How MP3 Was Born

Karlheinz Brandenburg doesn't like being labeled the "inventor" of MP3. He points out that the most popular format for digital music on the Internet is the work of at least a half-dozen core developers and many others who made important contributions. Even folk-rock singer Suzanne Vega inadvertently played a walk-on role in the creation of MP3. "I know on whose shoulders I stand and who else contributed a lot," says Brandenburg, now director of the Fraunhofer Institute for Digital Media Technology in Ilmenau, Germany.

Still, there's no doubt Brandenburg was one of the crucial contributors to the technology that upended the music business and paved the way for Apple's (AAPL) immensely popular iPod media players and iTunes download service (see BusinessWeek.com, 2/26/07, "Apple's International iTunes Controversy"). In a recent interview, Brandenburg, 52, recalled how MP3 came into being. The story offers a lesson in the innovation process and a warning about how tricky it can be to sort out the intellectual property rights behind inventions that involve numerous organizations and people.

In February, a jury at the U.S. District Court in San Diego awarded Alcatel-Lucent (ALU) $1.5 billion in damages from Microsoft (MSFT) for use of some MP3 patents. Those patents stem from work done at Bell Labs, which belonged to a corporate forebear of the French-American telco-equipment maker.

"Terrible Distortion"

Brandenburg's involvement in digital music compression began in the early 1980s when he was a doctoral student at Germany's University of Erlangen-Nuremberg. A professor urged Brandenburg to work on the problem of how to transmit music over a digital ISDN phone line. It wasn't just a computer coding problem. Brandenburg had to immerse himself in the science behind how people perceive music.

That was where Suzanne Vega came in. Her song Tom's Diner, though seemingly a simple ditty, proved devilishly difficult to reproduce without annoying background noise. "Suzanne Vega was a catastrophe. Terrible distortion," Brandenburg recalls. "The a cappella version of Tom's Diner was more difficult to compress without compromising on audio quality than anything else."

When MP3 developers refined the technology to the point where Tom's Diner sounded true to the original, they had made a major breakthrough. "I've listened to this 20 seconds [of Tom's Diner] a thousand times. I still like the music," says Brandenburg, who met Vega years later when both attended an event in Cannes to mark the creation of MP3.

Fierce Competition

Brandenburg continued working on MP3—which wasn't known by that name until later—after finishing his doctoral work in 1989 and becoming an assistant professor at Erlangen-Nuremberg. He worked closely with scientists at the Fraunhofer Society, one of Germany's premiere research institutions, and joined the staff of the Fraunhofer Institute for Integrated Circuits in Erlangen in 1993 (see BusinessWeek.com, 3/12/07, "An Idea Incubator Tries to Grow Cash").

The Fraunhofer team was by no means the only group trying to solve the problem of transmitting music over the Internet. Groups at several other German universities as well as in other countries were racing to develop a standard. Researchers knew that figuring out a way to send high-fidelity sound over telecommunications lines could be important, though few suspected how immense the impact would be. "It became much bigger than we thought at the time," Brandenburg says.

Competition was fierce, and it was sometimes political as well as technical.

Numerous teams lobbied for approval of the International Standards Organization, whose Motion Picture Experts Group, or MPEG, would determine which formats became industry norms. In 1993, after lengthy debate that led to consolidation of some of the competing standards, MPEG chose several formats.

Instant Fascination

MP3, based largely on the work of Fraunhofer and private partners including French electronics maker Thomson (TMS), proved to be the most efficient and popular. (Another standard to which the Fraunhofer contributed, known as Advanced Audio Coding or AAC, is the native technology used by the iPod, which also supports MP3 encoding.)

MP3 began to take off in the late 1990s when college computer geeks, aided by faster PCs, began using the format to create music files. Brandenburg says he had an inkling of the disruptive effects of the technology when he read a newspaper article about efforts by the Recording Industry Association of America to shut down student Web sites stocked with MP3 files. In 1997, Microsoft incorporated MP3 support into its Windows Media Player, and in 1998 the first portable MP3 players began appearing.

Brandenburg recalls showing an early Korean-made MP3 device to acquaintances. Even people who weren't gadget freaks were fascinated. "A lot of people said, 'I want to have it, how much does it cost?' This was when you had to pay a couple of hundred dollars for 15 to 30 minutes of music."

May We Suggest?

Since then, MP3 patents have generated tens of millions in royalty payments for the nonprofit Fraunhofer, including $143 million in 2005, when the number of companies buying MP3 licenses peaked. A Fraunhofer official says the institution was unpleasantly surprised by the San Diego court ruling against Microsoft. But a Thomson spokeswoman says the patents that generate royalties for Fraunhofer and Thomson are not affected.

Brandenburg hasn't become a dot-com zillionaire from his work on MP3, but he received a substantial cut of the royalty payments under a German law that entitles researchers to a share of the profits from their inventions. (He won't say how much.)

As director of the Fraunhofer Institute for Digital Media Technology, Brandenburg continues to be involved in the cutting edge of digital music. Researchers under his supervision are working on technology that would, for example, analyze a user's tastes based on music he or she has already downloaded, search the Internet for other tunes in the same genre, and automatically assemble a playlist. Brandenburg is also involved in research to deliver more realistic, true-to-life media than anything now available. Perhaps he'll even help touch off another revolution.