BELOW ARE DETAILS ON THE BMW CD CHANGER THAT PLAYS MP3s in the 3 Series E46, 5 Series E39, X5, X3, Z4, Z8, and 7 Series E38 (although not located in factory CD changer location in E38).
Detailed documentation from BMW on which cars have MP3 Audio support without additional upgrades required
CD changer works in all BMWs with standard 3 pin and 6 pin audio input connector. Will work with BMWs equipped with DSP IF they were built after 09/01 and do not use the SPDIF cable from CD changer to DSP amp. BMW no longer uses this SPDIF cable in order to support the Sirius radio audio inputs.

As of Feb 2006 Production BMWs, the factory installed option of an Original BMW CD changer that will play MP3s, and WMA files on CD-Rs and CD-RWs. This CD Changer is designed to work with cars with and without navigation. The below documentation will feature navigation information, although the basic functionality and installation is the same. This changer supports the feature of showing ID3 text from the MP3 audio files on your navigation screen or radio display. If you have a 3 series E46, 5 series E39, X5, X3. Z8, Z4 this CD changer is plug and play. If you would like full MP3 ID3 Tag support you will need to radio to the latest version BM53 and navigation computer to the MKIV version 4/1/00 to support the viewing of MP3 ID3 audiotext.
The CD changer will PLAY MP3s, and WMA files in ALL years of the 3 series E46, 5 series E39, X5, X3. Z8, Z4 AND E38 7 series from 99-01 (Note: E38 7 series does not fit in the proper CD location as the shape is different. The below pictures are installed in my 2001 7 series E38 with new Gen radio retrofit) The installation is simple and quick, and the changer is the exact same size and uses the same mounting brackets(excluding the E38 which has a larger changer). In order to VIEW the MP3 audiotext the radio must be a newer version BMW radio. I do not know all of the radio part numbers that are supported, but the following part numbers of the radios have been reported to fully support MP3 audiotext (please let us know if your radio supports Audiotext so that we can update this info):
E39, E46, E53 (X5) With Navigation Will require latest version BM53 and MKIV with latest firmware
E46, X5 Without Navigation
65 12 6 961 215 - Business CD 10/05 newer E46
65 12 6 943 430 - Business CD 10/04 - 10/05 E46
part number unknown 08/05 and newer X5 Business CD
The below information details HOW to get your BMW that was made prior to dates above to show MP3 ID3 Audiotext (Band, Song Title, Album) and support for track and directory sorting using this new CD Changer. In addition to MP3 audiotext, when you upgrade the radio to the new generation radio you also get the added support for BMW Sirius Satellite radio receiver, and Auxiliary input.
BUY the latest 3 series E46, 5 series E39, X5, X3. Z8, Z4 BMW OEM CD Changer here
Installation Example in X5, and E39 M5, and displaying MP3 Audiotext in earlier BMWs
Installation is simple in the X5. Simply remove the 4 10mm nuts around the CD changer (if present) and the 4 screws on the side of the bracket once removed. Disconnect the 3 pin and the 6 pin connector and replace on the new changer.
In BMWs built before dates listed above MP3s and WMA are played perfectly by the CD changer but the ID3 audiotext is not displayed on the original factory radio. If you want to display MP3 Audiotext, you can upgrade the radio as detailed below.
Replacing the BM53 radio with the newest version provides support for the following audio features:
Support of the new style CD changer with Audiotext
Support of BMW Sirius Satellite radio Receiver
Parts Required:
New Radio BMW P/N 65 12 6 976 961 or newer
IF your BMW is equipped with DSP Audio system AND you have the single wire audio connection from CD Changer to DSP amp
E39 P/N 61.12.0.140.718 (620mm) 6 wire CD Input cable
X5 P/N 61.12.0.140.716 (3000mm) 6 wire CD Input cable
Only IF your car was built BEFORE 09/01 you need the following additional parts
P/N 61.12.6.913.957 Old to New style radio wiring harness ($33.20) BMW dealer
P/N 61.12.6.913.955 Old to New style radio antenna harness ($12.20) BMW dealer
P/N 61.12.6.924.785 Old to New style audio input adapter ($15.00) ( more pics 1, 2 ) BMW dealer
If Built after 09/01 - ONLY required to display audiotext CD changer will play MP3s without updating Radio
Locate the BMW radio in the trunk area, and locate the radio on the back left side just behind the CD changer in the photo below. Remove the one 10 mm nut, to remove and replace the radio! Then remove and replace the CD Changer. If equipped with DSP audio system, use the 6 wire CD input cable to connect to the trunk radio. This step is required for MP3 audiotext AND Sirius Satellite radio support as BMW no longer uses the SPDIF audio input cable (single wire to DSP) for DSP in the new generation radios.
If Built Before 09/01 - ONLY required to display audiotext CD changer will play MP3s without updating Radio
In order to change your radio from the Round pin to the new generation Flat pin (MOST connector) you will need to get the parts listed above for adapting your radio
The installation is very simple and quick. Using the BMW adapter harness, connect the round pin adapter in the car harness to the Round to square pin adapter
Connect the Antenna adapter from the car harness to the new style radio using the adapter. Connect the audio input adapter from the car harness to the radio.
IF your BMW was equipped with DSP audio system, you will also need to change the audio input connection from the single wire direct from CD changer to DSP amp to the new audio connector. This is the same change that is required to support BMW Sirius satellite radio.
Using part number P/N 61.12.0.140.716, connect from the CD changer to the new Radio. - (sorry no image yet)
Info and Pictures of new Changer in operation. Images shown in 2001 7 series with new style radio
Search options
Enable/disable Audiotext
MP3 Folder 1 / Track 1 / CD 1
CD Text is not on the Cluster but only on the nav display
Information on displaying BMW formatted ID3 audiotext
MP3 Audiotext
In order to properly display ID3 Audiotext, you will need to make sure your MP3s are formatted with ID3v1 ID3v2. I have had good luck with Tagscan, set to process ID3v2. This tool Tags the MP3s with ID3 Audiotext in ID3v1.1 and ID3v2.3. My images above are all using this format and the ID3 audiotext is shown fine. With this freeware tool you can manage entire directories and sub directories ID3 tags. For info on Tagscan visit their website http://www.xdlab.ru/en/index.htm
You can get MP3s from anywhere, but I have found it easiest to just purchase them one by one legally from places like Burnlounge. This DJ has the best stuff including some hard to find music.
IPOD I Tunes
Although I have not tried it, I understand that you can get Itunes files to show the ID3 if configured correctly. I have yet to try it as I do not have any Itunes files. Set your import preference to MP3 at 192kbps and your burn settings to "MP3 CD." In order to see the ID3 audiotext properly you have to make sure that you select "Convert ID3 Tags" under the "Advanced" menu and change to version 1.x. The BMW system only recognizes ID3 version 1 tags. I think the Itunes default is version 2.x
http://www.wellesley.edu/Computing/Idocs/Itunes/convertMP3.html