A way to add surround sound to MP3 files has been discovered by the Fraunhofer Institute in a way that doesn't significantly increase file size. In July of 2004, products will appear to utilize this new technology.
The technology was shown to the public at the Cebit technology fair in Hanover, Germany. The new encoding procedure amounts to adding a small amount of information regarding the track's spatial characteristics.
New devices/new software will be needed to experience the surround sound effects. Before, surround sound meant recording on different channels to deliver the effect. MP3s were too small for this to work so this encoding solves the problem. Source