Dolby Labs (NYSE:DLB) wants to do for your television's screen what it did for your stereo speakers. On Monday the sound specialist unveiled a set of technologies that mimics how your eyes see the world.
While the industry has been casting about for years looking for the next-generation technology that will spur TV sales the way the LCD screen upgrade cycle did a few years back, Dolby may have finally hit upon an advance that succeeds as wildly as the innovations of 3-D and "smart TVs" have failed. In doing so, it offers to fulfill the promise of Utra HD and 4K sets.
Yet just as much for its own sake as the industry's, Dolby needs a new hit to stave off fading into so much background noise. The royalties the sound technician receives from including its codecs in newer technologies are much lower than the ones it previously received for DVDs, which helps explain why Dolby's performance has lagged over the past few years. The new technology it unveiled promises to once again be highly disruptive and once again cement its position at the forefront of industry.
Visions of grandeur
Dolby Vision is designed to improve your TV viewing experience by altering the brightness, color, and contrast displayed on the screen similarly to how the eye sees images. While TV shows and movies are already filmed with technology that captures true-life colors, by the time it's processed for broadcast the brightness, color, and contrast have been stepped on by legacy technology, so that the final image output is significantly degraded. Dolby Video increases the brightness of the light emanating from the TV screen from about 100 nits today to 4,000 nits, a 40-fold jump in the luminance emanating from the display device.
The technology promises to capture and faithfully reproduce images through the entire capture, distribution, and playback process regardless of a screen's size or distance from the viewer. Microsoft, Amazon.com, Netflix, and VUDU have all agreed to be part of the technology's ecosystem.
This isn't the first time the sound specialist has dabbled around the edges of television. Dolby is a leading provider of 3-D digital cinema while also offering Dolby HDR, which increases the contrast ratio of LED backlit LCD screens through the use of dimming technology. But with the declining number of 3-D movies being produced and both the BBC and Disney's ESPN abandoning their 3-D channels, 2013 turned out to be a pretty poor one for the technology, with rival RealD (NYSE:RLD) reporting a 20% decline in fiscal year second quarter revenues. It's lost about a quarter of its value over the past year.
The eye of the beholder
The real beauty of Dolby Video is that rather than simply adding more pixels to the screen as the industry has typically done when moving your television from standard definition to hi-def, going from 2K to 4K at the movies, or going to higher frame rates and 3-D, this new technology looks to improve the pixels that already exist by taking the imagery that's already being captured and tucking it away in a lock box of sorts that can be opened later on when the display technology catches up.
Of course, there's the always-present problem of whether the technology or the content should come first, because without one there's no incentive to create the other. The display Dolby used to show off its achievement was custom-built for the purpose (and there are no plans to commercialize it) -- it would never pass muster with the draconian energy efficiency standards in places like California.
Still, Dolby Vision could represent a whole new growth trajectory. With the new technology set to begin appearing later this year in Sharp, TCL, and Vizio sets in time for the holidays, we may see a whole new upgrade cycle in high definition. Sure it will be a small niche market at first, with large premiums, but its promise is a sea change in the way we see images on the small screen, and that sounds like greater profits for Dolby Labs down the road.
Fool contributor Rich Duprey owns shares of Dolby Laboratories. The Motley Fool recommends Amazon.com, Dolby Laboratories, Netflix, and Walt Disney. The Motley Fool owns shares of Amazon.com, Microsoft, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.