A Sound Investment : O.C.-Based SRS Technology, Sold by Hughes, Making a Big Noise
Hughes Aircraft Co. spent an estimated $4 million developing a sound technology that fans said could be the successor to stereo. But just when the products were beginning to generate sales, the beleaguered aerospace giant put its sound division up for sale to focus on its core business.
That might have been the end of inventor Arnold Klayman’s sound retrieval system, or SRS, which distributes sound in three dimensions. But Stephen Sedmak of Irvine decided he could give Klayman’s invention another chance at an entrepreneurial company.
A telecommunications consultant with money to invest, Sedmak teamed up with investment banker Walter Cruttenden III and the Hughes engineers who invented the technology to create SRS Labs Inc., which acquired the Hughes inventory and technology, including three patents, for an undisclosed price at the end of June. Now Sedmak is the chief SRS evangelist as president of the seven-person firm.
“We believe we are the next technology that will supplant stereo, which is a 30-year-old technology,” Sedmak said. “Hughes did an unbelievable job developing it. We will take it to the next level. It needs to be in an entrepreneurial setting.”
SRS enhances sound for two-speaker stereos to make it seem as if the sound comes from all directions, or three dimensions. SRS dissects the components of sound waves, determines what directions they come from and reproduces them in the right proportions so that when the sounds come out of a stereo speaker, the listener hears them more realistically.
As a result, SRS eliminates any “sweet spot,” or a place in the room where the highest sound quality can be heard. Instead, almost any spot in the room delivers high-quality sound, as in a movie theater or with a “surround-sound” system with multiple speakers.
“It’s not a substitute for a $1,000 surround-sound system,” said Leonard Feldman, an audio consultant for the company and a professional sound expert in Great Neck, N.Y. “But it’s certainly a poor man’s surround sound.”
“SRS is like embracing someone with sound, versus the conventional stereo that confronts you head on with sound from one direction,” Sedmak said. “It immerses the person in sound.”
Klayman spent 25 years developing sound technology that led to SRS at a small research company in Costa Mesa. Hughes Aircraft Co. bought the technology and hired Klayman as a senior scientist in 1986, creating a sound lab for him and his engineers dubbed Arnold’s Sandbox.
Klayman, 67, who served as consultant to SRS Labs for the past six months, will officially retire from Hughes on Jan. 1 and join SRS Labs as director of advanced development. SRS Labs even bought the entire “sandbox”--a soundproof room with gobs of electronic equipment--and moved it to the company’s headquarters in Newport Beach.
“We were just one of hundreds of labs at Hughes, and they did a great job creating the technology,” Klayman said. “But now we have a chance to continue that work in a small company setting. I expect it to be every bit as conducive to creativity as Hughes was.”
Hughes launched the first product based on Klayman’s sound retrieval system technology, the AK-100, in 1991. Hughes licensed the technology to TV makers Sony Corp. and RCA (several dozen models now prominently feature the SRS logo) and separately marketed more than 10,000 of the $299 components to stereo buffs.
Sedmak credited Hughes with having cracked the consumer electronics market, but said there are four other strategic markets involving computers, automobiles and professional users.
Since June, Sedmak has licensed SRS technology to companies designing home entertainment for computers and video games. Products ready for release include the Game Gizmo 3D, a $79 sound module that brings SRS stereo sound to mono-speaker Nintendo and Sega game systems. Game Players magazine, with 300,000 subscribers, gave SRS Labs its “Ultimate Award” for the product.
“When SRS first approached me, I was skeptical and told them it was impossible,” said Dave Appleman, president of Calypso Micro Products, the device manufacturer in Los Gatos. “But they convinced us. Since we announced it in November, the reception has been so warm that we’re tripling our production plans.”
SRS is also an integral part of new sound cards, which are installed in a personal computer to give it high-quality sound, being built and marketed by Alpha Systems Lab Inc. in Irvine. Alpha Systems is selling the cards for $229 to $299 and will target the so-called multimedia market, or computers that include sound, video and graphics.
Ken Iwamoto, president of the U.S. subsidiary of game maker Technos Japan Corp., said his company is marketing SRS to Japanese makers of karaoke sing-along equipment. Technos Japan, which created the Double Dragon arcade games, also expects to market the technology to other types of Japanese companies, Iwamoto said.
“I think as people opt for better sound in their personal computers, this kind of technology will be what they want,” said Richard Padilla, Alpha’s product manager.
Sedmak said SRS Labs, which has no plans to manufacture the equipment itself, also hopes to license the SRS technology for use in high-end, professional audio machines--from movie theaters to recording studios. And he believes car makers and car stereo manufacturers will license the technology.
The company is raising an additional several million dollars through a private placement, partly to hire additional engineering help, said Cruttenden, who said he fell in love with the technology upon hearing it. The work force is expected to increase from seven to 20 employees next year.
Sedmak would not disclose how much SRS Labs is generating in royalties, but said he hopes the company can generate between $30 million and $70 million annually in five years.
“Sound is becoming a lot more important part of drawing people into a realistic experience,” Sedmak said. “Can you imagine ‘Jurassic Park’ without the dinosaur sounds?”
