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AC3 is the audio format behind the Dolby Digital logo you see before every movie. It encodes up to 5.1 channels of surround sound at bitrates from 64 to 640 kbps, and it's been the standard audio format for DVDs since the late 1990s. When you rip a DVD and find an .ac3 file, you're holding the movie's actual surround sound mix.
The codec uses perceptual coding — like MP3, but optimised for multichannel audio rather than stereo music. At 448 kbps (the DVD standard), AC3 sounds excellent through a proper surround system. It's lossy, though — audiophiles prefer lossless formats like DTS-HD or TrueHD for Blu-ray rips.
VLC and most media players decode AC3 without fuss. For editing or conversion, FFmpeg handles it natively. If you need to convert AC3 to stereo MP3 or AAC for playback on headphones or phone speakers, the surround channels get downmixed automatically.