Thanks to the the new Dolby Interactive Content Encoder, the Xbox will be able to dynamically encode multichannel audio into Dolby Digital 5.1. The technology, developed by Dolby Laboratories, is able to encode Dolby Digital in real-time. This encoder allows for full Dolby Digital 5.1 effects not only during cutscenes, but also during gameplay.

J. Allard, Xbox General Manager, stated. "We have chosen to incorporate the Dolby Interactive Content Encoder into the Xbox format because of its ability to deliver a superior multichannel audio experience to the gamer. We're delighted that the Xbox is the first gaming platform to be able incorporate real-time Dolby Digital effects into game play." Richard Hockenbrock, vice president, licensing operations for Dolby Laboratories said the following of the company's foray into the interactive entertainment applications of Dolby technology, "Dolby Interactive Content Encoder Streaming marks the beginning of an exciting era of fully interactive multichannel audio and is the first of many exciting new technologies from Dolby Laboratories."