Dolby Laboratories Inc.

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Dolby Laboratories Inc.

100 Potrero Avenue
San Francisco, California 94103
U.S.A.
(415) 558-0200
Fax: (415) 863-1373
Web site: http://www.dolby.com

Private Company
Founded: 1964
Employees: 300
Sales: $60 million (1995)
SICs: 3679 Electronic Components, Not Elsewhere Classified

Dolby Laboratories Inc. made “dolby” a household word when it developed the first commercially feasible noise-reduction device for magnetic tape. Now providing noise-reduction products for film, fax, and the Internet as well as music, Dolby remains a private company owned by its founder and namesake. The company is a leader in both analog and digital markets.

The inventor and owner behind Dolby, Ray Dolby, worked his way through high school and later Stanford University, at Ampex (a tape company). There, he was part of the six-member team that developed the first videotape recorder in 1957. He then attended Cambridge University in England, where he received a Ph.D. in physics before joining UNESCO in 1963. It was during his professional tenure at UNESCO that Dolby developed his namesake noise reduction process, visiting an ashram in India in 1964. While recording sitar music with a reel-to-reel Ampex tape recorder, Dolby was bothered by the hiss on his tapes, which drowned the subtleties of the Indian musical instruments. After meditating on the problem, he invented electronic circuits that eliminate this hiss, and made his fortune on the product. Further, he remained in complete control of his invention and his private company through the changing technological times to come. While Dolby controls the patents and trademark for his product, he made the invention attractive by claiming very little in early royalties: sometimes only 71/2 cents per tape player.

Dolby was the first to create such a noise-reduction system for tape, although phonograph records had previously contained frequency adjustments that suppressed needle noise. Creating a noise-suppression circuit for the high-frequency static (or hiss) on magnetic tape was a slightly different procedure. With Dolby sound, circuits artificially boost the loudness of the highest frequencies of music while it is being recorded, and then the playback circuit reverses the process, shrinking high-frequency loudness back to its original levels. The shrinkage process is what makes the tape hiss less audible. The process only takes place during quiet musical passages, for two reasons. First, magnetic tape is not capable of increasing the high frequency of loud music, since it is already at its limit. Second, the process is unnecessary in loud passages, as the ear is unable to hear static over high volume.

A capable inventor, Dolby proved to be a shrewd businessman as well. In the 1960s, he faced several problems in launching his sound-reduction device. First, he had to persuade manufacturers of tape players to use Dolby circuits before many music tapes were released in Dolby format. However, he was seemingly caught in a Catch-22 situation, for there was no reason for music publishers to release Dolby tapes before consumers owned Dolby players.

To penetrate the market, Dolby enlisted professional recording studios first, and then pursued manufacturers of high-end consumer electronics. Once these sectors were on board, Dolby was able to convince mass market manufacturers that Dolby sound was a seemingly “high-end” product that they could integrate at low cost. To ease the compatibility transition (allowing consumers to continue playing non-Dolby tapes), the new recorders were issued with switches that turned the noise-suppression circuit on and off. When the mass market electronics makers began issuing Dolby players, Dolby’s first problem was solved: audio cassettes with Dolby sound quickly followed.

The digitalization process came to music recording in the 1970s, threatening to make Dolby noise reduction a dinosaur. Responding to change by diversifying his product, Dolby branched into movie theater sound systems, perfecting Dolby Stereo sound around 1975. He quickly followed this innovation by penetrating the home video market with Dolby Surround Sound for videorecorder stereo systems.

By 1982, the company was receiving $6 million annually in licensing fees from approximately 125 audio equipment manufacturers. With circuits in about 70 million different consumer products, Dolby had a monopoly in the consumer noise-reduction field. In the 1980s, virtually all prerecorded cassettes used Dolby B. The first major threat to Dolby’s positioning began quietly in 1980, when dbx—a Newton, Massachusetts company—sold its system to several audio manufacturers, including the major Japanese company Matsushita Electric. In April 1982, the competition began to look more serious. Dbx pulled ahead of Dolby, developing the first miniature noise-reduction circuit for Walkmen, which at this time represented the fastest-growing consumer audio segment. Dbx, which had been developed in 1971, was a serious threat to Dolby because it reduced background noise by 40 decibels, a considerable improvement over Dolby’s 10. Initially, high prices had made dbx unfamiliar to consumers, but the system was favored by recording professionals. By 1982, dbx had already far overtaken Dolby and held 70 percent of the commercial recording equipment market. In response to the threat posed by dbx’s competition, Dolby introduced an upgraded version of its system, Dolby C, as well as a portable product.

The 1980s brought Dolby to Hollywood, with the beginning of film applications. As the movie Tommy, with its quadraphonic sound had shown, Dolby A could be incorporated into the optical soundtrack of film, improving the dynamic range and sound quality of that medium. Dolby Spectral Recording (or SR), which was introduced in 1986, worked on magnetic sound tracks for film as well as music cassettes, producing digital clarity from an analog sound system. Dolby SR used the same basic principle as Dolby’s original circuit, monitoring the sound signal and adjusting frequency boost to suit the loudness level, with different signal levels boosted at different amounts. The result was a system that was dynamic and almost infinitely flexible. The system was used by many professional studios instead of digital recording, and in 1988 Dolby SR was in use at movie theaters showing the films Robocop and Space.

In 1989, Dolby covered all bases by simultaneously advancing in the digital and analog markets. Thus, the company worked to keep analog sound competitive in the age of digital recording, while placing a foot firmly in the digital era at the same time. First, a modified version of Dolby SR was introduced: Dolby S-Type. S-Type differed from Dolby SR in that it was compatible with the Dolby B system, which was the standard system used with domestic cassettes. While Dolby B reduced hiss by 10 decibels, Dolby S-Type improved noise-reduction to 24 decibels, using a bank of variable filters. At 24 decibels, noise is virtually inaudible by the human listener. Dolby C, which was present in high-quality tape decks, already provided more or less the same amount of noise reduction as Dolby S; however, Dolby S added 10 decibels of noise reduction in the lower midrange, which was vulnerable to “grunge” sounds. In short, Dolby S presented a threat to digital sound by making analog tapes sound just as good. Further, Dolby ensured that tapes using S-type sound reduction sounded good when played on the 270 million consumer-owned tape players with B-type sound reduction facilities. Meanwhile, Sony developed a set of microchips that could be built into recorders to provide S-type capabilities.

At the same time, Dolby came forward with a new digital recording system: Adaptive Transform Coding (ATC), which reduced the number of bits of information needed to record high-fidelity sound, allowing digital recordings to store six times as much sound as existing CDs, and thus making digital recording a cheaper process. The company had already experimented with digital coding, circulating its Delta Link system in satellite broadcasting markets in Australia, where it also was used to archive music recordings.

In 1992, Dolby achieved $40 million in revenues, with a third from royalty payments that headed straight to the bottom line. Dolby sound reduction was now featured on approximately 380 million tape players, boom boxes, headphones, and car stereos, as well as a few billion audio-cassette packages.

Dolby won a technological coup over competitors at Eastman Kodak and Optical Radiation Corp. in June of 1992, when the company premiered its new digitally encoded Dolby Stereo soundtrack process for movies with the release of the film Batman Returns. While competitors had released digital soundtracks, Dolby’s was more attractive to distributors. A previous digital system, released by Dolby’s competitors, forced distributors to stock both digital and analog film prints due to compatibility issues. Dolby, on the other hand, innovated SRD—a six-track digital soundtrack that was squeezed into the empty spaces between the holes of a traditional 35 millimeter movie print, allowing distributors to work with just one print for both digital and analog sound. In fact, this was the first successful combination of digital and analog sound on a single print. The cost to theaters for playback equipment that could produce SRD sound was about $20,000, which was a major savings over dual-system alternatives. The quality of SRD was comparable to a CD, professional digital formats, and Dolby Stereo 70mm magnetic releases.

Company Perspectives:

Dolby Labs seeks to provide the highest quality sound-reduction processes for music, film, television, the Internet, fax, and other recorded applications. Owned and operated by inventor Ray Dolby, the company has been at the vanguard of both digital and analog recording technology since 1965.

The home movie-watcher was Dolby’s next target. The company adapted SRD sound to the consumer video market, creating AC-3, its digital surround sound system for the home. The AC-3 system recorded five audio channels and an extra subwoofer channel as digital code. Separate left and right surround channels were provided. Through an agreement with a Santa Clara, California-based chipmaker, Zoran Corp., Dolby promoted this six channel digital signal processing chip as a new consumer product priced at $20 in 1993. Dolby aggressively marketed its surround sound, creating a presence through a Dolby Audio/Video Forum on America Online’s Internet service. Subsequently, Bartelmann Music Group began to release music in the Dolby surround format.

As the United States prepared to adopt high-definition television as a standard in the early 1990s, two of the corporate teams involved in the nationwide competition adopted Dolby audio coding systems. When the “HDTV Grand Alliance” was formed to create technical specifications for a digital prototype system of President Clinton’s plan for national information superhighways, the Alliance chose Dolby’s AC-3 audio system as the audio technology. Dolby was selected based on critical listening tests at Lucasfilms’ Skywalker Ranch in California.

The mid- to late-1990s brought Dolby to the world with telecommunications applications. In 1995, Dolby Fax technology brought Dolby sound to global transmissions by dubbing studios. Invented to solve the problem of transmitting high-quality audio for local storage or over satellites, Dolby Fax was used in remote past-production dubbing for movies, remote audio feeds for radio shows, and remote digital distribution of Hollywood movies to theaters with Dolby sound. The next year, Dolby made its first Internet audio deal. Liquid Audio, a San Francisco company, launched Dolby’s Liquifier audio mastering tool for World Wide Web developers.

Invented at an Indian ashram in the age of analog, Dolby has proved to be a resilient and versatile company, able to ride the technological waves into the digital age and the era of high-definition TV. While the company has been presented with challenges by dbx and others, its noise-reduction products are now so enormously widespread that the name “dolby” is almost synonymous with sound recording.