Lead Up to the Great Video Game Crash: High Hopes

Video game Valhalla – A splendid video game arcade during the salad days, Massachusetts, 1982

By mid-1981, nearly 30 billion quarters are pushed through the coin slots of arcade games. Through 1982, things are still looking pretty rosy for the video game industry, with over 10,000 video game arcades in business by the end of the year. Home games have expanded as well, as cartridges move into mainstream retail venues like large video cassette and music stores, where, in the case of the latter, video games can account for a 25% increase in sales over the year for a retailer. Together, arcade and home videogames form a $7-billion dollar industry.

The Winter CES show floor, January 1983, Las Vegas

For the year, sales in home video games alone across the board rise from 950 million dollars the previous year to $3.2 billion. 15 million consoles have been sold in the US overall, along with 65 million cartridges. 25% of American homes have at least one system. By midway through the next year, there will have been over 12 million 2600‘s alone sold by Atari. They are the clear leader in 1982, starting the year with a 70 percent share of the video game market. They are also a company that employs almost 10,000 people, around 7,000 of whom work in a sprawling system of buildings around Silicon Valley in California. There are over 200 games available their system, with new batches hitting the market every week. Owned by Warner Communications, Atari makes about 5 times the revenue of Warner’s film division and accounts for over 60 percent of the mother corporation’s profits. As for the other major players in the market, a million Intellivision’s are sold by Mattel in 1982,  and 1.5M ColecoVision sales for Coleco.

Who says video games are harmless. They drove this family insane! 1982 Atari ad

Also a leader in advertising dollars, Atari has spent $28.5 million on TV ads for the first nine months of 1982; they spent only $21.1 million throughout the entire year previous. By the end of the year, Advertising Age estimates that Atari will have spent $75 million on ads, or triple the amount it spent the year previous. Main competitor Mattel spends $21.1 million advertising its Intellivision, trying to retain its 18% – 20% share of the market. Total network time taken for video game advertising is estimated to reach $100 million for 1982-1983. 1984 even sees Atari named as the official sponsor of home computers, arcade and home video games for the Olympic Summer Games, held in Los Angeles. This entails computers and games for participants in the Olympic Village, an arcade set up at the ABC International Broadcast Center for use by the 1000’s of media personnel, and direct sponsorship of the U.S. Women’s Volleyball team. Atari also contracts with official Olympic broadcaster ABC to air 75 commercials across the Winter and Summer games, ensuring the company has huge exposure during the festivities.

Team USA digs up some gold in the Atari-licenced Dig Dug, 1982

Attendees of the 1982 Summer CES line up to play games on the Atari 2600 console

What’s not so publicly known is that Atari has already begun stumbling on the playing field. By the end of 1983, it and the rest of the industry was steadily unraveling. By the end of 1985 the videogame landscape in North America has become desolate, with every major videogame system up to that point either having being sold to independents or discontinued altogether. Buyers for retail outlets who went all-in on video games have found themselves out on the street, and distributors have been left stuck with warehouses full of unwanted cartridges. Faced with a cut of income by the end of 1983 by anywhere from a third to 50% compared to the boom years, arcade video game distributors and manufacturers who had thrown money around on wild expansion of fixed-cost expenses like huge new warehouses and manufacturing plants are now paying the piper… or not paying their debtors. An industry that had practically sprung up overnight to dominate the entertainment sector misses the rings and falls flat on its face.

The Awful Atari Pac-Man Home Adaptation: Pac-Mess

If you have the constitution for it, click the button to play the awful Atari 2600 Pac-Man adaptation

Atari, comprising 2/3 of the industry, bears the brunt of the shakeout. The first sign of trouble comes with the awful home version of Pac-Man, programmed by 25 year-old Tod Frye and released in late March of 1982 for the Atari 2600. Frye is an odd choice to be assigned the work of translating the flagship arcade game of the time: he is a high-school drop-out and former homeless, panhandling, drug-dealing hippy, whose previous claim to fame at Atari is being the programmer of the Atari 400/800 port of Asteroids. That, and the “sprinkler lobotomy” – the time he was into the habit of moving around the Atari building without touching the floor by propping himself up on the walls with his legs and shimmying along…. and smashed his head against a ceiling sprinkler, requiring a bloody trip to the hospital and several stitches in his scalp.  Thanks to the words “Pac-Man” on the box, along with a $15 million advertising blitz, Frye’s translation sports an amazing one million cartridge advance order from retailers and goes on to become the biggest-selling Atari cartridge ever. Warner Communications, when reporting income of its consumer products division for the first quarter of 1982, assigns much of a 180% rise in operating revenues to Atari and the home version of Pac-Man. It becomes rapidly apparent upon release, however, that the quality of the game is awful, bearing only a very passing resemblance to the coin-op.

JUMP: History of the arcade version of Pac-Man

The graphics in the VCS port are horribly blocky, with the title-character a malformed circle with a bad case of lockjaw; his mouth opens and closes at a painfully slow rate, with the movement more like a mashing than the satisfying gobbling of the frantically-paced arcade version. Moving sluggishly around a maze that bears no resemblance to the layout of the coin-op game, the player gums thick dashes called “video wafers” to death instead of dots. The uni-coloured ghosts are a vision of massive flicker, almost invisible as they move around the maze, their eyes rotating meaninglessly. When one of the flashing square “power pills” is swallowed by Pac-Man, the ghosts turn a purple-ish shade of colour indicating their vulnerability to consumption, although the flickering makes it hard to tell the change has occurred or when it ends. The various-shaped prizes that Pac-Man can gobble up for points in the arcade game are represented here by a two-tone coloured block called a “vitamin” that never changes in appearance. The only redeeming aspect of the game would be plenty of different game variations, but there are only eight, simply changing the speed at which the Pac-Man and the the ghosts move. There IS a two-player mode included by Frye, which eats away at what little memory he has to work with. As for sound, there is a grating three-note starting sound, the incessant clang-clang-clang as the Pac gums the rectangle “dots” to death, and the flat-as-a-pancake death sound.

She’s really white-knuckling that joystick! Atari’s flaccid Pac-Man on cover of Playboy’s Electronic Entertainment magazine, Spring/Summer 1982

It is painfully apparent that the game is a rushed job, pushed out in order to recoup the money paid by Atari to Namco for the Pac-Man license. You can’t lay total blame at the feet of game programmer Frye, though: he is ensconced in a room by himself to code for the short four-month deadline, and is further constrained by a demand from Atari to use the cheaper 4K cartridges for his game as opposed to the larger 8K memory of products like Asteroids.  Thus, his resultant game is heralded as a technical achievement by fellow programmers. However, it also helps spawn an edict at Atari that all following games be assigned the more roomier 8K chips. Despite its limited memory, upon release home Pac-Man is a big hit, eventually hitting nine million cartridges bought by retailers. With a 10 cent royalty on every copy sold, Frye’s sales-based bonus results in a paycheque approaching a million dollars, which he cockily staples to his office door…after cashing it, of course. Better versions of Pac-Man are eventually released for other platforms like Atari’s own 400/800 computers and the 5200 Supersystem, as well as other manufacturers’ game platforms like the Commodore 64. Atari itself is eventually redeemed with the vastly improved Ms. Pac-Man on 2600. This adaptation is properly allocated an 8K ROM to allow for a reasonable proximity of the arcade game after the first Pac-Man debacle, and given a six month timeline and a three-person development team. Ms. Pac-Man’s release date is also appropriate: Valentine’s Day of 1983, and the game is a top video-game seller for the year.

Click to play Ms. Pac-Man on the Atari 2600

The original home version however, is an undeniable creative stumble by Atari, and no other game better demonstrates how overwhelmed the 2600 is graphically by emerging systems than Frye’s Pac-Man. Accompanying the game’s release is a massive backlash from critics and users alike, users who have had a cold splash of reality thrown in their face about just how obsolete the VCS has now become. There is a massive amount of returns of the cartridge back to stores by disappointed players, which gives pause to retailers when it comes time to place other game orders from Atari. Games like the mystical SwordQuest series, developed by Frye and accompanied by a contest to give away jewelled treasures worth thousands… and ended unceremoniously when the video game industry goes belly up. Also ending is Frye’s fortune, pissed away within three years via extravagant spending and an equally extravagant tax bill. He would later go on to make games for Midway and 3DO.

Ray’s Revenge with Yar’s Revenge

Yar’s Revenge, a video game for the Atari 2600 console

oOf course, not every game released by the company of this era is an undercooked turkey, as shown by the marvellous Yars’ Revenge, released in May of 1982. The game is originally conceived as a port of Cinematronics’ hit vector arcade game Star Castle until the licensing deal falls through. The designer of Atari’s version is Howard Scott Warshaw, creator of some of the more complicated 2600 games, including Raiders of the Lost Ark as well as The A-Team, a game which itself had started out being called called Saboteur until a giant Mr. T head graphic added and the name of the hit early 80’s TV show is slapped on the cartridge. Warshaw juggles the play mechanics of the now-license-less Star Castle port around a bit under the working title Time Freeze, and the resultant Yars’ Revenge becomes one of the most original and involving games in the 2600 library. The title character’s name, and the solar system he’s fighting to save called ‘Razak’, are all references to Ray Kassar, Atari president, terms chosen by Warshaw to cement the game’s success in the Atari pipeline. This, as well as a 12-page comic to be included in the game, considered by Warshaw as the first complete backstory for a video game.

A page from Yars’ Revenge: The Qotile Ultimatum, comic included with Yars’ Revenge, 1982

To herald the release of Yar, as well as promote 2600 games Asteroids and Star Raiders, Atari commissions an impressive two-minute commercial, titled The Fly, featuring state-of-the-art CGI by Robert Abel and Associates, who also do CGI work on the groundbreaking Disney film Tron, released the same year as the commercial. Made to run in theatres over the summer of 1982, the ad features actor Rod Davidson sitting in an office chair with his back to the audience, posing as an Atari game designer brainstorming ideas, which manifest themselves as computerized images zooming and swirling around him. Designer-director Clark Anderson and co-director and technical expert John Hughes of Abel first design the commercial as an animatic on an Evans and Sutherland Picture System II computer graphics terminal, the animatic being a B&W wireframe version that is the equivalent of the pencil test in traditional animation. The wireframe design is then filled in with tightly-packed smaller lines, and filters are used between the output video screen and the 35mm camera recording it on film to add colour fill to the images. Actor Davidson is filmed in front of a blue screen, acting against the animatic hidden on a video screen in front of him. Computerized lighting cues expose the actor to the various lighting effects synced to the colourful video game elements; there are 80 different lighting events over the two-minute commercial. Live action, CGI and other VFX elements are then matted together, to make an ad that startles moviegoers in 1982.

Animatic for “The Fly”, a 1982 Atari theatrical ad made by Robert Abel and Associates

Abel film creator Clark Anderson stands next to fellow filmmaker John Hughes, of Abel.

Actor Rod Davidson acts in the 1982 Atari ad for Yar’s Revenge

The Extra-Terrible Atari E.T. Video Game

Warner chairman Steve Ross, 1982

There’s no healing this one, E.T.

E.T. on the cover of Videogaming Illustrated, Dec 1982

E.T. definitely needs help. Ad for Atari Club discount on 2600 E.T. video game, December 1982

Atari digging its own grave in E.T. The Extra-Terrestrial

Box art for the dreaded Atari E.T. game

If you’re a masochist, you can click the button to play the godawful Atari E.T. game

Atari’s next big fumble is the 2600 adaptation of the hit film E.T.: The Extra-Terrestrial. Warner chairman Steve Ross negotiates a 23 million dollar deal with his friend Steven Spielberg, MCA, Inc. and Amblin Entertainment for the exclusive worldwide coin-op and home game rights to the film, the sum to be paid three years after E.T.-based games are shipped to stores, with a release date pegged at November of 1982. With the E.T. movie by Spielberg at the time the highest-grossing ever made, it demonstrates a special kind of chutzpah when giving a preview of the game’s development to Spielberg and a cadre of movie execs at the 2600 game development lab at Atari, designer Howard Scott Warshaw starts off with this bold prediction: “This is the game that will make the movie famous!” The company announces publicly that Spielberg is directly involved in the game’s development, with Atari Consumer Division vice-president of marketing Ron Stringari stating that the movie director meets with the game’s designer about its development on a weekly basis.  Spielberg himself tells the press that he’s helping to make E.T. “the first emotionally oriented video game ever produced.” It’s hard to figure out just when Warshaw would be able to find the time to consult with Spielberg, as the game designer has accepted a breakneck six-week deadline to get the 2600 E.T. game ready for production, in order to have the game out for the holiday season of 1982.

The person responsible: Howard Scott Warshaw, designer of E.T. for Atari, circa early 80s

With all Spielberg’s talk of “emotional” video games, when Warshaw presents his basic design to the director, Spielberg suggests he make the adaptation a Pac-Man-type maze game, lumping it together with a myriad of such clones clogging the shelves of retailers. However, Warshaw’s ace in the hole for completing the harrowing deadline on time is a game prototype already in existence at Atari: he jury-rigs it with E.T. related graphics, utilizing a treasure hunt motif: guide the little long-necked alien around the woods and fields of Elliott’s suburban digs, across screens laid out in a grid pattern, looking for the scattered pieces of a homemade radio E.T. can use to “phone home” and get off this rock. Said pieces found at the bottom of holes. Lots of holes. My God, it’s full of holes!

Avid video gamer Steven Spielberg with a piece of his collection, Atari’s Missile Command, undated photo

Warshaw’s efforts eventually net him a $200,000 payment, but it is torture for gamers to play, featuring frustrating control over the lost alien, an action-adventure strewn across multiple screens linked together as a sort of invisible cube, making the movement of E.T. between screens somewhat inscrutable to players. Things are not helped along with endlessly confusing gameplay and maddening collision detection (with THE HOLES!). Ostensibly placed to help gamers are invisible hotzones on the various screens, which when entered by E.T. will cause an icon to appear at the top, its power activated with a press of the joystick fire button: warp to the next screen, force the chasing FBI spook or evil scientist back to their bases, reveal a piece of the radio in a hole, if any (…. radio pieces, that is. There are ALWAYS holes), call Elliott to swap Reeses Pieces to boost E.T.’s health bar, etc. Oh yeah, that reminds me…. all this while keeping an eye on the alien’s life bar, which depletes as he runs around, levitates out of holes (THE HOLES!), struggles when he’s captured by the chasing G-Men, et al.

Expecting a windfall of sales, Atari manufactures around five million E.T. cartridges, but only one million are eventually purchased. In dollar figures, $98 million in cartridges are shipped by Atari right before Thanksgiving…a week and half later they ship none. Wary retailers have scaled back their orders on the game, and many are still left with unsold product as they struggle to move E.T. off the shelves after this initial Thanksgiving rush of retail orders, even as Atari heavily flogs the game with a $5 million ad campaign, through November and December. This includes a 10-city promotional tour. To try and help move the product, a lavish TV commercial for the video game is produced by Spielberg, who also handpicks its director. Even utilizing the cinematographer and camera operator from the film doesn’t help the 30-second and 60-second versions of the ad dig E.T. the video game out of its hole. Even Michael Moone, president of Atari’s consumer division, would admit, rather understatedly, “The cartridge did not live up to our expectations.” Bob Abbate, president of the Sounds Alive chain of music stores of Connecticut, would put the industry’s attitude about the game’s release more succinctly: “E.T. is a bomb”.

Warshaw, right, during an Atari brainstorming meeting, undated

These marquee game releases expose another problem aspect of the video game industry that has surfaced: it has become overly hit-driven. The vast majority of sales for games, sometimes up to 80%, come from current hits that are heavily promoted with expensive ad campaigns, while the growing back catalog languishes. Having been complacent in the boom years when nearly every new video game quickly sold out, when the surmised “hits” stumble upon release, grumblings from distributors and retailers now begin about formal return policies for surplus product from video game companies, a process known in the industry as “stock balancing”. Most of these buy-back agreements equate to “buy two games, return one”. Now facing blowback from distributors and retailers angry after years of, at best, indifference and at worst, abuse from Atari, the company is left with a large inventory of unsold or returned cartridges as E.T. becomes one of the greatest video game flops in history, creating a noticeable drag on company sales figures. An E.T. coin-op game, as well as a computer version, are slated for release, although only the computer product makes it to stores: A similar yet different version of the console game, E.T. Phone Home! is released in early 1983 by Atari for its 8-bit computer systems. Along with improved graphics comes a role reversal, with Elliott on the run looking for the scattered phone parts across four screens, while E.T. hides at home offering telepathic clues to their locations. The game also benefits from a group approach to its development, with game designers, graphic artists, sound engineers and programmers teaming up to produce it. Although E.T. never flies over into the arcade video game space, he does have a deleterious effect over there too: the unprecedented success the movie enjoys in theatres over 1982 (and beyond) draws kids out of the arcades and slows coin-drop into arcade games even more. 

A procession of dump trucks, ready to lay part of video game history to rest in Alamogordo, NM, Sept. 1983

The Big Dump of Atari E.T. Video Games

With unsold inventory piling up, under cover of night on September 22, 1983, transport trucks line up at Atari’s El Paso, TX. facility, now a “remanufacturing” plant used as a repair facility, as well as a warehouse repository for broken or unsellable game cartridges and systems. Its former manufacturing operations have been off-loaded to factories in Puerto Rico, as well as Taiwan and other points in the Far East. There the trucks are loaded with thousands and thousands of unsold Pac-Man, E.T., and other surplus video game cartridges such as fellow movie adaptation flop Raiders of the Lost Ark, originally a product titled Foxbat until the project is re-tooled for use under licence of Spielberg’s smash-hit movie. Atari’s version is released in November of 1982. Also designed by Warshaw, the obtuse gameplay of Raiders makes the game mechanics of E.T. seem clear and concise.  Joining these “hits” are back-catalog games that have been languishing, along with  various hardware prototypes and limited production runs littering the El Paso Atari inventory storehouse. The filled trucks are driven about 90 miles north to the Alamogordo municipal landfill in New Mexico, home of another big bomb; nearby is the site of the 1945 Trinity test, the first explosion of a nuclear device.

Map for obtuse Raiders of the Lost Ark video game for the Atari 2600, by Howard Scott Warshaw, 1984 image

E.T.’s final hole: Cement is poured over dumped cartridges in 20 foot pit at Alamogordo dump, September 1983.

The contents of the trailers are then loaded onto dump trucks and emptied into the Alamogordo City Dump, run over with a bulldozer and covered with a layer of 50 cubic yards of concrete, in order to deter looters… although adventurous kids plunder the site after the activity and find playable cartridges. Somewhere between 14 – 20 of these loads make the trek from El Paso to Alamogordo over the following week, each truck hauling around 100 cubic yards of discards from Atari. The game company insists to the curious press that the burial was done to dispose of “defective” inventory. Considered a kind of urban myth by some over the years, including E.T. designer Howard Scott Warshaw himself, the Atari landfill burial is confirmed by a crew filming the documentary Atari: Game Over in 2014. They uncover tens of thousands of cartridges of E.T., Raiders, and others at the site, along with other flotsam and jetsam that Atari wanted to disappear. If only the company could have buried the lack of confidence the missed sales figures of games like E.T. fosters in shareholders, retailers and consumers alike as easily. They’re not the only culprit, however, as both Mattel and Coleco overproduce cartridges in a market becoming less and less able to support them.

E.T. game crashing fast.. Ad for JCPenney from the Indiana Gazette, Thursday, September 29,. 1983

Newspaper article on the E.T. cartridge dump

Art for 2014 documentary about the E.T. video game burial

A backhoe digs for dubious treasure in an Alamogordo landfill, 2014

E.T. and friends unearthed in Alamogordo landfill, 2014

Shovelling Dirt Into the Grave of Video Games

Even though successful third-party game makers Activision and Imagic produce some of the better games for the 2600 in its later years, when these game-making upstarts first appeared on the scene Atari saw their grip sliding on the control of the software library for their system, and they start legal tussles with the two companies. Atari eventually loses its case in court, opening the floodgates for third-party manufacturers of games for their systems. Soon everybody and their dog has a game out, and while this does expand the machine’s library of cartridges, little concern is given to their quality. The vast majority of them are simplistic knock-offs of arcade game concepts: maze games in the Pac-Man vein, or platform games a la Donkey Kong. There are 50 companies publishing games for the 2600 in 1983, outfits such as 20th Century Fox, Avalon Hill, CommaVid, MCA, Froggo, ZiMAG, VentureVision, Milton Bradley, Telesys, Sega, Spectravision and Tigervision. To put some of these accomplices to the murder of the early 80’s video game industry up into a lineup for closer identification:

• If you are an aficionado of B-grade schlock movies, you might recognize the name Charles Band. By 1983 he has an impressive resume built up as a film producer and director, including such classic fare as Laserblast, Tourist Trap and Parasite. It is with this pedigree that Band wades into the unsuspecting video game industry in 1983, founding Wizard Games. Game production is contracted out to a development studio started by former programmers at Games by Apollo, which had declared Chapter XI bankruptcy on Nov. 12, 1982. Wizard licenses two notorious horror movies for their first video game products for the 2600: Halloween and The Texas Chainsaw Massacre. It’s true that the violence contained within the resultant games is blockily abstract, but blocky abstract violence is all the public has at the time in video games, so after whole weeks of development time the games are released and the obligatory controversy generated. With most stores unwilling to stock the games, and those that do keeping them behind the counter on a request-only basis, sales figures are understandably low. Unfortunately, Wizard’s plans for a game based on softcore porn movie Flesh Gordon never hardens up.

Xonox ad, 1983

Xonox video games on display at Winter CES 1984

• Game maker Xonox is a division of K-tel, infamous TV sellers of “50 Original Hits” music compilations. Their idea of innovation in the video game space is to sell Double Ender cartridges for the 2600. With a suggested price to retailers of around $42, Double Enders have two separate 8K games accessible via edge connectors on each end. Early entries for these dual games include Spike’s Peak/Ghost Manor and Chuck Norris Superkicks/Artillery Duel. The most clever bit of this whole exercise? The palindrome company name, readable any way their cartridges are inserted. Any way you look at it, K-tel is eventually turned upside down by its heels and shaken for loose change by creditors, when it posts a fiscal year loss of $33.8 million and files for Chapter 11 bankruptcy protection in late-1984.

CBS Video Games’ 1983 sales strategy

• CBS, distributors of the ColecoVision outside of North America, enters the videogame publishing biz via a four-year partnership deal with Bally Mfg. Corp, creating CBS Video Games. This gives CBS rights to available Bally/Midway arcade games for adaptation to home consoles and computers. The cartridges are produced and marketed by Gabriel Industries, the toy arm of CBS, headed by Benjamin Ordover. CBS Video Games vice-president Robert L. Hunter, a 29-year-old MIT graduate, is at the helm of the new venture.  Adaptations of Gorf and Wizard of Wor are two of the bigger hits from the partnership between CBS and Bally/Midway, both games developed by Dave Nutting Associates, makers of the classic one-on-one shooting game Gun Fight for Bally/Midway. With a name change from CBS Video Games to CBS Electronics, the company develops 2600 cartridges with the RAM Plus Power Chip installed inside, adding 16K of memory. This allows games with advanced 3D graphics for the system like Tunnel Runner, as well as the first-person combat flight simulator Wings, a game within weeks of being released when CBS suddenly pulls the plug on their video game division in late 1983. CBS Software is also formed, releasing games primarily for the Atari 8-bit computers, via a licensing agreement with K-Byte Software.

CBS Video Games lead Robert Hunter, 1983

CBS Video Games honcho Robert Hunter on the phone, 1983

Wings, featuring CBS Ram Plus tech. An unreleased, advanced flight simulator for the Atari 2600, CBS 1983

Frank O’Connell, head of Fox Video Games, 1983

Jamie Farr, who never saw a promotion he didn’t like, shills for Fox Game’s M*A*S*H

Max Klinger, aka Jamie Farr, helps promote the M*A*S*H game at 1983 Winter CES

Cut this box open and examine its bloody guts, ferret face!

Fox Video Games M*A*S*H tent at 1983 Winter CES

• Another media conglomerate, 20th Century Fox, throws their hat into the crowded ring with their video game arm, Fox Video Games. The initial plan for this venture is that Atari programmers Tod Frye and Howard Scott Warshaw, creators of some of the company’s best-selling games, would leave Atari and form this division for Fox. This, before Frye threatens Atari management with the prospect and the company nearly instantaneously starts handing out large cheques and installing a more generous bonus system, satisfying its biggest game development performers. Headed by former Mattel Electronics Sales and Marketing Senior VP Frank O’Connell, Fox Video Games cranks out 20-some carts into the market. Tagged as Games of the Century, a few are licensed from computer software game company Sirius Software, and Fox also reaches into their own film library for titles like Fantastic Voyage,  the Barry Bostwick SF extravaganza Mega Force, and teen sex-romp Porky’s. It is the latter game, based on the hit screwball teen-sex comedy film, that O’Connell publicly predicts will become “the most successful video and personal computer game in 1983.” While planned for a plethora of video game systems and home computers, Porky’s only ambles onto the 2600 and Atari’s 800 computer. Predictably, Fox also cranks out a game based on the 1979 smash hit SF-horror movie Alien. This tie-in is facilitated by Fox brass taking what amounts to merely a programming experiment to see if a Pac-Man clone can be created on the 2600 without all the flicker of Atari’s lamented version, and then insisting that the little figure running around this maze be shown holding a rectangle that could, with a healthy spray of imagination, be considered a flamethrower. Voila! An Alien game is born from its slimy egg-sack! Fox’s biggest stretch might be a game based on the film M*A*S*H, where chief surgeon Hawkeye Pierce actually flies helicopters around rescuing injured soldiers and skydiving medics. At least he does get a bit of surgery in between flights, Ferret Face!. Sirius had actually first been contracted to do the M*A*S*H game for Fox, but for whatever reason the company decides to eschew the Sirus submission and go with their own version. With M*A*S*H star Alan Alda already pitching for Atari computers, Jamie Farr, Cpl. Max Klinger himself, does KP duty selling this one. Mega Force, M*A*S*H and Alien are all programmed under contract to Fox by Doug Neubauer, who probably had more fame as the creator of the excellent Star Raiders for the Atari 400/800 computers.  Frank O’Connell regals members of the press at the 1983 Summer CES with sales numbers of M*A*S*H game cartridges of over 500,000 units, with a possibility of them hitting a million. However, the initial price of the M*A*S*H cartridge for the 2600 eventually goes under the knife in 1983, from $29.99 down to $14.95. Announcing the price slashing, O’Connell paints it as a good thing for the industry, proclaiming that moves like this will clear out surplus inventory to make room for new games that gamemakers would somehow be able to charge higher prices for. He also expects the enormous software glut to be cleared out within two months. This is a highly optimistic forecast, especially considering the gold-rushing Fox itself is perpetrating on the video game market via their seemingly reckless diving into their media property pool:  video game adaptations of Fox works as far flung as the Kenny Rogers vehicle (literally) Six Pack, SF classic The Day the Earth Stood Still, female empowerment tale 9 to 5 and the Lee Majors-starring TV show The Fall Guy are some floated by the company. Even a game based on the Robert Redford/Paul Newman classic western Butch Cassidy and the Sundance Kid is threatened by Fox, but mercifully never emerges out into the light of day. Fox does wins the award for best video game title ever: The Earth Dies Screaming. Another thing that dies screaming is the partnership of Fox and Sirius: the latter files a 20 million dollar lawsuit against Fox in the later part of 1983, containing forty counts of breach-of-contract, fraud and lack of good faith charges. On November 8th, Fox Video Games announces that it is shutting down, effective immediately.

Fantastic Voyage cartridge for the Atari 2600, 1982

Doug Neubauer, creator of games for 20th Century Fox’s game unit.

JUMP: A closer look at the M*A*S*H video game, during TDE’s Oscar Week

Stan Lee and creations, playing Parker Brothers’ Spider-Man for the 2600, 1983

• Board game giant Parker Brothers had rolled the dice on electronic games in the late 70’s with items like their first boardgame/electronics hybrid Code Name: Sector, along with light-pattern handheld Merlin. Under the leadership of VP of consumer electronics Richard Stearns, the company makes their move into the video game market via a series of lucrative licenses. While these initial releases are made for the Atari 2600, Parker Brothers had originally approached Mattel in 1981, offering to make games for the Intellivision if the company would forward technical specs for the machine to speed game design. Mattel passes on the proposal, so Parker Brothers jumps into the rapidly crowding Atari pool. Their strategy for an early boost in the market and to differentiate themselves in an ever-growing video game glut is aggressive licensing, including a valuable deal with Lucasfilm to make console games based on the Star Wars franchise. Their first game, released in June of 1982 and based on the second Star Wars film, is titled Star Wars: The Empire Strikes Back. For their second game, Parker Bros. produces an adaptation of the hit arcade game Frogger. Together, both of these initial 2600 games sell over three million cartridges, helping the company pull in $115 million in sales for 1982. Empire alone accounts for over thirty millions dollars of that figure. Parker Brothers would later release Star Wars: Jedi Arena, and titles such as Star Wars: Return of the Jedi: Death Star Battle. The mouthful-of-a-title Star Wars: Return of the Jedi: Ewok Adventure is put in the development pipeline, completed, but never released as the marketing department of Parker Brothers determined the controls too complicated. In 1983 the company is responsible for the highly promoted and anticipated Spider-Man, featuring Marvel’s iconic web-slinging superhero, for the Atari 2600. Parker Brothers also makes the largest bid yet for an arcade game license, paying Nintendo $2 million for the rights to the hit Popeye, plus a promise of $4 in royalties for every cartridge they sell of their console translations. They also put out product based on Strawberry Shortcake, G.I. Joe and James Bond.  Backed by a $30 million ad campaign, Parker Brothers has a slate of 16 new video games, for various platforms, scheduled for release through 1983. One is another big licence for the company, Lord of the Rings, which is near completion for the 2600 and set for release in 1983, with a planned version for the Intellivision as well. Given a subtitle of Journey to Rivendell, the project is then unceremoniously cancelled late in 1983.

• Quaker Oats, known more for breakfast cereals than high-technology, enters the market via its acquisition of game maker U.S. Games, Inc., later changing its name to Vidtec. The company quickly builds a library of titles by contracting out to game development company James Wickstead Design Associates, of which Garry Kitchen is an employee. There he makes the shooter Space Jockey, probably U.S. Games’ most popular title out of a bunch of other fairly forgettable games. One U.S. Games release, put out in February of 1983, is initially titled Treasures of the Deep while under development at Wickstead, and then renamed Guardians of Treasure by U.S. Games. It is subsequently saddled with the mouthful of a title Name This Game and Win $10,000. It is designed by Ron Dubren and tied to a contest asking people to submit their own title for the game. U.S. Games goes out of business before the contest’s April 30th, 1983 deadline. Garry Kitchen eventually leaves U.S. Game’s  JWDA developer partner to join his brother Dan at the greener climes of Activision. Apropos, a popular game from U.S. Games is Eggomania, the action of which closely emulates Activision’s hit game Kaboom!

Ron Dubren, designer of U.S. Games’ Name This Game, 1983

Ron Dubren’s book on mastering centipede, 1984

“Weird Bird”, a mascot for the U.S. Games release Eggomania that roamed the 1983 Winter CES floor laying blue eggs.

• Taking a run at matching the crassness of Fox’s pillaging of their TV and film properties. Sega’s sister company Paramount Pictures (both reside under the wide umbrella of Gulf + Western) announce a desire to leverage their video game relations in promoting their media library. While games based on the Nick Nolte/Eddie Murphy cop comedy 48 hrs., hilarious parody film Airplane! or SF classic War of the Worlds might seem a bit suspect, Sega really rattles teeth threatening to make a video game based on the Dustin Hoffman/Laurence Olivier thriller Marathon Man. One could only imagine the company making a running sports game and slapping the movie title upon it. And of course, you know…. there’s always Star Trek. Qapla’!

RED ALERT! We’re completely surrounded by space junk, Commander! Star Trek for the A2600, 1983

Rock ‘n Roll Video Games: Don’t Stop Believing

Food products such as Purina dog food, Coca-Cola and Kool-Aid are all also being hawked by shoddy video game tie-ins. In a combination of two time-honoured teen-age time-wasters, rock & roll and video games, America’s #1 rock band at the time, Journey, struts onto the video game stage with  Journey Escape in 1982. It is an attempt to boost the aforementioned synergy between music stores and video games. Journey Escape is designed by J. Ray Dettling, also the creator of Frankenstein’s Monster and Bermuda Triangle for Data Age. About the toughest part of the job for Dettling with the Journey game is squeezing in all of the rock band’s iconography into a 2600 cart, especially after spending a lot of the cartridge’s 4K memory opening the game with the spectacle of the group’s famous scarab Escape vehicle breaking through the cosmic egg a la the famous cover image for their multi-platinum rock album Escape. Snippets of two Journey hits Don’t Stop Believing and, naturally, Escape, also have to have space found for them within the tight confines of the cartridge. Versions for the Intellivision and ColecoVision are also promised to soon take the stage, along with promises of future games possibly starring The Rolling Stones, Styx and Fleetwood Mac. But with Journey Escape the first actual game based on a Rock ‘n Roll band, it also is the first home game that reverses the common adaptation trend and moves from the original VCS cartridge by Data Age into a coin-op version by Bally/Midway the next year. A collection of five game stages, the arcade version of Journey Escape does contain at least one saving grace: digitized images of each band member’s head on the characters, facilitated by a process created by Ralph Baer, creator of the first home video game system, the Magnavox Odyssey. The company ships 400,000 copies of the rock ‘n roll video game to retailers accompanied by a $4.5 million ad campaign of promotions and advertising paid for by Data Age. Unfortunately for the games company, only 25,000 of the cartridges actually sell. Due to a stock balancing policy Data Age has agreed to that every unsold copy of the game can be returned, the rest get sent back and, on the hook to buy back the unsold games as well as facing high licensing fees from the Journey people, Data Age files for Chapter 11 bankruptcy protection on April 6, 1983.

Chase the Chuck Wagon, a dog’s breakfast for the Atari 2600, 1983

Snoopy and the Red Baron, more fodder for the video game industry, 1983

Pigs in Space, extra pork for the video game industry, 1983

Pepsi Invaders, made at the behest of the Coca-Cola company, 1983

X-Rated Video Games: Custer’s Worst Stand

Grab yer joystick (or keybroad, er I mean board) and (fore)play the infamous Custer’s Revenge on the VCS

Slipping a bit in its policy of always being on the vanguard of every new media technology, the porn industry enters the fray later in the Atari 2600 lifecycle with Mystique’s Custer’s Revenge, the first adult-only game for the system, in November of 1982. This X-rated video game features a perpetually aroused General Custer trying to rape an Indian maiden tied to a stake. Helpful instructions for the game, in addition to pointers on “Foreplay” and “Scoring”, offer this advice to gaming parents: “If the kids catch you and should ask, tell them Custer and the maiden are just dancing.” Atari spokespeople frantically attempt to distance the company from such games, although this doesn’t prevent organizations such as Women Organized Against Rape from picketing Atari headquarters. The Mystique brand is owned by American Multiple Industries, who’s previously most controversial products have been plastic containers for video and audio cassettes. With the company run by Stuart Keston, the Mystique label is produced in collaboration with Caballero Control Corporation, a big producer of porno video tapes. Al Bloom, CCC VP, has some bold sales projections, stating that 500,000 Mystique cartridges will be in stores nationwide by November, and 1.5 million by January 1983… and starting in the new year 750,000 games will be produced monthly. While these supposed cartridges are to be exclusive to the already drenched Atari 2600 market, AMI threatens that Intellivision versions are in the planning state.

Custer’s Revenge, for the discriminating reprobate

Custer’s Revenge gameplay

Purveyor of porn video games Stuart Kesten, president of AMI, 1983 People Magazine

In October of 1982. Keston is in New York City promoting Custer, as well as other titillating Mystique titles Bachelor Party and Beat ’em and Eat ’em at the Hilton during the National Music, Sound & Video Convention. His group is there to help drum up sales for his company’s first three wares, which have cost it something like $1.2 million in production and marketing expenditures. Hoping to head off this promotion at the pass are 150 protestors from groups such as Women Against Pornography, the National Organization of Women and American indigenous peoples groups, showing their displeasure by picketing outside the hotel, holding signs with messages such as “AMI Makes a Game of Rape” and “Custer’s Revenge Says Rape Is Fun”. The designer of the game, Joel Miller, begs to differ with the protestors, saying at the showing in New York, “He’s [Custer] seducing her, but she’s a willing participant.” Several lawsuits over the game pop up: American Multiple Industries sue Suffolk County, N.Y., and Suffolk County Legislator Philip Nolan for $11 million, citing a violation of First Amendment rights over the county’s resolution labelling video games portraying criminal acts as a public danger. AMI would eventually drop its suit against Nolan and the Suffolk County Legislature in February of 1983, in the face of the threat of having to pay the legal expenses of the Legislature if the action fails in court. Keston also threatens to appeal a ruling by Canadian customs officials to ban the import of Custer’s Revenge on December 1, after having previously approved it for sale in the country on  October 18. AMI/Mystique itself is sued by Atari in federal district court in Los Angeles, over wrongful association, citing the use of the video game giant’s name on packaging for the game. Atari states that they are receiving complaints from customers who think that the company is responsible for making the adult wares, and are even threatening to toss out their Atari products. Porn rag Hustler puts their hand in, recommending in a March, 1983 headline for an article covering the Mystique games that readers should “Grab Your Joystick”. By they end of the piece, Hustler advises gamers that, “For $49.95 a pop, it’s comforting to know that even if you can’t beat the game, you can always beat off.” Even though most retailers keep Custer’s Revenge, along with other AMI adult games like Bachelor Party and Beat ’em and Eat ’em under the counter and require purchasers to directly request them, initial figure reports from AMI state that the games sell 100,000 copies before their production climaxes on January 1st, 1983.

Protestors picket the NYC convention where Custer’s Revenge is being promoted, 1982

Porn Video Games: Dirty Games, Done Dirt Cheap

On January 10, 1983, it is announced that Mystique’s dubious IP of porn video games has been transferred to a company called Game Source, owned by a cabal of movers and shakers in the adult video distribution market. Also announced at the time is the discontinuation of the controversial Custer’s Revenge, after the now-adjusted sales numbers for the game are given, at 75,000 units. Game Source distributes their line of salacious games on double-ended cartridges like Xonox, under the label Playaround. They promptly juggle things around in the dropped Custer, such as put in an arm movement on the native captive to make her seem more acceptive of Custer’s advances, and repackage the game as Westward Ho. This they mate with what I imagine they hope is some kind of act of contrition for the original, titled General Retreat. Here, they turn the tables on Custer and have HIM tied to the stake, with the Indian maiden having her way with him while avoiding cannon fire and cacti. Playaround pulls out of the North American game market tainted by the game’s notoriety and sells the two joined pleasures in Europe. The games they market via this 2-game, 1-cartridge format are: Bachelor Party/Gigolo, Beat ‘Em & Eat ‘Em/Lady in Wading, Philly Flasher/Cathouse Blues, Bachelorette Party/Burning Desire and Jungle Fever/Knight on the Town. Half of the games featured on these double-ended cartridges equate to pretty much identical play as original Mystique games, with the gender roles swapped in an attempt to render any controversy flaccid.

Playaround 2in1 game box, featuring Burning Desire and Bachelorette Party, 1982

Playaround 2in1 game box, featuring Cathouse Blues and Philly Flasher, 1982

Playaround 2in1 game box, featuring Knight on the Town and Jungle Fever, 1982

Playaround 2in1 game box, featuring Lady in Wading and Beat ‘Em and Eat ‘Em, 1982

Playaround 2in1 game box, featuring Bachelor Party and Gigolo, 1982

They’re practically giving them away! Cheap games, in a 1984 newspaper ad.

There are about 100 different games released for multiple home console systems by a plethora of game companies between September and Christmas season of 1982. With surplus inventory of all this product eventually piling up into the millions, prices begin to slide. Over 40% of cartridges sold in 1983 are deemed as “cutout” items by retailers, priced at bargain basements rates of around $5 – $8, and some throw cartridges into discount dump bins in their stores for as low as a dollar a cart. While in 1982 the cost to manufacture a cartridge is about $6 and retails on average for $34, Atari finds their main source of income drastically reduced through the year as they are forced to lower prices, and thereby make huge cuts into their margins on even their bigger titles to distributors in order to compete. The cost to launch a successful video game hit in 1983 is pegged by experts to be a minimum of $2,000,000-3,000,000 per game, which equates to sales having to be between 400,000 to 1,000,000 units to make up that money. It’s hard to see this kind of money being spent and made as Atari rivals such as Mattel and Coleco both also have to slash the prices of their systems and games in order to deal with the ever-increasing videogame glut.

More Causes of the Great Video Game Crash: Same Old Same Old

Combined with this over saturation is growing consumer indifference fostered by the lack of substantial improvements in product lines. Atari, the de facto market leader in home video games, has left behind its daring, engineering past with founder Nolan Bushnell’s departure in 1978. It has instead adopted a marketing focus favoured by the suits like Ray Kassar, used to the relatively unchanging casual fashions of Burlington Industries. He is content to sell what Atari already has as opposed to continued innovation. This attitude is perhaps most glaringly apparent at the start of 1983, with Atari slating $100 million in advertising dollars for the year. This is more than the company spent the previous year in making video games. The company lets nine years pass after the release of the VCS before introducing the first real technological update to their system line-up with the 7800, and they fill the gap in between with redesigns of the venerable 2600, which admittedly does have a larger game base than all of the other major systems combined. This culminates in the 2600jr., a super-compact redesign that sells for a paltry $50. As a lackluster sequel to the 2600, technologically just an Atari 8-bit computer repackaged as a video game console, the 5200 fails to set the market on fire in 1982.

The “new” Intellivision II Master Component

Mattel themselves are unable to come up with a suitable next-gen replacement for the Intellivision, opting instead to release the Intellivision II, offering no new technology over the old Master Component. With rebates, the “new” system’s price is also drastically reduced, retailing for $50 on average. With the prices of their consoles and games slashed, the big three have trouble financing their attempts at snagging a piece of the home computer market, and their various computer projects drain already dwindling profits.

Atari’s last hurrah at the Jan 1984 CES, Las Vegas

Atari has high-hopes for its next decade, 1982

Lined up to play the games, Atari booth at the Jan 1984 CES, Las Vegas

Bill talks about Law of the West, one of many compelling titles that came out on computers

The Home Computer Bytes the Crashing Home Video Game Market

The third member of the deadly troika that lays the videogame industry low is the home computer boom in full swing by 1984, fueled by lowering prices and a growing library of engaging new computer games. More than $2.3 billion worth of computer software is sold this year. The Apple II is well-established as a gaming platform in the early 80’s, and Atari themselves are in the computer game with their 400/800 8-bit line, but Commodore head Jack Tramiel’s kept promise of a line of under $300 computers creates an explosion of sales as people wonder why they should spend that much on the latest videogame when they can have a functional computer for the same price. The Commodore VIC-20 is the first colour computer to break the $300 price barrier, and at its prime hits 9000 units produced daily. Its successor, the 64, enjoys unmatched success with 22 million units sold. By 1984, Commodore is selling 300,000 computers a month, and there are 4 million Commodore computers in use around the world. Many people, including me, sell their current videogame system (in my case, the ColecoVision) and move to a computer, turning their backs to consoles for decades. Time magazine heralds the arrival of the computer as a popular consumer device by changing their annual Man of the Year award to Machine of the Year and giving it to The Computer, in a cover story dated Jan. 3, 1983.

The Commodore VIC-20, released in 1981, first computer to sell over 1 million units

The highly-successful Commodore 64 computer, released in 1982

Atari Shocks the Video Game Industry

All this combines to deal a death-blow to the video game industry. The high-profile home game failures by Atari, both conceptually and financially, along with a slumping coin-op division, causes Atari owners Warner Communications to shock analysts of the video game industry on Wednesday, December 8, 1982, by issuing this press release to news outlets:

Earnings will not reach what they did in their fourth quarter of the previous year, which had been $75.84 million. In terms of a direct hit to investors, Warners shares for the quarter post earnings of about 60 cents per share, down from $1.17 the same quarter the previous year… and again, far below the previously projected earnings of between $1.60 to $2 per share, an estimate that angry Wall Street analysts say Atari was confirming privately right up to the morning of the damning earnings report. Trying to keep the sound of popping rivets from the torn hull of the Titanic from scaring people, editor Steve Bloom would use the editorial pages of his Video Games magazine to spin the troubles at Atari as “blown totally out of proportion”. However, Warner’s net income has shrunk 56% compared to the same quarter the previous year, after years of explosive, triple-digit growth for Atari, whose market share in video games has dropped from a high of 80 down to 56 percent. Net income in the Warners consumer electronics division, of which Atari is by far the largest part, is down to only $1.2 million, compared to $136.5 million the previous year. This is a disastrous 99% drop in money coming in. On Thursday, December 9, the NYSE halts trading on Warner stock for most of the day, responding to heavy trading. When the dust settles, the company’s stock price has plummeted from $51 7/8 to $34 1/2 in one day, costing $1.3 billion in market valuation. The Dow Jones industrial average loses nearly 10 points as a whole in the fallout of the Warner announcement. Fears of a looming video game shakeout, which had been forecasted on and off through 1982, seem to have finally been proven right.

Soon comes the inevitable rounds of bloodletting, with Perry Odak being relieved of all duties as head of the home video game division at Atari immediately after the fateful Oct. 8 announcement. On Feb 22, 1983, the company drops the axe on 1,700 Atari employees in the first round of mass layoffs, representing a quarter of its California-based workforce. The larger part of the these jobs are moved offshore as manufacturing of the Atari 400, 800 and 1200 home computers, and the 2600 My First Computer/Graduate computer add-on, are moved to Hong Kong, Taiwan and Puerto Rico facilities in a bid to lower costs. By April, these moves have shaved an average of $8 – $9 an hour off labour costs, according to Atari PR man Don Osborne at a sales and marketing meeting in April. Production is also stepped up at Atari’s El Paso factory, taking advantage of the lower taxes and lower wages of Texas. This includes moving manufacturing of the 5200, sequel system to the flagship 2600, from California to the El Paso plant. The suddenness of the layoffs is largely unexpected by the employees involved, who claim Atari had assured them their positions were safe until at least 1985. In August of 1983, a lawsuit is brought against the company by 537 former employees affected, claiming they were given no advanced notice of Atari’s plans. A settlement reached on June 3, 1986 has Atari paying out more than $600,000 in owed back pay, or $1,182.92 paid to each employee, equalling four weeks’ salary. While welcome, the monetary payment is well underneath the initial request of $13 million in damages paid to the employees.  Atari, however, is also on the hook for $390,000 paid out in legal fees.

Women fill the assembly and testing floor at Atari’s plant in El Paso, TX. 1981. Atari’s dreaded Pac-Man adaptation will be manufactured here in 1982

A shareholder letter issued by Steve Ross puts the blame for Atari’s financial woes on “excess retail inventories of game cartridges and an increasingly competitive marketplace”. Even with the cut in overhead, development costs of new gaming and computer hardware are mounting and Atari’s market share in the video game industry is down to 40%, half of what it was in their heyday. The company attempts to re-stake its claim on the market by instituting an exclusive model for sales of Atari software in early 1983, something that would force distributors to only carry their product. This, of course, spurs lawsuits from third-party software companies like Parker Brothers. Warners and Atari continue to slide, with an operating loss of $45.6 million in the first quarter of 1983 reported by Atari, and by the second quarter mark a hit to their books of $310 million. The company ultimately loses $532.6 million in the fiscal year 1983, bleeding out $2 million daily. Sales have dropped from $1.41 billion to $753.6 million. The coin-op video game field, also facing game oversaturation and an increasing reliance on hit games to make its money, takes a hit as well. Of the about 1,220,000 arcade games installed, average reported losses for small street locations, comparing the price of an arcade game cabinet to how much it can earn in income, amount to $616 per game, and in arcade locations it’s figured that losses per game on average equal $80. By mid-1983, a typical arcade video game distributor reports that machine earnings have dropped 50 percent from the previous year, going from $160 a game to only $80. 

Alan Alda shills Atari computers, 1984

In a desperate turn towards their home computer line, at the 1983 Summer CES in Chicago, Atari announces a 5-year deal to hire M*A*S*H star Alan Alda as computer spokesman. Atari has a user as well as a spokesman in Alda; he keeps an Atari 800XL computer at home, and another in his office to keep track of scheduling, as well as for editing scripts. He also dabbles in programming, having created a home psycho-analysis program called Hi Doc within days of getting his computer upgrade. Along with a reported value of the celebrity endorsement deal at $10 million, Alda has an unusual arrangement where he has 100% approval of anything he says or is attributed to saying in any of the ads. His editorial power goes so far as to changing the subject of an ad about a college student with an Atari computer serving as the perfect “roommate” from a male to a female, to make the ad less sexist. Comprised of at least 11 ad spots, the campaign is to run for 5 years.

Axe Continues to Fall at Atari

In spite of continuing sales of its computers, Warner’s consumer electronics division posts an operating loss for 1983 of $536.8 million. Once the biggest revenue generator for its mother company, Atari is now its biggest money loser. Only a total paring of 3,000 Atari employees by the end of the year can staunch the flow for Warner, who post a modest profit at the end of fiscal 1983. in 1984, reports surface that Atari is courting N.V. Philips, owners of the Magnavox brand and the 2600 competitor Odyssey², to purchase a stake in the company of maybe up to 50%, if Atari can reduce its expenses enough. Philips themselves state that their venture with Atari only extends to a possible melding of their laserdisc technology with some kind of new Atari console. By May of the year, negotiations have broken off and any collaboration dismissed.

Ray Kassar, then president of Burlington House, 1972

Ray Kassar with brother Bill, dedicating a building at Brown University in the name of their father, 1982

Ray Kassar and San Francisco mayor Diane Feinstein dedicate a cable car to Atari after $1 million donation, 1982

Amid this industry downturn is an insider trading scandal plaguing Atari, dealing with 140,000 shares of company stock sold by Warner’s head Steve Ross, amounting to a profit of $1.5 million, just 23 minutes before the disastrous earnings announcement sent the share price spiralling. Eyebrows are also raised over 5,000 shares sold by CEO Ray Kassar and an unknown amount by Executive Vice-President Dennis Groth. The SEC would charge Kassar with insider trading, with him later signing a decree that has him paying back $81,875 of the approximately $260,000 he made in the trade. In the face of this turmoil, it is announced by Warner Communications on Thursday, July 7, 1983 that Ray Kassar is stepping down as Atari Chairman and CEO. His replacement is named as 41-year-old James J. Morgan, coming off a 20-year stint at Philip Morris where his most recent position had been executive VP of marketing. While at the company he had managed the Parliament, Virginia Slims and Marlboro cigarette brands. Morgan admits during a phone interview with the L.A. Times that he had only heard of the opening two weeks previous to the public announcement, and that the negotiations took only four days, without him ever setting foot in Atari HQ in Sunnyvale. Taking the reins of the beleaguered video game company on September 6, Morgan has a contract with Atari for a highly optimistic length of 7 years.

James J. Morgan, hired to right the sinking ship, 1984 image

As CEO, Morgan announces his goal to reduce overhead to a quarter of what it was the previous year and slices through middle management by chopping another 250 people, and razes the R&D department with dismissals like R&D director Chris Crawford. Alan Kay, Atari’s vaunted chief scientist, amid cuts to his staff and a change of priorities to short term efforts over the long view of technology, leaves the company in April of 1984 for the more verdant pastures at Apple. Morgan also immediately shuts down the XL computer line, including scrapping the 1400XL and 1450XLD home computers previously announced at the 1983 summer CES in Chicago. Both were to feature built-in BASIC, modems and speech capability, and the “D” in the 1450XLD stood for the built-in double-sided double-density 5.25″ floppy drive. Morgan also ashcans plans for an adapter to allow Atari’s computers to run the popular CP/M operating system, as well as the 1600XL, a computer system compatible with MS-DOS. The successful 600XL and 800XL computers are eventually allowed to continue to roll off the assembly line, although with a price tag boost of $199 for the 600XL and $249 for the 800XL, which places them around $50 more than Commodore’s fast-selling VIC-20 and C64 lines. The pause in production of Atari’s computers also causes a 40% drop in supply of the popular 800XL over the critical 1983 Christmas season. Still,  Alan Alda continues to shill Atari computer product, but the one aspect of the computer Alda will never talk about is the hardware under the hood: Morgan wants to sell the experience of actually doing things with the computer, and not the processing power it might have. According to Morgan, former cigarette salesperson: “The CPU is the least important element in the computer.”

Atari CES brochure, announcing the ultimately cancelled 1400XL and 1450XLD computers, 1983

On the video game front, Morgan postpones the imminent wide release of the 7800 ProSystem video game console, all in an effort to reassess and retool the company’s product lines. He is also bullish on the continued popularity of the 2600, although many market analysts peg the active user-base of the old campaigner as down to 50% by 1984. Its sequel, the 5200 SuperSystem, has failed to take a similar market share. Morgan attempts to refocus Atari, including a push into the educational market via its Atari Learning Systems division with products such as the AtariLab Starter Set with Temperature/Light Module, priced at $89.95. This computerized science kit offers kids 4 -12 years-old over 100 experiments to engage in. Morgan also curtails rampant spending, and plans on consolidating Atari’s 52 different work sites around the San Jose area into one $60 million, 400,000 square ft. location there, in order to encourage better communication between division heads. Morgan also insists that that Atari not show any new product that these different divisions have come up with to the public if said product is not ready to ship. The Atari CEO also has a tough row to hoe in mending the relationship between Atari and its distributors and developers of Atari hardware and software… reported to include intimidation tactics and threatening behaviour by the company. In the face of this antagonism with software dealers, Atari releases some of their biggest hits for competing computer and video game systems under the label Atarisoft in Spring of 1984. Games for the Apple II, VIC-20, IBM-PC, Intellivision and other systems include Dig-Dug, Donkey Kong, Robotron and more.

Click button to play Atari arcade classic Dig Dug on the Apple II, via Atarisoft

Atari makes its arcade hits for your computers now! Atarisoft, 1984

Amid the turmoil of Morgan’s taking of the reins and mass product line shufflings,  Warner Communications has to deal with a hostile takeover bid by Australian newspaper mogul Rupert Murdoch. This is fended off by Warner with a partnership with Chris-Craft Industries. While getting in bed with a long-time American watercraft manufacturer might seem like a non-sequitur, Chris-Craft also owns several TV stations across the U.S. This would put Murdoch afoul of FCC regulations requiring that no company can own both a regional TV station and newspaper outlet.

Atari VCS consoles and games on display at 1984 Winter CES

Jack Tramiel – Meet the New Boss at Atari

Warner suffers a staggering net loss for the second quarter ending June 30, to the tune of $437.6 million. CEO Steve Ross later states that this is largely due to the operating losses of Atari. Despite Morgan’s efforts to reorganize and refocus, and a paring of employees from 9,800 down to 3,500, Warner surprises Atari executives by splitting up and selling off the company in pieces. Having stepped down as head of Commodore, Jack Tramiel hears about Warners’ intention to divest itself of Atari in May of 1984, and enters into talks with chief Steve Ross in NYC, starting on June 29th. Tramiel’s son Gary concludes the deal at 3am on July 9, 1984, with Jack Tramiel travelling by private jet to Sunnyvale and driving up to the front doors of the company in a two-tone Rolls-Royce for 8:30am. He and a cadre of investors have picked up the once-great video game giant by assuming the company’s $240 million debt, a value greatly under Atari’s peak revenue intake just two years previous of $2 billion. Still, it is just shy of 10x the amount that Warner originally paid Nolan Bushnell for Atari in 1976, with Warner retaining possession of the coin-op division of the company, labelled Atari Games. The deal also gives Tramiel the option to purchase up to a million Warner shares at $22 per share, and conversely Warner the option to purchase stock in Atari. Rearing his ugly head, E.T. rises into view again in the later part of 1984, when MCA sues Warner Communications for defaulting on its licensing agreement for the Spielberg movie, claiming Warner owes at least $17 million on the deal, with $14 million now due in full since the movie license was wrongfully included in the sale of Atari to Tramiel. MCA further contends that it is owed an additional $1.5 million for rights granted Atari for The Last Starfighter, $200,000 for The A-Team , which Atari used to brand a 2600 game originally titled Saboteur, and $1,500,000 for game rights to the upcoming Dune film by Universal.

New Atari head Jack Tramiel at press conference announcing “The New Atari”, 1984

Jack quickly installs his own sons as top executives at the new Atari: Gary Tramiel is to collect the millions in unpaid debt to Atari in finance. Sam Tramiel, having served as general manager of Commodore’s Asia operations, is made company president. And Leonard Tramiel heads up software at the company. The new Atari limps through the industry turmoil under the power of its 16-bit ST home computer line, but the company payroll is cut from 1200 down to a bare bones 400 people, with a paring of about 95% of staff from each department. This includes the near-elimination of Atari’s customer service department, with the company acknowledging that its interfacing with users will be “very slow”. Tramiel eventually releases the 7800 ProSystem console in 1986, which had been given a limited release under Morgan two years earlier before being frozen for evaluation by the new CEO. Tramiel also retools the 2600 into the minuscule 2600Jr., retailing for a mere $50. At the 1987 Summer CES in Chicago, Atari introduces an attempt to repackage their 8-bit computer line into the Atari XE Game System, or XEGS. Essentially a repurposed 65XE 8-bit computer, the console apes the then-burgeoning Nintendo Entertainment System by including a light-gun zapper along with a joystick and also features a detachable computer keyboard. By 1988, Atari starts offering a $50 rebate on the XE to try and move units.

1987 brochure shot of the Atari XEGS, with keyboard and joystick

Atari XEGS in the 1989 Sears Christmas Wishbook

The first quarter of 1988 does see a bit of a comeback for Atari, with sales increasing 199%, up to $277 million compared to $92 million the same quarter the previous year. However, in 1996, in the face of sagging sales for its 64-bit Jaguar gaming system, Tramiel merges Atari Corp. with hard-drive manufacturer JTS Corporation, who are looking to obtain Atari’s American Stock Exchange listing and become a publicly traded company. In early 1998 JTS sell what’s left of the Atari division to giant toy company Hasbro for $5 million in cash. Atari’s contribution to the home game scene lives on under the Hasbro umbrella, and the mother company wastes no time in exploiting the deep well of ground-breaking Atari classic titles, including a drastic 1999 remake of the game that started the whole industry, called Pong: The Next Level. If you continue to follow the bouncing dot of acquisitions of Atari: Infogrames, a French developer and publisher of video games picks up the Atari rights when it purchases Hasbro for $100 million in 2001, and in a full-circle changes their name to Atari in 2003. By 2005, after a series of high-profile acquisitions, Atari Inc. has lost over $700 million. With a new team in place, composed of Jim Wilson put in as president in 2008 and CEO Jeff Lapin in 2009, the company pivots to the mobile free-to-play game market, and manage to slash losses. Even so, in a now-familiar scenario, Atari files for Chapter 11 bankruptcy protection in 2013. The company then embarks on a meandering restructuring program that tends to leave observers incredulous, based mainly in the production of mobile games, online gambling via Atari Casino, REAL gambling via a hotel/casino in Vegas and other “event” hotels around the U.S. featuring large gaming arcades, and even a venture into cryptocurrency with the Atari Token, based on the Ethereum blockchain. 

Updated logo for Atari Inc., circa 2010

Atari rides the rails into the mobile game market with Rollercoaster Tycoon Touch, 2017

Atari President Jim Wilson (L) and CEO Jeff Lapin, 2010

Artist rendition of the planned Atari Hotel in Vegas, to open in 2022

The Great Video Game Crash: Game Over

As goes Atari in the great videogame shakeout of 1983-84, so goes the rest of the industry. Retail buyers and distributors, believing they are finally seeing the bubble burst after years of such predictions, run fleeing like rats abandoning a sinking ship. 1982 sees Mattel stock shedding 40% of its value when it reports losses of 195 million dollars, with the company eventually losing a total of $361 million due to their electronics division. After discontinuing the Intellivision early in 1984 Mattel Electronics is sold for the paltry sum of $20 million. Coleco themselves are in hot water with a slide of nine points on the NYSE after the Atari announcement, eventually posting a loss of $258.6 million in 1984. This is mainly due to the tremendous flop made by their ADAM computer line. This and their ColecoVision line are dropped in 1985, and Coleco itself succumbs to Chapter 11 in 1988.

A monument to a different time, 1981

I’ll give a personal anecdote here about the jarring nature of being a gamer during this time of upheaval. Some of the most vivid images that still rattle around in my memory are of going up to the 7th floor Toyland toy department at the Eaton’s department store in the Eaton Centre in Toronto and wandering into the video game section during Christmas season 1982. They didn’t have a big kiosk like the one for the Intellivision posted above, but instead monitors hung over the counter and video games like the 2600, ColecoVision and yes, the Intellivision sat on the glass to be played. A Vectrex was available on the round table behind. Video games were EVERYWHERE, and it was total gamer Shangri la. This is a good memory, but what sticks out in my mind maybe even more is doing the exact same thing the next year, heading on up to the 7th floor before Christmas, running into the same area…. and it was absolutely BARREN of video games. Not one. Wires hung down from removed monitor spaces. White spots on the wall stared back blankly from where bright game company logos had hung before. I couldn’t have had a more stark display of what had happened to the video game industry than that one moment of looking around at nothing at all.

For a quick timeline in dollars: in 1982 Atari claimed profits of $323.3 million on sales of $2 billion. The next year, it posted a loss of $538.6 million on $1.1 billion in sales. In the first quarter of 1984, they lost $34.9 million on $153.8 million in sales. Even so, in the face of all this financial chaos in the industry, there is still a demand registered by consumers for video games. It might be at discount prices, but the public still purchases cartridges in large quantities from overstocked inventories. But after the market crash of 83-84, the corporate love-affair with video game consoles vanishes, and no North American company will touch the things with a ten metre joystick.

In Kyoto, Japan, however, a little 100-year-old playing card company has plans to hit the reset button.  

The shape of things to come: welcome our new robotic video gaming overlords