What are Dynamics?
To an acoustic or classical musician the meaning is simple: dynamics are the range of how gently or strongly you play your instrument, from the quietest possible sound to the loudest. But I recently saw a huffy dispute between two electric guitarist/bassists about the meaning of this word as it relates to amplifiers, and I realized several interesting things. One, their views were nearly opposites, but they were both correct. Two, there is no standardized and accepted language to describe the dynamic response of an amplifier. Three, seeing all the pieces of this puzzle can help people understand more about why they like or dislike specific amplifiers. And four, the same understanding could help clear up some problems people have with compression.
The components inside any amplifier or processor have a set amount of headroom, meaning there is a point where if your signal peaks reach a certain level, the components will clip and deform the wave shapes of the signal. In the case of an amp or processor designed for ultra high fidelity, the idea is to have the highest possible headroom. In the case of a distortion channel, the idea is to have extremely low headroom, because you specifically want lots of clipping. But clipping is not the whole story--the wave shapes get altered in countless different ways, and a "good sounding" distortion is one where the specific deformation of the waves just happens to sound good to you.  
Those are the extremes, but most amplifiers are somewhere in the middle, neither super high fidelity nor heavily distorted all the time. Most amps and preamps progressively alter the wave shapes in a wide range of response depending on the strength of your signal and its dynamic peaks. When people talk about a preamp having "fat tone" or they say an amp is "very responsive when you dig in", they are talking about these progressive alterations of the amplitude and shape of your signal. All of these impressions of tonal response are highly subjective, and we often don't know exactly what it is we're hearing. We can only say what it sounds like to us using really vague terms like "warm", "quick", "flabby", "tight", "modern", and so on.  
Here's where it gets interesting! This is where the old story of the blind men describing an elephant comes in, and why the two guys I saw bickering had different stances on what makes an amp "dynamic". For one of them, an amp or DI with very high headroom is more dynamic, because the waves from your instrument are conveyed transparently, without flattening the peaks (compression) or other alterations. The other guy said that a transparent DI sounded dull and lifeless to him, and he preferred hearing and feeling the dynamic tonal changes you get from a colorfully responsive amp. For him, an amp that reacts more to your signal is more dynamic. These seemingly opposite views are both right, of course, in that they are describing what happens as you play softer or harder.  
To make matters more complicated, a person who likes an amplifier's tonal response may think (or even believe with conviction) that it's because of the amp's high fidelity, though often the reality is the other way around. When someone hears an amp or gain pedal that has a great "feel", but isn't adding obvious distortion, they very often describe it as "transparent, doesn't color the signal" yet at the same time "it just sounds better, warmer, phatter, more lively". No matter how great our ears are, and how experienced we are as musicians or audio professionals, we often misattribute the reasons why we hear what we think we hear.  
This brings up the simultaneous blessing and curse of compression. On the one hand, big fast-moving transient peaks in the low frequencies are the source of our perception of depth and power, so an amp that doesn't hinder those transients will have a hefty, strong sound with a broad dynamic range of amplitude (actual level of the output). And overcompressing those transients can make the lows sound gutless. On the other hand, the more "responsive" amp both adds and emphasises upper harmonic content in your tone, and this inherently means some compression, even though it "sounds more dynamic". At the more noticeable end of the range, this includes "grit", "grind", "crunch", and other descriptions of light-to-strong clipping, which again is a form of compression with added harmonics. Those reactive changes, whether clean or dirty, are what makes an amp sound or feel more responsive.  
Another element is "sag", where the sound waves are altered by a drop in voltage as your signal peaks demand more power than the amp's components can deliver in that moment. Even without clipping, this is another type of headroom interaction; the higher-fidelity amp/preamp will have a much higher reserve of power available so there will be no sag. Again, these seemingly opposite behaviors can both be described as "dynamics".
Going back to your instrument, and the dynamics of your physical playing, there too you'll find it's not as simple as it seems. When you change your playing strength, you don't just change the volume of your signal, you also change the tone quite significantly. The amount your strings rattle on the frets or whine against a fretless fingerboard; the quick pitch shift (twang) of strings snapping back from a strong pluck; the sawing sound when you dig in with a bow. All instruments and voices, even drums, change in tone across the dynamic range. I emphasize this point because a compressor should only turn your volume up and down, and should not take anything away from those tonal qualities!  
In other words, when people say they don't like compression because they are "a dynamic player", they fail to realize that what makes their dynamics worth listening to is the tone and feel, not the amplitude. A sound that is too quiet will not be heard well, and a sound that is too loud will be unpleasant to hear, and neither of them will make your band sound good. Instead the ideal is for a listener to be able to hear everything you have to say, from the softest whisper to the angriest SMASH, and for them to enjoy hearing it, and for the whole spectrum to suit the mix with the rest of your band. You want to have every nuance of your playing dynamics occupy a less extreme range of amplitude. That is what compression is for: not killing your dynamics, but helping the audience hear your dynamics even better!
Of course it's easier to get bad results than good ones. There is a steep learning curve to using a compressor well, and frankly many compressors (especially the one-knob deals stuck in many amp heads) are just not very good. A lot of them flat-out suck. So one option is to shop for a better comp, and spend the time to learn its tricks. But many musicians don't have the money for a really nice compressor, or they don't have the spare time to fuss with all the knob-twiddling and learning a piece of gear that they find frustrating anyway. For them, the clear and popular choice is to buy an amp that happens to enhance their dynamics by its inherent design and nature. And there's nothing wrong with that.  
All that remains is to experiment and decide whether, for you, the amp/preamp dynamics that suit you best are more like the power-hungry high fidelity of high headroom, or the interactive/responsive tones and soft clipping of lower headroom. Both are valid interpretations of the word, and both are musically useful means of transmitting the dynamics of your playing.
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