for songs downloaded to a computer's hard drive.

Research into what would become MP3 dates back to 1987, when experiments were conducted at the Fraunhofer Institut Integrierte Schaltungen (Fraunhofer IIS-A) in Erlangen, West Germany, with assistance from University of Erlangen professor Dieter Seitzer. Work focused on creating a high-quality, low-bandwidth music format that capitalized on flaws in human hearing. Since the human ear is insufficient to detect the full range of sound, researchers guessed that certain elements in digitally truncated sound files would never be missed. MPEG encoders could read digital audio files to determine which bits contained audible data. Then, before the files were encoded, inaudible elements were eliminated, rendering sound files much smaller.

That research led, in 1989, to a German patent for Fraunhofer IIS-A. The International Standards Organizations (ISO) accepted the format three years later, as did the Motion Picture Experts Group (MPEG), a subcommittee of the ISO that formed in 1988 to create digital formats and standards for multimedia producers. MP3 is a direct descendant of MPEG-1, a low-bandwidth video format used in online video, and of MPEG-2, a high-bandwidth audio and video format that is the basis for current DVD technology. MP3 technology, formally known as MPEG Layer III, has become an international digital music standard.

According to a September 8, 2000, http://ZDNet.com article, a key to MP3's eventual success was the early decision by Fraunhofer IIS-A not to exercise its patent on the technology; that allowed the format to be widely adopted, and to be tweaked at will by developers around the world. As a result, in 1997, Tomislav Uzelac of Advanced Multimedia Products invented the first MP3 player, which he called AMP. AMP eventually morphed into versions for Windows (WinAmp) and Macintosh (MacAmp). Innumerable MP3 players followed, including compatible versions of RealPlayer and Windows Media; many are available for free on the Internet. Also, the first portable MP3 player, Diamond Multimedia's Rio, was introduced in November 1998, with many others following its lead, such as the iPod from Apple Computer.

The other factor crucial to MP3's success was its tight compression. A five-minute music track copied directly from a CD to a computer hard drive takes up approximately 50MB (megabytes) of space. Converted to an MP3 file, however, the same song takes up about 5MB of space, delivering roughly equal sound clarity. Commercial MP3-encoding software that allowed people to copy, or “rip” songs from CDs onto their computer hard drives began emerging in the late 1990s from companies like Magix, Orion Studios, and Adaptec.

By the end of the 1990s, the MP3 format was immensely popular on the Internet. Because of the small file sizes, music listeners with a high-speed Internet connection can download songs in minutes. Even over dial-up connections, most songs can be transmitted in less than half an hour, a significant improvement over older, bulkier formats like .WAV or .AIFF. One online service, http://MP3.com, even took its name from the format, enabling unknown bands to use the Internet medium to their advantage by distributing their music to fans who otherwise would never encounter it. MP3s also lend themselves to peer-to-peer file sharing, the direct swapping of songs between users' hard drives over the Internet. This propensity led to the creation of Napster, a service that enabled the direct sharing of MP3 files between music listeners.

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