EPISODE TWENTY-SEVEN:

The Rise and Fall Of Atari

“Everyone who has ever taken a shower has had an idea. It’s the person who gets out of the shower, dries off, and does something about it that makes a difference.”

— Nolan Bushnell

 

Words from the founder of today’s brand exploration. Join us as we learn from The Rise and Fall of Atari, on today’s, Straight Shot marketing podcast.

 

Welcome everyone. Today we are diving into another of history’s great brands. You either grew up with it or know it as a legend of industry. We’re talking about Atari.

 

I’m generation X so I grew up with Atari. We didn’t have what kids have today, we had dots… and we had to use or imagination to visualize that our game experiences were real.

 

Today what kids play looks very close to real life with CGI and whatnot. And they just save and continue… that’s cheating! We played, lost, and had to start over from the beginning again!

 

We’ll I’m a Zenial, so we grew up with Nintendo NES.

 

And today we’ll talk a little about both. But mostly, Atari and how the famous Atari VCS was the console that the home video gaming industry was built on.

 

We’ll let’s get to it then and see what marketing magic we can pull from their story today…

 

Atari was incorporated in 1972 by Ted Dabney and Nolan Bushnell. You’ll recognize their iconic logo.

 

It was designed by George Opperman and drawn by Evelyn Seto.

 

While some refer to the design as “Fuji” – which is a mountain in Japan, that is not relative to the intended design – to begin with Atari, was an American company.

 

The silhouette of the design was intended to look like an A for Atari. And the three lines represent their first game. Pong. One player leaning in on either side of a pong court, like a tennis court’s, middle line.

 

It is an iconic logo – whether you knew the origins or intentions or not. It feels very nice, very appropriate for computer gaming…and it lives on today. Yes, you have it on your shirt

 

I do, and the brand, through this logo, has lasted beyond the company itself.

 

There is something to say about good logo design being timeless. So many entrepreneurs don’t put enough time or investment into their company’s logo.

 

It is an iconic logo – whether you knew the origins or intentions or not. It feels very nice, very appropriate for computer gaming…and it lives on today. Yes, you have it on your shirt

 

I do, and the brand, through this logo, has lasted beyond the company itself.

 

There is something to be said about good logo design being timeless. So many entrepreneurs don’t put enough time or investment into their company’s logo. Those are the ones that don’t understand the value of marketing. It’s also why you see some business have to redesign their logo later, to try to capitalize on it’s potential. Sometimes it’s too late.

 

We Atari started with working on coin-operated games. Carnival games, skee-ball, billiards, and pinball had been around for a very long time.

 

The origin of these games go back to Bocce ball, croquet, bowling, etc. and eventually were moved inside, miniaturized to become billiards and the like. I think the first Pinball type game dates back to the late 1700s…of course, only the financially well off had them. And then coin- operation was introduced in the early 1930s.

 

These types of games had been successful for decades and the industry was finally starting to grow due to technology changes and Atari’s 1st video arcade game, in 1972, was Pong. It was a huge success.

 

Pong is a table tennis sports game that was played on a video screen with simple two-dimensional graphics. It was based on Bushnell’s thoughts for a way to improve the Magnavox Odyssey’s home game. Atari’s pong was not first to market. But it was the first commercially successful video game. Magnavox had the first home video game console…it just wasn’t as good. They later tried to sue Atari for patent infringement. This will be a recurring theme in Atari’s history – if they weren’t sued, the sued someone else Atari’s success with Pong helped to establish the video game industry. Atari made several sequels and others made several games that mimicked its gameplay- another theme that you’ll see throughout this story.

 

Atari didn’t help that… with people copying their games? Yeah, they did it too? What? In 1973, Atari made their own competitor called Kee Games as a way to circumvent pinball distributors' insistence of exclusive distribution deals. They made several “copy cat” games of each other's as a way to promise exclusivity of a title and then retitling the game with the other company. Atari was becoming strong in the arcade marketing, so Pinball began to give way to video games in game rooms, at restaurants, etc.

 

Then in 1975, Pong was made into a home game and it was, again, a success.

 

Pong was also a test in the market for home video games. Again, Magnavox's Odyssey was not considered a success. But Pong was. And so Atari decided to go all in and they began working on their own system that would play multiple games. The Atari Video Computer System – VCS. It was later branded as the Atari 2600 for those younger listeners that may not recognize the original name. But at the time, and to my generation, we just called it an Atari. Now, interesting enough, at the time they were working on the VCS, Steve Jobs left working for Atari. If you remember in the Steve Jobs story, and in the movies, he was working on Breakout with Wozniak. Well, when he left, he kept his relationships at Atari intact.

 

And he actually met with Al Alcorn, from Atari, about his idea for making the Apple computer. But Alcorn passed on the idea because Atari couldn’t afford to enter the Home computer market at that time… they were just starting in the home gaming market… but he did introduce Steve to some venture capitalists at the time.

 

It’s a small world after all. It is interesting how people throughout history knew each other.

 

Well in s1976/77 the VCS was released. It included a home version of the old Kee Game’s arcade game Tank and Atari’s Jet Fighter, which were combined and retitled as “Combat” for the VCS.

 

Several of the initial home games were based on the arcade games – Air/Sea Battle was a home version of Pursuit, Destroyer, and Anti-aircraft all combined into a cartridge for the VCS.

 

Later on, in 1976, the VCS, shortly after it’s released, Atari realized they couldn’t keep up with demand. So Bushnell sold the company to Warner's Entertainment for between $28 and 32 million dollars depending on where you get your figures from. They felt they needed the help of the larger company and it’s manufacturing and distribution abilities to meet the demand for the Atari VCS.

 

For those that may not know, Warner Brothers Entertainment was one of the “big 5” companies that worked in the movie industry, television industry, the record industry, and in publishing.  That’ll be relevant later in the story…

 

Well the next year, in 1977, Nolan Bushnell started Chuck E Cheese Pizza Time Theater as a place to distribute his arcade games and capture his target audience – kids. It was also inspired by Disney Land animatronics and kid’s favorite food – pizza. It was like a pool hall for a child – a family-friendly venue. Bushnell had the idea back in 1974 when he was having a hard time placing his games because of the limited arcade space back then. Now, he had money and invested in the idea.

 

And it was a good thing he did because Warner chose to ignore this investment – which was technically part of the Atari umbrella at the time. Then Warner's started making changes.

 

In 1978, Kee Games was disbanded and Nolan was fired/quite based on arguments with warner’s direction. But he was able to purchase back, Chuck E Cheese from Warner's… so he went down another, somewhat relative road.

 

We could talk more about Bushnell and his story, but that’s another podcast, this one is about Atari’s story… so let’s keep going.

 

Also in 1978, Taito releases a new video arcade game called Space Invaders. It was distributed by Midway in the US. It was an immediate commercial success making $3.8 billion by 1982 with a net profit of $450 million, making it the best –selling video fame and highest-grossing “entertainment product” at the time. Adjusting for inflation, the many versions of the game are estimated to have grossed over $13billion in total revenue as of 2016 – making it the highest-grossing video game of all time. Who doesn’t love some Space Invaders?

 

In 1980, Atari ported it for the VCS and the game made Atari a must-have console…which then helped sell other games once people bought the system to play Space Invaders. It quadrupled their system sales. By 1980 sales of the VCS had reached $415million

 

Now back when Bushnell left, Ray Kassar took over as leadership for Atari. During his years of leadership, with the help so Space Invaders, sales grew from $75 million to over $2.2 billion in just three years.

 

But while Atari was enjoying some of its greatest success during this time, the change in environment and atmosphere at the company was taking it’s toll internally.

 

Let me say it this way, everything that was wrong with the Record Industry, that Warner Bros was also engaged with, was coming to the Video Game Industry.

 

Under Bushnell, Atari was a creative place… nerd creative… but creative. And when the corporate giant of Warner took over, the cultures didn’t mesh well. Warner was driven by numbers. And nearly all of the original members of Atari Inc either quit or were fired.

 

There is a famous tale that comes out from within this story. The story of “the gang of 4”:

 

In the late 70s, they sent out a memo that listed all of Atari’s home games according to sales as a way to try and motivate the game designers. It backfired.

• 4 designers saw that they made 60% of the best selling games, 20% were by employees that had left Atari, so there was only 20% being made by the remaining 28 designers

• They used this as a way to lobby for a raise and received no respect made from Kassar

• Atari made $60 billion off their games and there were making $24/26k per year

• But more than money, they wanted respect show as an author credit on the game and in commission from Atari

• When they asked Kassar about that, David Crane recalls that Kassar responded, "You are no more important to that game than the guy on the assembly line who puts it together."

• Crane and three others resigned from Atari and went on to form their own company: Activision,

 

Activision- known as the gang of 4

They met with a lawyer who connected them with an interested CEO and Activision on was born. They were employee-oriented and:

• Made it where designers got credit on game packaging (just like music and book creators)

• Worked hard because it was their own company

• Kept what they learned from Atari - “A minute to learn and a lifetime to master”- Nolan Bushnell (Atari) taught them

• They all helped each other b/c they were small

• Modern-day design teams were originated from this concept

• Knowing their skills in making Atari games and recognizing Warner’s legal team, they knew that to continue making games for Atari, they had to make a new cartridge (b/c Atari’s design was patented) but they also had to make sure to design it so that Atari couldn’t make their games not work in the VCS

• Of course, Atari sues Activision but lost, allowing them to be the first 3rd party designers for a gaming system. Which is now commonplace.

 

 

Also in 1980, which Atari is getting their Space Invaders on, Namco released a new came in the arcades called Pac-man.

 

The original Japanese title of Puck Man was changed to Pac-Man for international releases, as a preventative measure against defacement of the arcade machines.

• Pac-Man brought in women. It was not science fiction, not military... it had broader appeal.

• It was crazy popular. They had merchandise, hand-held versions, even a top 40 song. It even became a cartoon series

 

Not to be left out, Atari released Centipede with the same mission in mind.

• It appealed to females also

• Centipede also had a song – made by the same songwriters

 

While most video games like Bezerk were considered to be targeted towards males. The industry was recognizing the benefits of making female friendly games.

 

Video games were taking over the entertainment world.

• Electronic games magazine

• Starcade tv show

 

Now Atari originally thought the life of the VCS was 3 years … but Warner wasn’t done with the VCS.

 

Remember, Warner was a very successful entertainment company that was engaged in the production of music, film, television, and publishing.

• Warner saw video gaming in much the same way as they did their other enterprises.

• To them, Atari was like an artist on one of their record labels. Once an artist releases an album, the record label will release and promote singles off of that record for as long as they possibly can before they allow the artist to release another album.

• The difference here is that video gaming, Atari, was technology-based.

• And technology changes at a much faster rate than music.

 

Warner was acting like a record label was releasing “singles for the album,” with the game cartridges for the Atari, but advances in technology were making the system obsolete.

• Atari wasn’t allowed to explore additional systems or advances in the core gaming system because the games were still selling and if they made a newer or better system, then the parent company’s investment into the VCS would seem futile or at least not “maximized” to Warner.

 

Again a huge culture clash between the two companies.

 

Seeing the success of Apple or other manufacturers, Atari did start making the Atari 400 and Atari 800 as home computers – released in 1980. But it was a separate division of the company.

 

So at this point, Atari had three divisions: arcade, home gaming, and home computers. And they all worked independently.

 

Then in 1982, when things were becoming obvious, they released the Atari 5200 (as a compromise with Warner, it was not backward compatible, so with that, it wouldn’t interfere with VCS sales)

 

They also renamed the VCS the Atari 2600

 

Good idea? I don’t know…

 

Well let’s take a minute and talk about some of the industries “good ideas”

Let’s talk about the introduction of Co-branding:

In 1982 – Atari dabbled in in-game branding with pole position (Marlboro, Pepsi, Namco – who designed the game, it was only licensed to Atari, etc.)

 

In 1983, Tapper was release by midway and it was sponsored by Budweiser. It was later changed to root beer tapper b/c of minors in arcades

 

Colecovision, a home console competitor, partnered to give free cabbage patch kid (also licensed to Coleco) with the sales of the gaming console to make two kids happy. This was released in 1984.

 

 

That was 1984 and in response to something that had just happened in the industry. But before we talk about that, let’s take a break to hear from our sponsor.

 

Welcome back… so, Zachary, we were just about to talk about the giant bubble burst in the industry.

 

Yes, the video game crash of 1983 – also known as “Atari Shock” in Japan where Atari lost

$533 million. The crash was attributed to several factors, including market saturation in the number of game consoles and available games, and waning interest in console games in favor of personal computers. Revenues peaked at around $3.2 billion in 1983, then fell to around $100 million by 1985 (a drop of almost 97 percent).

 

That’s devastating… kind of a predecessor to the dot com crash in the 90s. Let’s talk about the factors that went into the crash.

 

Flooded market

Games:

• Loss of publishing control – starting with Activision but then growing to include Imagic, Apollo, Coleco, Parker Bros, CBS, Mattel, Fox, MCA, etc.

• The release of so many new games in 1982 flooded the market. Most stores had insufficient space to carry new games and consoles. As stores tried to return the surplus games to the new publishers, the publishers had neither new products nor cash to issue refunds to the retailers.

Systems:

• Too many systems and it became a crapshoot for the parents

 

Obsolete technology and Misleading marketing

• As the company stood by the VCS internally, the marketing engine of Warner was running full speed and Atari was a huge hit in the marketplace until the short-sightedness caught up with them.

• Marketing knew what was needed to capture the consumers’ attention and sell units … and they did just that.

• But over time, the system couldn’t deliver on what marketing was promising. The packaging was misleading.

Let’s talk specifics

Ok, I’ll give you a few examples.

 

• Atari had licensed the number one coin-operated videogame in the world – Pac- man.

• It was so popular that everyone knew the game… and because of that, they had expectations.

• Expectations that Atari couldn’t deliver on.

• Their tech couldn’t reproduce the game

• Interestingly enough, seeing as Atari owned licensing for Pac-Man, they sued the Magnavox Odyssey 2 system because of their knock off game called KC Munchkin – which, as a new system, was a better game.

• Atari, expecting the same results they received when licensing Space Invaders, made 2 million more Pac-Man cartridges than there were Atari's VCS consoles in the world… and they didn’t sell

 

The marketing for the games was very high-end and promised great things for the home gaming market.

• It looked good, it was very attractive, it sparked interest and purchasing of the games. But it was always conceptual in nature.

• And the commercials kept promising their games were “just like the arcade”

• But in the end, the system couldn’t provide the necessary graphics and gaming experiences that the customers expected. The VCS simply wasn’t capable of doing it. The graphics and gameplay were well below par considering the consumer expectations and the promises that Marketing was making about the games. But Warner kept the marketing engine rolling. They began using their relationships with other entertainment businesses to help sell the video games.

• They partnered with the Stephen Spielberg’s movies ET and Raiders of the Lost Ark through licensing the name of those brands and relating it to games for the VCS.

• Since Atari hadn’t been allowed to continue innovation of the technology, customers simply stopped being interested in video gaming – they were disheartened.

• Atari tried to course-correct, much like the Coke story, but it was too late.

The system's technology couldn’t keep up. Their graphics and abilities were becoming outdated and as a result, while some stores sold new games and machines, most retailers stopped selling video game consoles or reduced their stock significantly, reserving floor or shelf space for other products.

 

Another reason was that people began to favor home computers.

They had better graphics and even better games

 

Yes, that brings up another factor - Bad gaming

• Since Activision became the first 3rd party game makers, a slew of companies jumped on board and started making poor quality games.

• So consumers didn’t know what was good b/c there were so many.

• Retailers didn’t know what was good either and they bought too many.

• Several were simply not good games – whether graphics or gameplay.

• It was just everyone trying to get a piece of the pie

 

But Atari was not innocent in this either.

• They repeated the Pac-man overproduction mistake with a game adaption of the film E.T. the Extra-Terrestrial.

• This is largely considered the worse Atari game of all time.

• And they did not get sold.

• In September 1983, Atari discreetly buried much of this excess stock, as well as the unsold stock of earlier games, in a landfill near Alamogordo, New Mexico,

 

Basically, the consumer felt screwed and lost interest. Right, they didn’t take care of the customer.

• So the entire market was oversaturated: bad games, rip-off clone games, ported versions on multiple systems that all looked different.

• Then there was the high-pressure hype of it all with the cartoons, merchandising, sequels and sequels, video game-related movies

 

So the bubble burst and stocks crash. Atari had lost 533 million by the end of 1983. $80 mil in the last quarter alone quarter.

 

Chugging along, Ray Kassar was in talks with Nintendo about a merger with Famicom.

• He resigned after charges of insider trading emerged.

• Famicom became a huge hit in Japan (it would later be released in the US as the NES)

• and so the merger didn’t go through and Atari was sold and split into two parts by Warner

 

Atari games – the arcade division (Warner kept for a year before selling them to Namco) And the consumer electronics division – Gaming and computers

• This was sold to Jack Tramiel’s company (former CEO of Commodore International) and renamed Atari Corporation – It was sold for $50 and a promissory note of $240million

• There were massive layoffs

• Atari continued to make new products but was losing market share

 

Limping along Atari partnered with another movie… this time before it’s release.

• The Cloak and dagger movie starring E.T.’s Henry Thomas

• It was about a video game being played on the Atari 5200

• Lots of product placement.

• The partnership yielded an arcade version

• It was actually a kit for overhauling older Defender, Stargate, Robotron, or Joust arcade games.

• But home version which was actually in the movie was never released.

• Tramiel having a commodore background was focusing on computers

 

Now, I briefly mentioned Nintendo… which is worth some exploration here.

2 or 3 years after the video game crash of 83, Famicom was selling wildly in Japan but the US markets were worse than shy when it came to anything video game. But Nintendo knew the game would sell because it was crazy in Japan. So they had to overcome this problem in the US Market.

• Nintendo renamed the system, they didn’t call it a video game console but a NES (Rob the robot and Zapper light gun- worked to get them in the market but not many games for them... it was a marketing ploy ) it was more of a “toy” they said – games were front-loaded behind a door like a vcr

• The promised to buy it back from stores if it didn’t sell

• Games were made and in a way that could be controlled by Nintendo with a strict approval process for developers

• Games were marketed to the way they really looked

 

So they had learned from Atari’s mistakes

 

It became a brand staple in society, you played Nintendo, not video games- they had essentially taken over Atari's positioning. Kids still loved them and parents thought it was new so they took the gamble In 1992, Atari lost an anti-trust lawsuit against Nintendo.

• That same year, Atari released the Jaguar video game system as competition to Nintendo.

• Jaguar was an impressive game system, however, it was twice as expensive as Nintendo.

 

Atari was reaching the end of its legacy as a company.

 

After that Atari was merged and sold multiple times based on the brand legacy.

• The property owners have been re-releasing and putting out new games under the brand name over the years that followed

• In 1994, Sega game systems invested $40 million in Atari in exchange for all patent rights.

• In 1996, the new Atari Interactive division failed to revive the company which was taken over by JTS, a maker of computer disk drives that same year.

• Two years later in 1998, JTS sold Atari assets as intellectual property scraps. All copyrights, trademarks, and patents were sold to Hasbro Interactive for $5 million.

 

All of this was possible because of the brand recognition and the legacy of the company

 

On September 26, 2017, Atari sent out a press release about the new "Atari VCS", which touted new details about the console. But to date, it hasn’t happened.

 

On January 27, 2020, Atari announced a deal with GSD Group to build Atari Hotels, with the first breaking ground in Phoenix in mid-2020. Additional hotels are also planned

 

in Las Vegas, Denver, Chicago, Austin, Seattle, San Francisco, and San Jose.[57]

 

Again, all based on the success of the brand. The company, the true company, is no more.

 

Ok Zachary, tell me – what did we learn from the story of Atari. What are some lessons that we can pull from their tale?

 

THE STRAIGHT SHOT

Branding works

Even today – the Atari brand has huge value. They’ve now been trading on the brand for longer than they have been trading on their products.

 

Repurposing

In their story, we see Atari repurposing older arcade games regularly. They would also do this with newer games as they came out from other manufacturers. This is smart regarding production and efficiency.

 

Think about culture and control when selling majority ownership to your business

Think all the way around the agreement.

 

Marketing is a powerful tool

The mighty Warner marketing machine made Atari a lot of money and labeled Atari as the video game leader … which has become the icon that it is today.

But make sure you are true to who you are and what you are capable of

 

You have two audiences – take care of your internal audience as well – your employees

This happened with Atari. When leadership had a disagreement with the top few game programmers, the employees left and started Activision. The first 3rd party developer that made Chopper Command, Pitfall, River Raid, and all the games that were so much better than what Atari was putting out. This contributed to their downfall and eventually, the downfall of the entire industry… for a time anyway.

- Game innovation had stopped at Atari…. And innovation was something the company was built on. When the new leadership didn’t want to invest in game innovation, the top designers took up the mantel but did it as their own separate company.

 

Keep up with the trends in your industry:

Continue to advance in the technology and hardware that supports the needs and desires of the ever-changing marketplace.

 

Learn from the experience of others:

• After the demise of Atari, Nintendo renewed the home video game marketplace. But they had learned something from Atari’s story.

• They put out their own gaming system, the Nintendo Entertainment System, but then continued to reinvest and innovate their core product in addition to game development.

• The NES gave way to Super Nintendo, which was succeeded by Nintendo 64, then Game Cube, then Wii, then the Nintendo Switch. This was all industry- level course-correction based on the history of their predecessor.

• Other systems followed the same path – PlayStation, PS2, PS3, PS4, etc.

• Always innovate, always stay relevant.

 

Ok guys, that’s our show for today.. The exploration in the Rise and Fall of Atari. We hoped you were able to learn from the lessons showcased today. And as always, like and subscribe wherever you experience our podcast. We are in the development of a new series for you soon – The Small Business Start Up Series. So follow us on social media or signed up for notifications by sending the work Reformation to 90210. Until then, bye.

 

 

Category Straight Shot Marketing Podcast

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