Prospectus Summary
PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. You should read this summary together with the more detailed information, including our financial statements and the related notes, elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in “Risk Factors.”DOLBY LABORATORIES, INC.
Dolby Laboratories develops and delivers innovative products and technologies that make the entertainment experience more realistic and immersive in theatres, homes, cars and elsewhere. Since Ray Dolby founded Dolby Laboratories nearly 40 years ago, we have been at the forefront of developing sound technologies that enhance the entertainment experience for audiences and consumers. Our objective is to be an essential element in the best entertainment technology by delivering to both professionals and consumers innovative and enduring technologies that enrich the entertainment experience. Our technologies are used in sound recording, distribution and playback to faithfully recreate the original audio experience and enable digital audio and surround sound in applications such as movie soundtracks, DVDs, television, satellite and cable broadcasts, video games and personal computers. Our technologies have been adopted as standards throughout the entertainment industry. For example, virtually all major movie soundtracks throughout the world are encoded using our technologies, and virtually all DVD players incorporate our technologies.
Our products, services and technologies are used throughout the entertainment chain—from content creation, to distribution for large-scale playback, such as movie theatres, to repackaging and distribution for consumer media, such as DVDs, to consumer playback, such as DVD players and home theatre systems. We have built strong, long-lasting relationships with industry professionals at every link in the entertainment chain, including filmmakers, motion picture studios, broadcasters, film distributors, cinema operators, DVD producers, manufacturers of a broad array of consumer electronics products and software developers. Industry professionals and consumers rely on Dolby to ensure consistent quality as content moves through the chain. Moreover, we believe that the use of our technologies by professionals in the creation and distribution of content increases demand for the adoption of our technologies for use in consumer applications. We believe that we are a trusted vendor for professionals and consumers alike, and that the Dolby brand is recognized globally for quality, excellence and innovation.
The following graphic illustrates our participation in this entertainment chain with respect to content for movies:
We develop technologies for both professional and consumer applications.
On the professional side, we derive revenue from sales of products and production services to filmmakers, broadcasters, music producers, video game designers and cinema operators. Our products and production services are used by artists and content creators to help them record and reproduce the sound they envision. For large-scale playback in theatres, cinema operators use our products to play back to audiences rich, realistic soundtracks the way the filmmakers intended. Television, satellite and cable broadcasters use our encoders and decoders to transmit audio encoded with our technologies throughout the broadcast infrastructure and into consumers’ homes. Our professional products are distributed in over 50 countries and we have sold over 73,000 cinema processors worldwide. Our products and technologies have been used in the production of over 16,000 movies, tens of thousands of DVD titles and hundreds of video game titles worldwide. Virtually all movies made by major studios include soundtracks encoded with Dolby SR or Dolby Digital technologies. In addition, over 40 television shows are currently produced using our sound encoding technologies. We manufacture our professional products in our Brisbane, California and Wootton Bassett, England manufacturing facilities, where our own manufacturing techniques and rigorous test procedures help ensure our products meet customer requirements. Sales of professional products and production services accounted for $77.6 million, or 27% of our total revenue, in fiscal 2004.
On the consumer side, we derive revenue from royalties collected from licensees who manufacture consumer electronics products that include our technologies. When entertainment content is produced for playback on consumer media, DVD producers use our professional encoders to capture the source audio, so that the original soundtrack can be delivered to the consumer as faithfully as possible. To enable consumers to experience the realistic entertainment intended by the content creators, we license our sound technologies to manufacturers of a wide range of consumer electronics products, including DVD players, home theatre systems, television sets, set-top boxes, video game consoles, portable audio and video players, personal computers and in-car entertainment systems, comprising substantially all of the consumer playback devices for surround sound. We work with over 40 semiconductor manufacturers, helping them incorporate our technologies into their integrated circuits, or ICs. These manufacturers then sell their ICs to our approved licensees for incorporation into consumer electronics products. We also license our technologies to software developers who implement our technologies for use in personal computer software DVD players. Our licensing arrangements typically entitle us to receive a royalty for every product incorporating our technologies sold by approximately 500 consumer electronics product manufacturers and software developer licensees located in nearly 30 countries. Over 1.6 billion consumer electronics product units sold worldwide have incorporated our licensed technologies, including over 500 million consumer electronics product units since the beginning of fiscal 2002. Our Dolby Digital technologies alone have been incorporated in over 240 million DVD players and over 50 million audio/video receivers and set-top boxes. Our licensing engineers and support staff work closely with our licensees throughout the world to ensure that their products meet our technical and quality standards. Licensing revenue accounted for $211.4 million, or 73% of our total revenue, in fiscal 2004.
While we initially focused on sound technologies, in recent years we have expanded our business to include other technologies that facilitate the delivery of digital entertainment, such as technologies that process digital moving images or protect content from piracy. We are also developing and providing products and services to facilitate the change in the cinema industry from 35 mm film projection to digital cinema, an all digital medium for the distribution and exhibition of movies. In addition, we are continually exploring areas where we may be able to develop and deliver technology solutions that enhance the entertainment experience in other ways.
Key Dolby Strengths
We believe that the following key strengths uniquely position Dolby to develop and deliver innovative technologies to both professionals and consumers to enrich the entertainment experience:
Our Strategy
Our objective is to be an essential element in the best entertainment technology. Key elements of our strategy include:
Industry
The global entertainment industry is in the midst of a transition from analog to digital technologies. Advancements in digital technologies have led to enhanced consumer entertainment experiences through higher fidelity sound; more dynamic sound effects; discrete surround sound; higher resolution video images; smaller file sizes and reduced storage costs; greater portability; simpler, faster and higher capacity means to distribute content; and greater interoperability across a variety of playback devices. New digital media formats and products, such as DVD players, DVD recorders, HDTV, digital cable and personal computer-based video, music and game systems, have been introduced over the past several years. These technological advances have affected a broad range of entertainment formats, including movies, broadcasts, music, video games, personal computers and personal audio and video players, as well as a wide variety of playback environments, including theatres, homes and automobiles.
Consumers are helping to drive the transition to digital entertainment through their rapid adoption of new digital consumer electronics products that allow them to play back audio and video in their homes, cars and elsewhere. Growth in sales of digital-based consumer electronics products has increased significantly in recent years. According to the October 2004 report “Worldwide and U.S. DVD Player Forecast and Analysis, 2004-2008” and the December 2001 report “U.S. DVD Player Market Forecast, 2000-2005” of independent market research firm International Data Corporation, or IDC, worldwide DVD player shipments increased from approximately 13.5 million in 2000 to approximately 89.9 million in 2003, resulting in a compound annual growth rate of approximately 88%. In its October 2004 report, IDC expects worldwide DVD player shipments to grow at a compound annual growth rate of 16.4% from 2003 through 2008, with such growth coming primarily from DVD recorders, home-theatre-in-a-box systems and portable DVD players. The large installed base of digital-based home theatre systems with surround sound capabilities enables television broadcasters to offer programming with digital audio that is comparable to or exceeds the quality available on DVDs. Governments worldwide are playing an important role in driving digital broadcasting by mandating that broadcasters transition to digital signals. Currently, all local terrestrial, or over-the-air, television stations in the United States are supposed to broadcast with a digital signal. According to IDC’s May 2004 report, “Worldwide and U.S. Digital TV 2004-2008 Forecast,” there are approximately 275 million television sets in the United States, 9.2 million of which are digital. Personal computers have also been an important factor driving the adoption of digital technology for multi-media applications. This growth in sales of digital-based consumer electronics products has coincided with increased consumer spending on electronic entertainment generally. According to the Consumer Electronics Association, or CEA, the average annual spending on consumer electronics per household in the United States has increased from approximately $600 in 1990 to approximately $1,100 in 2003. CEA defines consumer electronics to include consumer video products, home audio products and computers, peripherals and software, as well as video game hardware and software, portable audio products, mobile electronics, telephone and home office products, and blank media and accessories.
Corporate Information
We were founded in London, England in 1965 and incorporated as a New York corporation in 1967. We reincorporated in California in 1976 and reincorporated in Delaware in September 2004. Our principal executive offices are located at 100 Potrero Avenue, San Francisco, California 94103, and our telephone number is (415) 558-0200. Our web site address is www.dolby.com. The information on our web site is not part of this prospectus.
Dolby, Dolby Digital, Dolby Headphone, Dolby SR, Dolby Surround, EQ Assist, MLP, Surround EX and the double-D symbol are registered trademarks of Dolby Laboratories in the United States and other countries. This prospectus also includes other registered and unregistered trademarks of Dolby Laboratories and trademarks of other persons.