MPEG-1 Audio Layer 2 encoding began as the Digital Audio Broadcast (DAB) project initiated by the Fraunhofer Society in Germany. This project was financed by the European Union as a part of the EUREKA research program where it was commonly known as EU-147. EU-147 ran from 1987 to 1994.
In 1991, there were two proposals available: Musicam (known as "Layer II"), and ASPEC (Adaptive Spectral Perceptual Entropy Coding) with similarities to MP3. Musicam was chosen due to its simplicity and error robustness.
A working group around Karlheinz Brandenburg and Jürgen Herre took ideas from Musicam and ASPEC, added some of their own ideas and created MP3, which was designed to achieve the same quality at 128 kbit/s as MP2 at 192 kbit/s.
Both algorithms were finalized in 1992 as part of MPEG-1, the first standard suite by MPEG, which resulted in the international standard ISO/IEC 11172-3, published in 1993. Further work on MPEG audio was finalized in 1994 as part of the second suite of MPEG standards, MPEG-2, more formally known as international standard ISO/IEC 13818-3, originally published in 1995.
Compression efficiency of lossy compression encoders is typically defined by the bit rate because compression rate depends on the bit depth and sampling rate of the input signal. Nevertheless, there are often published compression rates which use the CD parameters as references (44.1 kHz, 2 channels at 16 bits per channel or 2x16 bit). Sometimes the Digital Audio Tape (DAT) SP parameters are used (48 kHz, 2x16 bit). Compression ratios for this reference is higher, which demonstrates the problem of the term "compression ratio" for lossy encoders.
Karlheinz Brandenburg used a CD recording of Suzanne Vega's song "Tom's Diner" as his model for the MP3 compression algorithm. This song was chosen because of its softness and simplicity, making it easier to hear imperfections in the compression format during playbacks.
On the July 7th, 1994 the Fraunhofer Society released the first software MP3 encoder called l3enc. The filename extension .mp3 was chosen by the Fraunhofer team on July 14, 1995 (previously, the files had been named .bit). With the first realtime software MP3 player Winplay3 (released September 9th, 1995) many people were able to encode and playback MP3 files on their PCs. Because of the relatively small hard drives back in that time (~500 MB) the technology was essential to store music for listening pleasure on a computer.
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