It was said that only Nixon could go to China. It’s also true that only Yamauchi could go to America. Under iron-willed CEO Hiroshi Yamauchi auspices, Nintendo had released the company’s first cartridge-based home video game system, the Family Computer or Famicom, in mid-1983 to the Japanese market. Out of the gate, the unit was a resounding success, with half a million consoles sold after the first two months. Even with the early success of the Famicom as a foundation, Yamauchi’s next move astounds a lot of people. He calls his son-in-law Minoru Arakawa, head of Nintendo of America, and expresses his desire to sell the Famicom in the U.S. The effects of a big video game shake out are just beginning to be felt in the country, but Yamauchi believes that the North American market has untapped potential and that he has the system to prove it. His attitude is buoyed by steadily increasing sales of the Famicom in Japan.
A Skeptical Market
Arakawa and his team at NoA have already narrowly avoided disaster at trying to penetrate the U.S. market. They had floundered at selling arcade games coming down the pike from Nintendo in Japan, games such as Sheriff and Radarscope, until saved by the blockbuster release of Donkey Kong in North America in 1981. As they reach out to toy stores and department chains to gauge interest in a new home video game system, they seem to be courting disaster again. They are met with mounting skepticism in the industry; the market is becoming over-saturated with inferior product presented to a growingly indifferent public, and prices for these consoles and games are sinking fast. While Yamauchi believes the merits of the Famicom can overcome a skeptical market, there is a bigger problem. Donkey Kong might have been a big hit in the arcades, but Nintendo is still a virtually unknown name in North America in the consumer market. They have no presence in the retail chain. Thus Yamauchi declares that Nintendo must partner with a big name in video games to make headway in America. And the name in video games is still Atari.
A Deal With the Devil
Howard Lincoln, the Nintendo legal counsel who had so impressed Yamauchi in his defense of Donkey Kong against the King Kong copyright claims of Universal Studios, is by now NoA vice-president. He approaches Atari CEO Ray Kassar with a deal. Atari would manufacture and distribute the Famicom system worldwide, excepting Japan where Nintendo will still make and sell the console. Atari would market the system under its own label, with Nintendo getting a royalty for every system sold. The Japanese company would also retain manufacturing of the games. Nintendo even has a new name for the system, one that harkens back to Atari’s salad days: the Advanced Video System. It is the usual uncompromising hardball thrown by Yamauchi, with most of the advantages in Nintendo’s favour. Atari, however, with the 5200 Supersystem game console struggling and the 7800 Prosystem largely untested, feels inclined to accept the offer. Over a three day meeting in Kyoto, the royalties are agreed to, and verbally an agreement is made. All parties have full expectation that a permanent deal will be signed at the upcoming Summer 1983 CES in Chicago.
It is at this particular CES where Coleco unveils their new ADAM computer, available as either a series of add-ons for the existing ColecoVision game console, or a more expensive stand-alone computer. In order to demonstrate the increased storage capacity of the new system and its data tape drive system, Coleco elects to run Super Donkey Kong as a demonstration. This is a souped-up home version of Nintendo’s original arcade game and includes the original’s intro with Kong climbing the structure of girders, as well as the mud pie level that is missing in all other home versions of the game. As well-received as Donkey Kong was on the ColecoVision, the ADAM version of the game truly brings the arcade experience home in a near-perfect translation. The problem is that Nintendo had previously sold the home computer rights for Donkey Kong to Atari; Coleco only has the home console rights. Seeing the game on the ADAM has Kassar incensed, and he threatens to sink the whole Famicom deal with Nintendo, as well as sue the company for breach of contract. Yamauchi, in turn, rakes Coleco over the coals and demands they pull the game from the ADAM line-up. President Arnold Greenberg makes a go at arguing that, since the ADAM contains ColecoVision hardware, this makes it both a computer AND a video game. His contortions do little to sway Yamauchi.
Over the following weeks, a deal between the three companies over Donkey Kong rights is eventually hammered out, but the whole thing soon becomes academic. Coleco’s ADAM computer arrives on the market with a resounding thud, its various bugs resulting in a 60 percent return rate and a severely tarnished reputation for Coleco. Atari, meanwhile, implodes with the rest of the video game market, along with Ray Kassar and a few other execs at Atari who are embroiled in an insider trading scandal. It is eventually revealed that Atari didn’t even have the money to buy the Famicom rights anyway, and was perhaps merely stringing Nintendo along to hold off a competitor. When the dust settles, both Yamauchi and Arakawa realize Nintendo will have to go it alone in America.
Navigating the Fallout
Within a year of its release, the Famicom is proved a solid success in Japan, moving 2.5 million units. Perhaps even more importantly, 15 million game cartridges have also sold, vindicating Yamauchi’s prediction to retailers of the Famicom’s true value, that of a tool to sell software to the public. As for North America, there might not be enough adjectives to describe the sorry shape of the video game industry by 1985. Cratered. Defunct. Eradicated. Eviscerated. In its first decade, video games had enjoyed a meteoric rise in popularity, eventually surpassing the 100-year-old movie business in sales profits. Eventually caught in a morass of stagnant innovation and a rush of subpar games, the great video game crash of 1983-84 had reduced billions in sales to maybe 100 million by 1984. Giants of the industry, with Atari being the biggest of them all, were felled: either broken up and sold as pieces or unceremoniously shuttered.
Such is the smouldering, radioactive wasteland that Arakawa and his team walk, again under the direction of Yamauchi to prepare America to accept a new video game system by Nintendo. Toy stores, department stores, former game company executives… all bear witness that a company would have to be run by either idiots or maniacs to try and sell video games in such a climate. Arakawa is not completely without evidence to the contrary, however. Video arcades, while certainly scaled back from their heyday, are still pulling in quarters. Having built their fortunes on the back of arcade hit Donkey Kong, NoA themselves release a rash of new arcade games through 1984, known as the VS. System. Featuring Famicom hardware and playing modified versions of Famicom games, the success of games like VS. Duck Hunt, and VS. Baseball suggests the viability of a new, highly improved video game console like Nintendo’s Famicom. Nintendo isn’t alone in this attitude; they have a lineup of manufacturers producing their Vs. system games, including Jaleco, Temco and Data East.