By SHELLY GARCIA Staff Reporter When Dolby Laboratories Inc. won the competition to provide the audio portion of high-definition television, it may have looked like the war was over. But for the company’s Burbank offices, it was just beginning. HDTV is caught in a Catch-22 situation. With the cost of high-definition TV sets hovering around $5,000, public acceptance of HDTV has lagged, and broadcasters don’t want to invest the significant amount of money required for the digital format if it is not widely accepted. But until more broadcasters are creating programming in the digital format, it will be a tough sell convincing the public to buy into the HDTV phenomenon. “In any new technology, there’s a chicken-and-egg problem,” conceded David Gray, vice president at Dolby. Dolby has already become the national standard for HDTV sound equipment, which means that TV stations wanting to broadcast HDTV signals must use hardware built or licensed by Dolby. But broadcasters will also need special technology, especially software, to create and edit programs in the digital format and then distribute them to affiliate stations. Who provides those technologies is still up for grabs. That’s why the folks at Dolby’s Burbank offices are busy developing the software that helps broadcasters implement HDTV, and they have begun traveling across the world to demonstrate and hopefully sell the company’s technology. “It’s not a fevered pitch yet, but it’s starting,” said Gray. Right now about 20 percent of the efforts at Dolby’s Burbank offices are devoted to HDTV. But Gray projects that a year from now, that number will grow to 40 percent. The switch from analog to digital TV, which promises razor-sharp images and movie-theater-quality sound, is mandated by the Federal Communications Commission, but the rollout has been slow. So far, 42 stations nationwide have begun digital transmissions with very limited programming. Part of the problem is the cost of hardware for the home. Though prices have been coming down, many observers think it may take years before a large percentage of consumers embraces HDTV. “There are a lot of people who feel the average consumer doesn’t care (about HDTV),” Gray said. “Others think they don’t care until they see it. It’s safe to say we’re confident HDTV is going to fly.” Right now, most broadcasters are limiting their use of digital transmissions to movies, which are already formatted for the technology, and require the least amount of investment. “It exists and it’s there, and they (broadcasters) can purchase the rights and have everything they need to implement HD in all its glories,” said Gray. Creating programming for HDTV is a far more complex undertaking, but it can also mean substantial additional revenues for Dolby. Broadcasters have to manipulate just about every program they air, for such things as adding commercials, voiceovers or promotional messages or for editing, and because digital broadcasts contain much more data than do analog, the current technology can’t produce that programming cost effectively. Dolby is working on two systems to solve the problem, Dolby E and Metadata. At the same time, the company is hoping to help amortize the cost of its research and development by selling its systems for transmitting HDTV to overseas markets. Analysts say that when HDTV does take off, Dolby is in a very good position to profit. “Whatever flavor TV goes to, sound is going to be one of the key elements,” said Josh Bernoff, a principal analyst with Forrester Research Inc. in Cambridge, Mass. “No matter how digital TV rollout goes, far-improved sound is likely to be part of what’s created and delivered. (Dolby has) chosen a piece that’s likely to be successful.” Although most of the engineers working on Dolby E are based at the company’s San Francisco headquarters, the bulk of the development work for Metadata has fallen under the aegis of the Southern California office. So has the responsibility for promoting Dolby to overseas markets. “This office has done all the demos around the world for HDTV,” Gray said, including Argentina, Brazil, Thailand, Singapore, China and Western Europe. “The more countries that follow the U.S. standard, the better the market (for us).” The staff at Dolby’s Southern California office has more than doubled as a result. Five years ago, the company had 11 employees at its Southern California location, but today there are 26, with three more engineers slated to be added to the roster shortly. To accommodate the growth, Dolby has just acquired a $3.7 million building it plans to renovate in Burbank. The 20,000-square-foot facility will provide more than twice the space Dolby has currently. Dolby’s research and development in the field of digital technology has already paid off somewhat in the DVD market, where the company’s technology is also the industry standard for audio. “We’re fortunate in that we’ve succeeded in spreading out the initial development investment over a number of formats, and that’s been paid for,” said Gray. But that is not the case with the investment required to develop Dolby E and Metadata. “E is basically a newer R & D; development, and that development we clearly have not begun to scratch the surface (in recouping the investment),” Gray said. The privately held company doesn’t divulge information about the cost of its research and development efforts, and Gray points out that as a technology-based company, it is obliged to make big investments in research and development as a matter of course. Still, it behooves Dolby to find markets for its technology, and the company is gearing up to do that. Dolby has already begun meeting with executives at the networks as well as producers of content to help foster acceptance of its HDTV technology, and the company expects to step up the pace as the format gains greater acceptance. To truly establish HDTV with consumers, more content is necessary. “Our job is to make sure that happens, which involves marketing, sales and engineering wrapped into a big package,” Gray said.