Join Bobby Owsinski for an in-depth discussion in this video Mastering for iTunes tips and tricks, part of Mastering for iTunes.
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So what are the tricks to get the best sound quality from an iTunes encode? It turns out that the considerations are about the same as with MP3 encoding. First of all, turn it down a bit, a song that's flat lined at -.1 dB full-scale isn't going to encode as well as a song with some headroom. This is because the iTunes AAC encoder tends to output a tad hotter than the source, so there may be inter-sample overloads that happen at that level that aren't detected on a typical peak meter. All digital audio converters on consumer and professional audio gear have different sensitivities and some may overload while others sound clean.
As a result, a level that doesn't trigger an over on your DOS converter may actually be an over on another playback unit. If you back it down to -0.5 or even -1 dB, the encode will sound a lot better and your listener probably won't be able to tell much with difference in level anyway. Don't squash the master too hard, masters with some dynamic range encode better. Masters that are squeezed within an inch of their life don't encode as well, it's as simple as that. Listeners like it better when there's more dynamics too.
Although the new AAC encoder has a fantastic frequency response, sometimes rolling off a little of the extreme top end around 16 kHz and above can help the encode as well. A typical roll off might look something like this. Any type of data compression requires the same commonsense considerations. If you back off on the level, the mix plus compression and the high frequencies of mix will be surprised just how good your AAC encode can sound.