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Magnetic tape recording as we know it today was developed in Germany during the 1930s at BASF (then part of the chemical giant IG Farben) and AEG in cooperation with the RRG.  This was based on Fritz Pfleumer's 1928 invention of paper tape with oxide powder lacquered to it. The first practical tape recorder from AEG was the Magnetophon K1, demonstrated in Germany in 1935. Eduard Schüller of AEG built the recorders and developed a ring shaped recording and playback head.  It replaced the needle shaped head which tended to shred the tape. Friedrich Matthias of IG Farben/BASF developed the recording tape, including the oxide, the binder, and the backing material. Walter Weber, working for Hans Joachim von Braunmühl at the RRG, discovered the AC biasing technique, which radically improved sound quality.

During World War II, the Allies noticed that certain German officials were making radio broadcasts from multiple time zones almost simultaneously. Analysts such as Richard H. Ranger believed that the broadcasts had to be transcriptions, but their audio quality was indistinguishable from that of a live broadcast and their duration was far longer than was possible with 78 rpm discs. (The Allies were aware of the existence of the pre-war Magnetophon recorders, but not of the introduction of high-frequency bias and PVC-backed tape.) In the final stages of the war in Europe, the Allied capture of a number of German Magnetophon recorders from Radio Luxembourg aroused great interest. These recorders incorporated all of the key technological features of modern analog magnetic recording and were the basis for future developments in the field.