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MP3 (or more precisely, MPEG-1 Layer 3) is an audio compression algorithm (a.k.a. codec) capable of greatly reducing the amount of data required to reproduce high quality audio vs. the uncompressed linear PCM data stored on a conventional audio CD. Many listeners accept 128 kilobits per second (Kbps) of MP3 data as nearly CD quality; this provides a compression ratio of approximately 11:1, although listening tests show that with a bit of practice, most listeners can reliably distinguish 128Kbps MP3 from CD originals. More recent tests done at R3mix, using advanced encoder software such as LAME, show that most listeners consider MP3 encoding with variable bitrate centered about 192Kbps to be transparent, that is, they cannot readily distinguish it from the original CD.

An important feature of MP3 is that it is lossy -- meaning that it removes information from the input in order to save space. As with most modern lossy encoders, MP3 works hard to ensure that the sounds it removes cannot be detected by human listeners, by modelling chacteristics of human hearing such as noise masking. However, experienced listeners can tell the difference from the original at 192Kpbs, and even at 256Kpbs on some of the less powerful encoders. If your aim is to archive sound files with no loss of quality, you may be more interested in lossless audio compressors such as FLAC, Shorten, or LPAC -- these will generally compress a 16-bit PCM audio stream to approximately 700Kpbs.

The MPEG-1 standard does not include a precise specification for an MP3 encoder. As a result, there are many different MP3 encoders available, each producing files of differing quality; as of September 30, 2001, the best encoder at high bitrates (128Kbps and up) is LAME, and the best at low bitrates is Fraunhofer's own encoder. The MP3 decoder standard, however, is carefully defined in the standard. Most decoders are "bitstream compliant", meaning that they will each produce exactly the same uncompressed output from a given MP3 file.

Many other lossy audio compression methods (codecs) exist including

  • MPEG-1 Layer 2 (MP3's predecessor, commonly called MP2)
  • MP+ (a derivative of MP2)
  • MPEG-2 Layer 3 (MP3 with a slightly different packet format and a lower sampling frequency; used on for low-bandwidth previews)
  • MPEG-2 AAC (used by LiquidAudio, but not many others due in part to stiff patent royalties)
  • ATRAC used in Sony MiniDisc
  • AC-3 (used in Dolby Digital and DVD)
  • QDesign as used in the Quicktime high bit-rate audio encoding
  • WMA from Microsoft
  • RealAudio from Real Networks
  • mp3PRO from Thomson Multimedia
  • Vorbis

MP2, MP3, AAC and MP3Pro are all members of the same technological family and depend on roughly similar psychoacoustical techniques. The Fraunhofer Gesellschaft owns many of the basic patents underlying these codecs, with Dolby Labs, Sony, Thomson Consumer Electronics and AT&T holding other key patents.

MP3, which was designed and tuned for use alongside MPEG video, generally performs poorly on monaural data at less than 48Kbps or in stereo at less than 80Kbps. Though proponents of newer codecs such as WMA and RealAudio have asserted that their respective algorithms can achieve CD quality at 64Kbps, listening tests have shown otherwise; however, the quality of these codecs at 64Kbps is definitely superior to MP3 at the same bandwidth. Thomson claims that its mp3PRO codec achieves CD quality at 64Kbps, but listeners have reported that a 64Kbps mp3PRO file compares in quality to a 112Kbps MP3 file and does not come reasonably close to CD quality until about 80Kbps.

Xiphophorus, the developer of the Vorbis algorithm used in the new Ogg format, claims that Vorbis somewhat exceeds MP3 quality while infringing no patents.

Thomson Consumer Electronics controls licensing of the MP3 patents in countries such as the United States of America and Japan that recognize software patents. Thomson Consumer Electronics has, so far as yet, decided not to cash in on the patents, but this possibility looms like a shadow over the .mp3 file. In fact Microsoft, the makers of the Windows operating system, chose to move away from MP3 to their own proprietary Windows Media formats to avoid any copyright implications. However the perpetuation of the MP3 continues; both from people's familiarity with the format, to the wide variety of existing software that takes advantage of the file that revolutionized the music industry and copyright law.