Human ears and the brain work together to give audio clues. The side where the louder sound comes from and a slight delay of the sound arriving in the right vs the left ear allows the brain to process a direction where the sound is coming from.
But we can also use the echo delay to give cues as to the space that we’re in. A large chamber or room will have sound bouncing off the walls, floors and ceiling and coming back to the ear with a bit more delay. A small room much less delay. This allows the brain to give an idea what “space” you are in. So by mimicking these delays, spatial audio tricks the brain into giving different spatial cues.
Stereo gives direction, spatial audio gives the impression of space.
You are asking that if you limit spatial/3D audio to just a horizontal layer, can a stereo mix compete?
The answer is yes. You mainly just have to play with the loudness/phase/delay between L/R and you can introduce the illusion of spatial properties. [Check out these test sounds](https://www.audiocheck.net/audiotests_stereophonicsound.php).
The issue though is you have to create these loudness/phase/delay differences for a stereo mix, whereas for say a Dolby Atmos process you just place the sound you want in 3D space around the virtual listener and it does all these adjustments for you.
There is another aspect relating to HRTFs (how our physical heads alter sound as it passing around our skulls and pinnas), I do not know if Dolby Atmos music tracks take this into account, [I do know Sony does for the PS5’s spatial audio](https://youtu.be/ph8LyNIT9sg?t=2400), so I assume Dolby does as well (not personalized of course, but a general model).
**EDIT:**: Dolby Atmos does use an HRTF model for headphone tracks, they even have [an app for personalized HRTFs to make it even more realistic](https://www.soundonsound.com/news/dolby-announce-personalised-hrtf-app?amp) ([Apple’s AirPods also do this](https://support.apple.com/en-us/HT213318)).
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