Easy to Learn, Hard to Master: The Fate of Atari (2017) - full transcript

Before Google, Yahoo and even Apple, before the Silicon Valley cliché of informal dress code, skateboards running the corridors and wild creativity became commonplace, one company embodied the digital economy lifestyle and business style: the one firm coming out of the Age of Aquarius was Atari. The story of Atari is two-thirds the story of Nolan Bushnell, founder and visionary, and one-third the first and probably biggest boom and bust of the new economy some 20 years before the new economy even existed. Atari was showing that technology is cool, way before the personal computer revolution took place and they were reaching out to an ever-growing audience with something that is still cool today: video games. Atari literally introduced the digital world to the mass consciousness. Nolan Bushnell and Atari have a huge collection of firsts: the first successful video game company, the first coin-op video game ever, the first general purpose console to win the market, the first marriage between video games and movie industry in the history of entertainment, the fastest growing company in history, the biggest industry crash ever, the weirdest anecdotes in Silicon Valley, the coolest brand on the planet... Atari is a story to be told for two main reasons: it is pure fun and it is impressively educational. Going through the ups and downs of Atari's ride, one can learn when and how our relationship with the digital world was born (ahead of Apple, Commodore, Microsoft and even the Homebrew Computer Club), how the 100 billion dollars a year video game industry was born, what to do to make your idea successful, what to do to screw it all up, whether to sell your baby to a giant major or not, what not to do to preserve your market from crashing and many others interesting topics.

[ominous music]

[electronic music]

I think the term hacker
started out in chess for

some chess player who's
enthusiastic, but not very good.

Cambridge, Massachusetts, 1961:
hackers are invented at MIT.

it sort of evolved
to mean somebody who

was playing around with

something like a
computer or electronics,

someone who wasn't focused on a
nice, big, important project,

but was just fiddling around.

A hacker may have been the
ultimate weapon developed

at MIT during the Cold War,

and they completely
lost control over it.

Early on, the Tech
Model Railroad Club

was a group of geeks at MIT.

When they discovered computers,

they became very
interested in computers.

Hackers were as
competitive and cocky

as any other college student.

Everyone was an engineer
or wanted to be one;

people liked to speculate
on how to solve problems

and how to solve
problems really well.

When a hacker dreams
of another world,

he is likely to make it real.

As an early geek, he was very
involved in science fiction

I had a program that
displayed two space ships,

and to make things interesting

they could fire torpedoes
as well as accelerate

and the torpedoes would blow up
torpedoes and other space ships.

Immerging yourself
in another world was

the start of a
long-lasting fascination.

If you could imagine an
engineering student in the 60s

going over to the
engineering building

in the middle of the night

and confronting a magical
display with moving objects

and a game, and being
totally mesmerized,

flabbergasted, enchanted,

that was my experience with
Steve Russell's Space War.

I could not imagine a more

compelling, wonderful
game experience

at that point in time, and it
profoundly changed my life.

When fascination
meets ambition,

then comes the Silicon
Valley archetype.

After I graduated from college

I determined that
someday I was going to

build a video game
for the masses.

Young Bushnell
instinctively felt

there was something
hot in this idea.

Nolan Bushnell was a
young engineer from Utah,

of the Mormon faith.

When he was at the
University of Utah he saw

the first Space War
game on a PDP1.

I didn't really pursue
it commercially until

after I graduated.

He worked at an amusement
park in Salt Lake City,

so he understood
coin-operated business.

Nolan Bushnell was
not really a hacker,

nor he was merely a dreamer.

He had salesmanship.
He had charisma.

He was tall and he was
handsome and he was witty

and he could talk a
million miles an hour.

The amusement park
was not known

as a place that paid
a lot of money,

but it was summer in Utah,

girls would come down
there, it was a fun job.

I became manager of
the whole department.

Nolan Bushnell was,
from the very start,

someone hard to
be put in a box.

My business mindset really
came from a very young age

and it had to do
with ham radio.

I decided, literally
at 10 years old,

to make adult kinds of money.

Will this early inclination turn
into a real business ability?

Nolan Bushnell was a visionary.

Nolan Bushnell was somebody

people wanted to
line up and follow.

Business wasn't
really his strength.

Nolan Bushnell's strength
was in recognizing

something that is neat.

Neat was his word.

Who was Nolan Bushnell
according to himself?

I loved technology and things

but I also decided that
I wanted to be popular,

and so, for some reason,

I always had an ability to
sort of reinvent myself,

I can remember the
day I sold my

ham radio transmitter
to buy a pair of skis,

you know, which represented kind
of a transition in mindset.

But Nolan Bushnell also
was a conscious gambler.

I also learned how to
spend a lot of money.

For the first three
years of college

when I do my budget I would have
poker winnings as a line item.

The problem with
being good at poker

is that no matter
how good you are

there's somebody out
there that's better

I was better than all of
my fraternity brothers

but I was not better
than this one guy

that came down and picked me
cleaner than a Christmas goose.

By 1969, Nolan Bushnell looked
like he had settled down.

You really learn how
to be an engineer your

first year on the job.

Without that first year
and a half at Ampex

I don't believe
that my approach to

the video game would've
been at all the same.

Truth is that the gambler was
waiting for another bet.

He actually formed a

club inside of Ampex to
invest in the stock market.

Back in those days, individuals
didn't invest in the market.

Establishing my own company

and quitting was a
whole different thing.

Al Alcorn entered
Ampex at nineteen

while Nolan was enticing Ted
Dabney into some venture of his.

Ted and I, who was my
office mate at Ampex,

were talking about
this video game.

Making a coin-operated
entertainment device

using a computer.

Nolan was still so impressed
by the Space War game

that he copycatted it.

He had designed a game in his
own time called Computer Space.

Ted said "Yeah, sounds
great, let's do it!"

Nolan thought he was
going to have to have

once central computer

and maybe run 10 or 20 games but
the economics didn't make sense.

Even mini computers
were too expensive.

His first, and fairly
academic, approach

wasn't sustainable at all.

He's decided he's gonna
try and find a way to

make it something that
could be marketable.

Displays at that time
were 25,000 dollars,

and I said "Shucks, I can buy a

consumer television
set for 100 bucks."

Nolan discovered that
computational sustainability

was also an issue.

I was just doing this all in
calculations and on paper,

and I had to keep adding
functionality to the hardware

to relieve the burden
on the minicomputer,

and finally I said this
computer is too slow.

And then I had what they
called an "Aha!" moment

where I said, "Get
rid of the computer,

I'll do it all on hardware."

If you wanted an
object on the screen

you had to put some
chips into it.

Finally, Space War was going
to be a viable arcade game.

Nolan Bushnell was obsessed
with getting ahead in life.

When he saw Computer Space
or Space War he said,

"You know what, this
is new, this is great.

I see it before
everyone else does.

I'm gonna ride this wave."

The money-making mindset of Mr.

started to work
harder than ever.

We started the company
with 250 dollars each,

Ted Dabney and myself.
We chose Syzygy because

we thought it was a cool name.

We pulled it right out
of the dictionary.

Syzygy means an alignment of
planets in a solar system.

Even in those early days,
Nolan was paving the way

for one of the Silicon
Valley evergreen.

He immediately evicts
his daughter, Britta,

from her bedroom, and that
becomes his workshop.

And cute little Britta gets
to sleep in the living room.

I pitched it to
Nutting Associates,

who said, "Yeah, I will
put this into production,

but also would you come and
be our chief engineer?"

People around him didn't get

his new entrepreneurial
style at first.

In about 1971,

he resigned from Ampex

to go work with a company
called Nutting Associates.

We felt sorry for him.

Computer Space was the
ultimate space age thing.

He chose to use a
fibreglass cabinet,

very sculpted looking.
At the time, modern.

Fortunately for Nolan,

he never sold many of
the Computer Spaces.

You can only make one cabinet a
day from a tool, from a mould,

so it would be very
hard to scale up.

But most of all,

Computer Space was a great
learning opportunity.

They put it in a bar
called The Dutch Goose.

It did OK because at the
Dutch Goose you had geeks.

The early Space War game
that ran on the PDP1

was done for computer scientists
by computer scientists.

Could a game with such
a steep learning curve

be a national success?

Computer Space didn't succeed

in retrospect because it was
too complicated a game.

It took a special amount of
knowledge of action and reaction

and the way objects
operate in free space,

a little bit of knowledge
of Newton's second law,

things like that.

It was not a game for the
average working-class guy.

They just didn't know
what was going on.

And so it did extremely well
around college campuses,

did no money at all in a
working-class neighbourhood.

Computer Space proved there
was a market out there

for video games.

People have said that

Computer Space was a failure
- it really wasn't.

It, you know, did about 3
million dollars in sales,

which, you know, not bad.

He immediately doesn't get along
very well with his bosses there.

I thought that as I
got to know Nutting,

they were not a very
clever company.

That became a
pattern with Nolan.

He was a great leader, maybe
not as much of a follower.

I grew up in San Francisco.

My neighbour, when we were
living in the Haight-Ashbury,

had a TV repair shop.

Al Alcorn was the result
of putting a typical nerd

in a hippie environment.

I wound up at Cal, University
of California, Berkeley.

Now, that was during the 60s.
I was very much involved in

all of that stuff
too in Berkeley.

Counter culture and technology

were the explosive mixture
that made Silicon Valley.

Silicon Valley had started
to build its reputation as a

sort of centre of
good technology,

and so I felt that it was
important to kind of be

at the hub of where
things were happening.

Ampex, along with Hewlett
Packard and Fairchild,

were the cradle of
that new breed.

So in June of 1972 I
was working at Ampex

and that is where I met Nolan
Bushnell and many other people

that became the
core team of Atari.

I thought that he was
a brilliant engineer,

and a really good

technologist and so he
was my first choice for hire.

Computer Space had made
some money for Syzygy,

but nowhere near to
Nolan's expectations.

The incompetence of Nutting

gave me the
encouragement to say,

"Hey, I couldn't mess it
up more than these bozos."


Syzygy was already in use so
we had to choose another name

and we chose Atari.

Nolan Bushnell, the Silicon
Valley entrepreneur,

went for his first hiring.

He offered me a thousand
dollar a month salary,

which was less than I
was making at Ampex,

and he offered me
stock in the company,

which I considered
to be worthless.

What was convincing Alcorn
was the new company spirit.

We were young and we
had an attitude that,

hey, if we took this
chance it would be fun.

Nolan gut was telling him
they were going to be big.

Nolan kept telling me,
oh, we're going to be a

million dollar company.
I thought he was crazy.


it would fail in a year or two.

I'd go back to Ampex
and everything

would be fine and I'd
actually learned a lot.

A new kind of workplace
was taking shape,

a kind which was going
to be very popular.

At Ampex you showed up at
8 o'clock in the morning,

you left at 5 o'clock
in the evening,

you had a one hour lunch.

You didn't wear blue jeans,
you dressed in slacks,

and a white shirt, maybe a tie,

maybe you wore a lab coat.

You stayed there your
whole life, and you got

a gold watch, you got
retirement and a pension.

I was from Berkeley, I mean...

It was pretty clear
what was going on,

at least in Nolan's mind.

We decided that we were going
to have a New Age company,

a company of the Age
of Aquarius where

employees were going to be
treated as human beings.

And we were going to be focused
on results, not process.

We were going to
build a product and

the product would
speak for itself.

We had a very, very flat
organization structure,

way before it was fashionable.

Today everybody wants
to start a company,

but back then it
just wasn't done.

Ralph Bear is a
fascinating man.

Largely self-educated,

but with some education
in radio technology,

and became the
quintessential inventor.

Ralph Baer had nothing to do
with the Age of Aquarius.

I had the initial concept
of doing something interactive

it was just a matter of
putting patterns up there,

manipulating patterns,
moving them around.

In 1966 he was heading
500 people at Sanders,

a giant military contractor.

One day he's at a bus station
and he sees a TV and he thinks,

"Oh my gosh what can
you do with a TV

besides just watch
lame shows on it?"

I wrote a four page
paper on September 1st

of '66, that lays it all out.

It describes lots
of different games

and the interaction between a
game and the television set

and some of the technology.

He had no issue in putting
someone on the job.

I took a technician, put
him in a second room,

and let him work on something.

Basically I was asked,
questions like, "Are you still

screwing around
with this stuff?"

That is the kind
of support I got.


The hardest task was
finding a manufacturer

to sell this idea to.

We had RCV, Motorola, Magnavox,

many others, producing
television sets,

and they all said it was great,

except nobody did
anything except Magnavox

Out of that came the
Magnavox Odyssey game

which first came out and was
sold publicly of May 1972.

Odyssey came out in the
same days in which

Al Alcorn was stepping in.

We had gotten a contract

with Bally Manufacturing
to build a driving game,

but I felt that that was
too difficult of a problem

to have Al start to work on.

Somebody had said
there's a video game

being showed in Burlingame,

and I thought, "Oh boy,
I've got competition.

The video game
business was ours!"

There's a lot of
controversy over who was

the real father of Pong.

I went into the Magnavox

demonstration lab and
there was Odyssey.

I'll show you.

I said well, there's
no competition here,

so I went back and
that was actually the

first day that Al
Alcorn showed up.

Pay attention.

While staring at Odyssey,

Nolan started to frame some
basic aspects of video gaming.

The striking of the ball had
no offensive aspect to it,

it was simply blocking it,

which is ultimately boring.

It's not that fast.

The motion in general
was not crisp,

there was no sound,
there was no score.

I said, you know, if
I were going to do

a game like that, this
is how I'd do it.

Eventually, Nolan showed
another key element

of the Silicon Valley
way: ruthlessness.

People say, oh I
shouldn't do that

because someone else may have
patented it or something.

Unless you are directly stealing
somebody else's concept,

go for it and resolve it later.
That's what we did.

The gentlemen's disagreement
that started with Pong

had grown to include the very
concept of the video game.

It was a totally different

different approach.

The only similarity was a

moving spot on a
cathode ray tube.

Whether video games are
produced technically

by one form of
technology or another

is totally irrelevant.

There is no question that I
am the original inventor

of home games.

The record is clear. There
is a four page document.

On the other hand,
Bushnell and associates,

like Al Alcorn, Ted Debney,
Steve Bristow and others,

were basically inspired
by Nolan to do what?

To put a coin slot on
the Space War game.

Bushnell tends to see
the broader picture.

The reality is that Pong was
successful and Odyssey wasn't.

William Higinbotham did a
ping-pong type game in 1958

and there were all kinds
of ping-pong games

on the computer, on
PDP1, in the middle 60s

so, you know, come
on, it's silly.

What is sure is that Mr
Baer patented his ideas

and Mr Bushnell did
not for a long time.

The problem is that Ralph,

despite all of his
many strengths,

really didn't have a concept
on how to make things fun.

The Odyssey sucked
as a game console

By 1973, Nolan
Bushnell's mind-set

was prevailing over
any competition.

I think my games were very, very
good, they were cheap enough

and they were commercial. And I
think I'm the commercial daddy.


It really wasn't until Atari

came around that even
ping-pong became fun.

C'est la vie.

When Nolan hired me to
design the next video game

apparently he wanted
me to get practice.

He thought of the
very simplest game

he could think of,
which became Pong

which is just one object moving,
two score digits and some sound

couldn't be any simpler.

I did not think it
was marketable.

The arcades at the time,

they were all about flying,
or driving, or shooting


Being the role model for many

Silicon Valley
entrepreneurs to come,

Nolan manipulated
his first employee.

I told him that we
were trying for

a contract with
General Electric.

He told me that he had a
contract for a home game.

The fact that nobody
from General Electric

ever called or came
by or wrote a letter

didn't occur to me.

Al Alcorn proved
sufficiently smart.

It took Al less than a week
to get the Pong game going.

He basically took a basic
Computer Space set of

circuitries for the sync
and everything like that.

Frankly, it was
kind of a failure.

I had 75 chips in this thing

and it couldn't really
exist to be more

than 10 chips to
be a home product.

But Nolan didn't tell me he
was going to throw it away.

The most notable feature in the

game was that it
was challenging.

Alcorn segmented the
paddle and depending

on which part of the
paddle hit the ball

the ball would, would go
in different directions.

You have the highest
risk of missing the ball

and yet it's the most
effective shot back.

That's probably the
one characteristic

that really, really made Pong

a commercially
successful product.

They were shaping the paradigm
of the perfect gameplay.

The other things that we did
to make Pong a good game

was speed up after a
number of volleys

The game got harder
as you played longer.

It got very, very hard to play.

The sound discussion
showed how an Age of

Aquarius company solves
important issues.

There was no sound
and then Nolan

said, well, it's
gotta have sound.

I said, "Really? What kind
of sound do you want?"

And he said, "Well I'd
like the sound of a

crowd cheering when
you get a point."

I didn't know how to do that.

Horizontal management
brings along

the risk of getting backtalk.

It took about one
and a half chips to

do all that sound.
Nolan didn't like it

but I said if you
want to change it,

then you do it. I'm
not going to do it.

Once Pong arrived
it seemed to be

reasonable to test
it on the ground.

Ted Dabney built a cabinet for
this prototype over the weekend.

It only said the word
Pong on it. There

were no instructions,
there was a coin box

a television set, the name
Pong and two controls.

We put it in the Andy
Caps tavern in Sunnyvale.

Nolan and I had a
beer and watched it.

Somebody came over
and played it.

Approaching the
game seemed to be

very simple to the
people around it.

And Nolan asked this guy,
"How did you like it?"

He said, "I know all
about it, I know

the guys who invented
this thing."

We said, save the
bullshit for the girls.

Nolan immediately
left for Chicago

which was the amusement capital
of the world at the time.

Nolan thought he could
sell the idea to Bally

which was a big name in
the arcade business.

Al gets a call in the
middle of the night from,

from the manager at Andy
Capp's Tavern who says,

"Your machine's broken.
Can you come fix it?

Turns out it was so
stuffed full of quarters

no one could, could get
any more money in.

The coin box was
filled with quarters.

Absolutely filled
with quarters.

I put them in my pockets,

I said "Gee, if that
ever happens again,

you give me a call.
I can fix that."

People's behaviour around
Pong was changing rapidly.

The barkeep said the
most important thing and

this is, this is the key,
this is the real key:

he said "It's the
strangest thing,

I've never seen this before.

This morning I came
to open the bar

and there were people
waiting outside

and they didn't order drinks.
They came to play that game."

I told Nolan what had happened.
Nolan said,

"Very interesting,
very interesting..."

Suddenly Nolan
changed his mind and

wanted to keep the
game for himself.

The company business model
had to change accordingly.

When we started Atari,
the plan, the business

plan, was to do
consulting engineering.

We wouldn't be involved
with manufacturing

or sales, or any of that stuff.

Building prototypes
is one thing,

manufacturing is a
wholly different thing.

Atari was started
in a little shop

in Santa Clara on
Scott Boulevard.

I had a little lab
where I did my

engineering and we
manufactured right there.

We had no money to fund any
of this, and no space.

I come home and tell my
wife that Nolan's crazy.

He wants to build a 100 Pongs a
day. He's insane. But we did.

Within two years we
became bigger than Bally.

Nolan and his associates
had the chance

to speculate about
Pong's success.

The instructions were "avoid
missing ball for high score."

You didn't have to worry
about this button

gives you thrust,
this button fires

and this button does this
and that button does that.

It didn't have a lot
of naked ladies on it.

It was very appealing
to women and men,

and the other very important
thing, it was 25 cents a play.

Video games were new and
were about to change

the arcade's environment
for a long time.

Andy Capp's Tavern is one
of those bars where you

eat your peanuts and spit
the shells on the ground.

A lot of these games
were going into

bars where people
had had six beers.

They were not
kid-friendly places.

Video games appealed
to kids and to

the nerdy ones more
than anyone else.

I saw this game
and I said, "Oh my god,

you can make a game
on a television set.

Who would've ever
thought of that?"

Atari was bringing out the
first arcade game industry.

Really, Pong was the first game
to reach the mass consciousness,

showing some of the potential

of this new medium
of video games.

Video games delivered
the possibility of

an alternative world
in the hands of kids.

I built my own little pong
game and Steve Jobs said,

"Wow, Atari!" Steve went
down and got a job.

They put him on a night shift
where they would design games

and I got to go down there
and see their newest stuff.

I was in, I was in
heaven in those days.

Atari grew very
rapidly after Pong.

By the end of 1973, we sold
over a 1 million dollars worth

of equipment. In 1974,
probably 3 or 4 million.

We couldn't build them
fast enough. So we

expanded, we rented an
old roller skating rink.

All the existing
coin-op operators

immediately jumped aboard
the new technology.

Atari probably sold less
than 20 per cent of

the Pong games in the
coin-operated world.

We were heavily, heavily copied.
There were,

at one time, 23 Pong-type

Nutting Associates had Computer

Space Ball, Williams
had TV Tennis

and they were all
copies of our game.

Bally and Midway both came out
with their own versions of Pong.

Nolan Bushnell had his
means to undermine

competition, which became
a Silicon Valley classic.

Our strategy was to
be the most innovative

and the most clever
company around.

What we had was the
ability to design

new games which our
competition didn't.

But it was very hard to
design these games because

we were busy trying to make
Pongs at the same time.

Atari started hiring
people at full speed.

I came over and I thought: "Oh,
man, this looks pretty fun."

I dressed up, I wore a suit,
and I went to the interview,

and I walked in and
he's wearing like

a T-shirt and blue
jeans and I said,

"Thank God!" and I
pulled of my tie.

It wasn't corporate,
it was a very casual place.

That was great! [laughs]

Atari brought the
Silicon Valley informal

style to a whole
different level.

There were parties
every Friday, and

people would just
get together and talk

and go around and play each
other's games, give them ideas.

Nolan was starting
to fulfil his vision

of an Aquarian
technology company.

Our creative manifesto was to
always take the technology

that was possible and
turn it into a game.

The first change was
actually Pong Doubles.

Then we did a game
called Space Race

and then came Gotcha,
and then came

Spike, and Volleyball
and then Trak 10.

Technical limitations
brought to

small teams and
fast development.

A team typically
consisted of the

programmer, a technician
and an engineer.

Your options of what you could
do were somewhat limited.

The first thing you
had to do was to figure

out whether or
not you could display

what you wanted
to show in this game.

In this environment
the mantra for

the perfect game
started to spread.

Nolan said it has to be easy to
learn and difficult to master.

The old games are popular
because they did gameplay well.

They thought about how
easy it was to do

something interesting in
your first experience,

and how there was
something to learn,

there was a reason
to keep playing it.

One bright day the
revolving doors at Atari

brought in the Silicon
Valley icon to be.

Steve Jobs.

I never expected that
his company would

be as big and
successful as it is,

as I had a chance to
own a third of it for

50,000 dollars and I said no.
I've regretted that.


Steve was put on a new game.

You know, I didn't sleep
a wink last night.

I needed an engineer to
work on Breakout for me.

Nolan didn't know
that Steve was not

an engineer. He could not
really design games.

Steve Jobs came to me one day
and he said, Nolan Bushnell

founder of Atari, wants a
one player version of Pong.

Breakout was the testbed of
the Apple successful duo.

Breakout was, was an
amazing thing because

it was one of those games
that just has hung

around as one of the
classics of all time.

Atari had distributors
all around the world and

in Japan they relied on
a company called Namco.

Masaya Nakamura, the
president of Namco saw the

Yakuza coming out
with Breakout knock-offs

and he went to Nolan
and said, "I need more

copies and I need them
now," and Nolan said no.

Rumours had it that
Nolan was unable to

speak or to think clearly
on that occasion.

Nolan had been out partying
pretty hard by the

time that he, that he
finally tracked Nolan down.

Pretty soon Namco chose to
work with Bally and Midway,

and so years later of course
you see Pac-man come.

Still, in the USA, the
coin-op industry was

held as one and the same
with organized crime.

It was kind of run by mob types.
Or claimed to be.

Indeed the industry
had a bad reputation.

In fact, when we
started Atari we tried

to go to the bank to
get a loan for money

and they basically
turned us down because

they assumed it was
a bad industry.

The bad industry had recurring
meetings and dinners

but one time Bushnell
had another commitment.

Nolan couldn't go, and he
said, "Al, I want you to go."

I took my wife,

and we were sitting
at a table with

an older couple that
were operators,

and I introduced
myself from Atari and

the guy said, "Oh
you're from Atari!"

He reaches in his
pocket and pulls

out a pistol, puts
it on the table.

He said, "You know you're
operating in my territory."

I said, "Well, we're going
to stop right now!"


I went back and I told Nolan
that guy pulled a gun on me!

"Oh he wasn't going
to shoot you."

"I'm not going to those
things anymore, OK?!"

Although being
successful as a new

company, Atari was
always chasing money.

When you're growing at
double and sometimes

triple digit rates, you
need a lot of cash.

We were just grabbing
a tiger by the tail.

At the same time,
Nolan's management

skills were on the
learning curve.

in a year and a half I went
through four different

presidents and I fired
every one of them

and finally I said
okay, I am pretty bad,

but I'm better than
any of these yokels.

The unwritten law of the
coin-op business was that

when you've got a distributor
you could not have two.

They took a bunch of Atari
expatriates and said,

"OK, just go into that
building down the street,

and call it Key Games and
make the best games you can."

And Tank, Tank of course
was their masterpiece.

When Atari and Kee
Games merged back

together, Joe Keenan
became president.

Joe Keenan actually came
up through the ranks and

he turned out to be the
president that I needed.

Nolan's attitude towards
competition showed up in

a meeting about the future
of video game industry.

I was not asked to
participate, and it really,

really pissed me off.
I mean, I was fuming.

And so halfway through
I stood up and said,

"You guys are all a
bunch of crooks and

jackals. You wouldn't
know what the future is

because your only talent
is copying things

that I design. You don't
know what's in my lab,

how can you talk about the
future? You're idiots

and thieves. That was fun."


My idea was to make some
box that would plug in to the

terminals of a television
set and cost 25 dollars, right?

Baer's way to
videogaming was still

passing through the households.

You couldn't build a game for
less than 35 or 40 dollars,

which translated to at least
75, 80, 90, 100 dollars

in the final product price.

Baer met a price point that
was going to be commonplace

Even so, as I said,
350,000 were sold.

I remember they went
to homes, so at least

three or four or five or
six people played them,

by the end of '74/'75,
several million

people had played
video games at home.

Odyssey had no future anyway,
but someone else would have.

Pong has continued to
do well in the arcades

and Nolan says,
you know what, we

need to bring this to the home.

We felt that there would
be an interesting

opportunity in the consumer
market. You know, this was 1973.

Atari didn't get back
into the home business

until they saw the Odyssey
and guys like Al Alcorn

and several others
inside said "If

they can do it, we can do it."

Atari was beginning
to think that the

arcade business was
just that big.

Our sales were almost equivalent
to Bally sales in coin-op

and we were selling about as
many games as we could make.

We were limited now by the
size of the market place.

But the drive for a real change
had the name of Nolan Bushnell.

I really didn't allow grass
to grow under our feet.

Nolan defined the model
of Atari was innovative

leisure. It was a very
broad definition.

From day one Nolan
had the idea that

we should be making
a home game.

Actually the idea of entering
the home market came early on.

People are always confused by
the Grass Valley think tank.

First of all they
thought Grass Valley

was a metaphor for
smoking marijuana.

Grass Valley was rural.

It was a good place to
think and be outdoors.

There were a group of
engineers that had

left Ampax about the
same time we did.

and they moved up to a town in
the Sierra called Grass Valley.

Grass Valley, the team, was a
technology consultant business.

Atari liked them
so much that they bought

them out and made
them a subsidiary of Atari.

I said, "I'll fund a research
lab wherever you guys wanna go."

These guys were responsible
for a notable bunch

of breakthroughs during
the 70s and the 80s.

Larry Emmons and Steve Mayer and
Ron Milner were the leaders.

There were only a
dozen people there.

I went out there, there were
twelve people working there.

Ten of the men, all of the
man had beards except

actually I think all
of them had beards.

So I grew my first beard
when I went up to

work there and I have
never shaved it off.

Location also played a role
for these technology monks.

They could really
think and focus

on things six months
to a year out.

All of the really
good innovations

came out of Grass Valley.

Innovation was the core business
at Atari at that point.

We were acting as the advanced
development research firm for

all of the other coin-operated
companies in the world,

so we thought that if
we made a custom chip

that nobody else could buy that
and we would have our propriety.

And innovation was the key to

opening the door
to a new market.

If we could sell
them in the home,

we could sell
millions of machines.

The other coin-op
companies were

very upset with us
because they said

we would steel customers
away from the arcade.

We said "Sure, they will
be buying our stuff."

At that point it was all about
vision: vision and mind-set.

Bally saw themselves as
a coin-operated pinball

and slot machine manufacturer,

they didn't see a
broader picture.

Nolan had a broader vision.

Sears was the first
distributor to put

Home Pong in their
sports catalogue.

Tom Quinn, the
executive at Sears,

was a lot looser,
and he was much

more willing to
adopt our culture

than to force it and he
kind of liked it, actually.

Atari produced
250,000 Home Pong

units for Christmas
'75 and sold out.

After that there was
enough business out

there for Magnavox
to become motivated,

to put people under
licence or sue them.

I met Nolan on the
courtroom steps of the

District Court in Chicago
and we shook hands and

he opted out and got a paid-up
licence. He never went to court.

Nolan Bushnell is probably the

commercial daddy of
an entire industry.

He was surrounded
by good guys, Ted

Dabney, Alan Alcorn,
Steve Bristow,

where Nolan contributed
I don't know. I have

150 patents worldwide,
Nolan's got two or three.

But it's not for me to comment.

The VCS was a big
project, you know,

with the software and
that sort of thing.

We knew that if we could
make a cartridge based game

and have the program on a ROM,
we could sell many more games.

The limit of the Home
Pong game was that

they could only play
Pong, more or less.

They had been building more

complex games in
the arcade space

and they knew they would also
want to bring them home.

The idea for a
programmable unit

was sort of deep
within our mind

before we even did
consumer Pong, but

the technology, it
really took a 6502.

The idea of a general
purpose console leads to

a computer and therefore
to a microprocessor.

We then went to a show
in San Francisco.

There were people
come running up to the

stands saying "I wanna
buy a microprocessor."

In September 1975, I and
coincidentally Steve Wozniak

and coincidentally the
people from Atari

went to the Wescon
show in San Francisco,

where Chuck Peddle
introduced the 6502.

And we all fell
in love with it.

The Atari people
went off and started

thinking about using
it for this machine.

Grass Valley was
willing to use the

6502 for the new
programmable game.

We had had a call from
a place called Grass

Valley California: it
turned out it was the

secret place for Atari.

So we went up to Grass
Valley and in about a day

we basically made a
decision that they

could build this product
around our 6502.

The most important reasons had
to do with architectural speed.

How many memory cycles
it would take for

the processor to
accomplish something.

The 6502 would have
been at the heart

of many video games
and home computers

during the 80s.

Once the microprocessor
was strong enough,

which we were pretty
sure that it was,

it was obvious that that
was the way to do it,

The VCS was conceived
thinking about the 6502.

The most important
thing in a game

system is how you
run the screen.

We built a machine that
had only a line buffer

and that means that the
microprocessor is busy

rewriting the screen all
the way down the screen.

It is following the beam.

You have to have a fast,
efficient processor

to be able to keep
up with that beam.

But they had to invent
a new video chip.

Another chip was necessary to
relieve the burden on the 6502.

The TIA, the Stella, did not
execute instructions of its own.

It could keep track
of five moving

objects, and move
them horizontally.

It was the job of the
main processor to

first of all write the
correct things to the chip.

It had to keep track
of when it was

time to stop displaying things

and begin writing
graphics again.

Grass Valley developed
this chip on their own.

The basic architecture
was laid down by

Steve Mayer, Jay Miner
and Ron Milner.

My first job when I
went up to Grass

Valley was to debug it
and get it to work.

The code name for
the video chip led

to a long lasting

I looked at my
bicycle and said,

"OK, I'll use Stella
as my password."

Jay said "That's a nice name.
Let's call the chip Stella."

He told his boss Bob
Brown who said "That's

a nice name, let's call
the system Stella,"

and Jay said "Oh, that means
we have to rename the chip,"

so we renamed the chip the

Television Interface
Adaptor or TIA.

The marketing people thought
it must be some woman we know

and so they started
naming everything

after some woman they knew.

The new console
had very limited

hardware to keep it
feasible cost wise.

The VCS had one custom
chip, a microprocessor

and an off the shelf chip with
128 bytes of memory in it,

and a cartridge on a read-only
memory which was 2000 bytes.

The core technology
happened very quickly.

In less than six months,
maybe as little as three.

Atari was going
for the greatest

innovation of its
entire company life.

We were finished with
the chip design and

the system design by
the fall of 1976.

When management came
up they were quite

pleased. I'm sure there
was beer involved.

Manufacturing happened
in the fall of 1977.

We introduced it at
the 1977 Consumer

Electronic Show. It
was a smash hit.

One of the best experiences
in my professional career.

It took over the whole show and

it was the talk of
the whole show.

Price point followed the
same destiny of Odyssey's.

We knew that we couldn't sell
it for more than 200 dollars.

We kept trying to get
it so that we could

build it for under 100.
We failed at that.

They realized that
most of the money was

in the cartridges, not
in the main console,

and ever since then
makers of game consoles

sell those consoles at the
lowest price they can afford.

Consumer products that
sold more than 200 dollars

grabbed a different
part of your brain.

Under 200 dollars they said, "Oh
yeah, we can kinda afford that."

Keeping cost down was not
without consequences.

Because it was so simple
and so stripped down

it was hard as hell
to program but

you could program
anything on it.

The 6502 processor was modified
to further reduce costs,

and it could only
address 4k of memory.

There were only so many
things you could do.

I would first put that object on
the screen by writing a program,

and then I would stare at
that and say, you know

if I moved it to left, and
I moved it to the right

it could become a video game.

Although the VCS was designed to
be a general purpose machine,

it was best suited to handle
something that already existed.

The Atari 2600
was designed to play

two kinds of
game: Tank and Pong.

So whenever we set out to make
a video game, we had to say,

"How do we take
these two Tank players

and turn them into
something else?"

Programmers were able
to stretch those limits

to the unbelievable.

There were thousands of games
made for the Atari 2600,

and each was just some technical
trick that we came up with.

The chip designer of the Atari
2600 would just shake his head.

I have no idea that
the hardware that

I designed could
be used that way.

[phone rings]

I got a call one day from a
large investor in Warner,

and as it turned out, were a
large venture investor in Atari.

I can remember the question. He

said, "Would you
have any interest

in a fast growing

based entertainment company?"

And I said yes, not knowing
what I was answering yes to.

Manufacturing the VCS
for mass market was

even more challenging
than Home Pong.

The VCS, no matter
which way I ran the

numbers, required more
capital than we had.

You have to buy all your
inventory: plastic, chips.

And so we needed
millions of dollars.

Atari needed cash.
Now more than ever.

We were starting to
explore the idea of

taking the company
public to raise capital.

And we tried that.
We actually had

a prospectus and
we almost did it.

The stock market was not
real strong at the time.

Nolan Bushnell came
back to the old idea

that brought him to
Nutting Associates.

We thought, "Well, maybe we
need a strategic partner,"

and one of the
strategic partners

that we were introduced
to was Warner.

Manny Gerard was at
the time one of the

smartest entertainment
analysts in the country.

I wrote a memo to the
people at Warner

that said I have
seen the future

and it is called Stella.

Stella was the... Atari
people named every chipset

for one of the pretty girls
on the production line,

and the chipset for the
2600 was called Stella.

Impacting on the Atari world was
somewhat shocking for Manny.

I think the first
time they saw Nolan he

was surfing on a
conveyor belt in a box.

I liked Nolan. He
had lots of energy,

he was a wonderful
story teller.

On the other hand
the whole Atari

environment was wild at least.

The rumour is at
least you could get

stoned just walking
passed the air vents.

You have these buttoned-down
East Coast executives

who are very stiff,

very refined and they're
dealing with Nolan Bushnell,

who sees himself as one
of the world's great

ladies' men. He's a West
Coast cowboy millionaire.

Energetic, sort of larger than
life, big, gregarious guy.

My first impression
of Nolan was good.

Warner immediately
went beyond the

idea of being a partner
for those guys.

This wasn't the movie world.

This wasn't the
communications world.

This was the high tech world.
And they

knew that Nolan knew
what he was doing.

They said "Why don't we
buy the whole company?"

I thought we were supposed
to gather resources.

This was going to be
the first marriage

between old analogue

and the new digital domain.

They understood the
hit record business,

movies, and they
understood as a company

that you might fail,
and fail and then succeed.

Warner was an
entertainment company

thinking about the
future of entertainment.

The reason we bought
Atari was because

we had seen the
prototypes of the 2600.

Nolan Bushnell resolved to
sell his baby. Maybe too fast.

It had been a very, very
stressful five years

and there was a part of
me that said, "Yeah,

maybe this is a good time
to sell: it was more

money than I ever thought
I was going to make.

Warner put a big
deal of money on

the table, or so
it looked like.

They bought the company
for 28-30 million.

The venture capitalists were
given 100 per cent cash.

The insiders were given 10 per
cent of their proceeds in cash

and the rest in subordinated
debentures of Atari.

Warner was very much
concerned about

keeping the skills
within the company.

The problem with Atari
from our standpoint,

is you had too
many young people

who were going to get
too rich, too fast.

My theory was that
you would give them

the money and they
would all disappear.

They resolved to buy them
out one step at a time.

And I said to them at the time,

"If it really gets bad,
we can walk away from

these debentures and you
don't get anything."

Despite money, Nolan soon began
to have second thoughts.

Nolan owned 50 per
cent of the company.

I think Nolan got 1 million
dollars on the closing.

I regretted it probably six
months in after the sale.

I've often thought that
if I had just taken a

good two-week vacation,
I might not have sold.

Nolan used to say he had
told people he was a

millionaire for a long time
and now he really was.

The problem was

the first time he had a million
dollars in his pocket,

Nolan went off and started
to buy real estate

and got very distracted
for a period of time.

Probably he was the
first Silicon Valley

Age of Aquarius geek
turned into a tycoon.

He would come breezing through
and check the screens

and see how was going on and
pat everybody on the back,

and that was a real issue.

It's very different
running a division of

a big company and
running your own shop.

In Christmas 1977, and
with Warner money,

the VCS came out to a
lukewarm reception at best.

The VCS comes out

and you know, I mean
it's a new toy.

People really didn't know what
to think about it really.

They were kind of "Well OK, why?
What's different about this?"

In 1978, Space Invaders
hits in America

and now people are starting
to understand why.

People have always asked
me what percentage

of the profits we
put into research,

and I like to say 150 per cent.

Two good years had passed since
the first VCS conception.

Too long for Nolan Bushnell.

Nolan and my instinct would
be to design a new product,

just do a new product.
And Warner said no,

so they put 100 million dollars
into advertising that we

never would have done
and they were right.

We were wrong.

For the first time,
Nolan had to negotiate

his ideas with his
employer: Warner.

My vision about
Atari was to be the

best game company in the world,

to really create, innovate,
and to, in some ways,

be more than just a
video game company,

to be a technology driver.

A company that had some
innovation, a lot of innovation.

Nolan has 1000 ideas a minute.

Some of which are wonderful,
but he loves them all equally.

Nolan definitely
wanted the VCS 2.

Barely had they hired
Nolan, when he turns around

and says "You know what,
the VCS is old technology.

We need to get rid of it and
move on to the next one."

I think Warner
became uncomfortable

with this crazy
California company.


Manny Gerard didn't actually put
much stake in the hardware.

They were marketeers.

We, well...

The total focus was on

the software and selling
the software.

Your success was based on
how good your games were.

Warner didn't understand the
engineering side of it.

I think you can get yourself
confused in getting

into the fact that it
had a technology base.

They viewed


basically as a
software business,

as an entertainment media.

More like a record company.

Is it that different
from the music

business or the movie business?

Or even the publishing business?
The answer is probably not.

To be honest, vinyl and film
are less prone to Moore's law.

Memory cost had dropped
by a factor of 10.

Once you can see that,
you say "This game is

crappy, we got to replace
it as soon as we can."

And they said "We just
barely bought this company."

On top of that, different
working habits began to show.

Manny would come in at
nine o'clock to the

engineering lab and there
would be nobody there.

And he was horrified
"We got deadlines!"

The culture clash between
Atari and Warner

was a clash between California
and New York management styles.

Silicon Valley was rather new.

Warner didn't see the
point in opting for

a specific management
style with Atari.

We were used to dealing
with creative cultures.

What we were not used to
dealing with, to be honest,

was quite the culture
of Silicon Valley.

It didn't take long
until it became

clear that Nolan
was the problem.

I think it made them
very, very nervous

to see Nolan making
these rapid moves.

We can't run a company based
on your instincts solely.

Now all of a sudden
he's sold his

business for 28
million dollars,

he's playing tennis
in the morning

instead of coming
directly to work,

and he wants to
cut off the VCS.

Manny Gerard wanted
budget planning,

marketing campaigns
and sales goals.

You cannot disappear
for six months,

walk in to a meeting and say,

"We're going to do it
this way, because I say so."

You've got to bring somebody
in with business discipline

because this thing is growing,
it's growing too fast,

and it's going to
go out of control.

Manny started to look outside
of Atari and word spread.

I was having lunch
with a classmate

of mine from Harvard
business school,

and he asked me if I
would be interested in

working for a company in
California named Atari.

I laughed when he
asked because I love my job

and I've no interest in living
in California, I'm a New Yorker.

Ray Kassar was a
vice president at

Burlington Industries,
a textile giant.

I met Manny, what was supposed
to be a very short interview

was about three to four hours
because Manny likes to talk,

so finally I said, "Look, I'll
go out there for a weekend

and check the place but
that's all I will do."

Ray, the New Yorker, let himself
be courted by the VCS idea.

I went to California.
I met Nolan Bushnell

and I was very intrigued
with the product.

I thought it lacked everything.
There was no marketing,

there was no infrastructure,
there was no

manufacturing guy, there
was no financial guy,

there was nothing.

A few days later Manny
asked me to come to

have a meeting with
him and Steve Ross.

They made me an offer
I couldn't refuse,

so I said "I'll go
there for six months,

I'll start the process
of reorganizing the

company, then I'm coming
back to New York."

I stayed for 8 years, I guess.

It was pretty obvious to us that
he was there to replace Nolan.

Manny was feeling more
and more confident

about getting rid of Nolan.

The showdown between Nolan and
Manny Gerard came early on.

He said "We're going to
put Ray Kassar in the CEO

and you can stay as consultant
if you want or not,"

and I said "You know, this
isn't my company anymore."

What occurred at that
point was an incident.

Nolan came into the budget
meeting in December '79,

and just looked up
and said, "Sell off

all your inventory of 2600.
It's over."

Forget the Warner people,

the Atari people
didn't know what he

was talking about.
They just gasped.

The chairman of the
company board, the guy

who invented it,
says its all over.

At that point there wasn't much

Nolan could do to
avoid Game Over.

Manny said, "If you keep on
going around undermining

me, that's gonna be
bad for the company."

Nolan said "Then get
rid of me, you know,

buy me out," and they did.

There were certain elements
of my contract that

were better off if they
fired me than if I quit.

So I decided to be
such a pain in the ass

that they would fire
me...and that worked.

Getting fired was the easiest
task for Nolan in years.

Nolan was wearing a T-shirt
which said "I love to fuck."

He was walking around the
company wearing this T-shirt.

OK, I thought they are a
little crazy out here,

and then he invited me
to a staff meeting.

Al Alcorn and all
the key engineers

were there: about six
or seven people,

and all drinking beer
and smoking joints

One guy poked me
and said "Here,"

and I said "No, I don't smoke,"

and they said, "Oh, lighten
up, you're such a stiff

New Yorker, now this
is California."

I said, "Nolan if
you're going to conduct

business, fine,
otherwise I'm busy."

I got up and left.

Thank you very much, Harold!

Oh, Jesus Christ.

Ray Kassar had
wanted to be CEO of

Atari, maybe from
the very start.

I realized I couldn't
function with this

environment unless I
was running the show.

So I went back and and said
to Manny "I have to be

in charge otherwise I can't
do anything for you.

I'm coming home."

With Nolan Bushnell
they applied

what they called the
"beach clause."

We removed him. He eventually
came to me and asked

to be relieved of his contract.
Which we did.

He said "Will you buy
back my debentures?"

We bought them back.

Warner had bought out the

shareholders in a
very clever way.

Warner, Manny, probably figured
that we would piss the

money away and kill ourselves
with cocaine or something.

We've got to figure
out where we were.

They structured the
buyout, it was a

seven year payout of money.

And he took his money
and he left, and then

when the explosion
at Atari occurred

he had this very small residual
position in the bonus pool

that would have been worth

millions and
millions of dollars.

It's a whole complicated
story about

individuals and corporations.

I said I wouldn't stay
unless I was in charge.

I'm sure he was asked to leave.
He resigned.

Without Nolan, the Atari
identity was at risk.

I really liked Nolan,

so I was hoping that
Atari would replace him

with somebody
else who understood

technology and marketing,

but I don't think Ray
was a technologist.

Ray imprinted Atari with
his own management style.

The corporate offices changed.

Ray didn't play video games,

the office was very
simple and bare.

We always had the next secret
great video game in the office.

Did you think it
was significant?

Why would I want to
have a game there

too, unless I was
gonna play with it?

I wanted to focus on the
work, let people know

I'm not there playing
games in my office,

but I had them in my
house. Had a whole room.

Our coin-op products and every
consumer video game we had.

Surprisingly enough, Al Alcorn
attempted to stay within Atari.

I didn't leave. Nolan
left, I wanted

to stay around it.
Atari was my baby.

Soon the true reasons
behind Nolan's

departure started
to become apparent.

Atari became a little bit
less technology focused.

They became much
better at managing

things and managing inventory.

I didn't realize how serious
it was when I got there.

They were losing money, the
company was losing money.

The focus was on making
the VCS a successful

product, and that's where
I devoted my energies.

But the Age of Aquarius
company was fading away,

once and for all.

Culture clash.

It was very formal,
very hierarchical.

He instituted an
executive dining room

so that the
executives didn't have to

work with the
engineers or touch them.

In a while the new
management was

going to learn that
in Silicon Valley

technology and creativity
are one and the same.

I think they missed
something creatively.

If you have a
successful product,

it's incumbent on
you to figure out

what to replace it with
before your competitors do.

The one insight we didn't
have was that you have

to obsolete your own
products as fast as you can.

I found that Ray was so
much different than me.

I mean, the idea of
having a car and a

driver bringing me
to work every day

was so foreign to
everything I stood for.

No, it wasn't a
limousine, it was my car.

There's a little difference.

I had a driver, it was
one thing I insisted on,

I said, "I'm not a
very good driver

I didn't want to drive on 101,

I would need a driver". And
they said, "No problem."

It was not a limousine.

It was just the wrong way to run
an Age of Aquarius company.

The controversy between
Bushnell and Kassar

went on even when Nolan
was no longer there.

He's a very creative

he's the idea man
and he's brilliant.


But he's not a guy,
in my opinion,

capable of running a business.

What about Ray Kassar?

I think their strategy under
Kassar, if one existed, was

"Sell as many of these
things as we can."

They saw them as widgets.

That's so wrong.

They didn't see a
pathway to the future.

In fact, Warner was
trying to move

away from the usual
cash nightmare.

What this company needed
more than anything else

was just somebody
who understood how

to manage a decent
sized business

and had sound
business principles.

There was no marketing
to speak of,

they weren't even calling
on the chains like

Sears, Penny, there
was nothing.

The coin-op division
was the only one

which seemed to be
working properly.

We had a very strong
coin-op position

as opposed to what
we had in consumer.

We really tried to keep that

building as an
island of creativity

amidst all of the big company
culture that was growing up.

Soon after Ray began working at
Atari, things started to change.

We were beginning to get the

distribution, we were
beginning to sell

Sears and other major, we
finally got it to Walmart.

That's what we needed,
we didn't have that.

I would say advertising was

probably the most
important thing.

We went to Doyle Dane which was

at that point the top
advertising agency.

In 1978, Atari was basically

turning into a
different company.

We went from a small,
engineering-driven company

to a very large
marketing-driven company.

Ray Kassar came into
direct conflict

with the engineering style

that had been established
at Atari for many years.

The relationship between
Ray and the hippie

techs from the bay
area never took off.

Ray came from a very
stable fabric industry.

I think he figured
he had a product,

VCS, that was going
to last forever.

High-tech is changing
all the time.

In one of the very
first meetings

he held, Ray sounded
pretty weird.

He said that we
were gonna start

selling computers
in designer colours

so that women would buy them.

He was 16 years
ahead of the iMac.

We in engineering
were appalled.

We thought "Yes, he gets
merchandising and marketing

but he doesn't understand
the technology at all."

Christmas 1978 was the moment
of truth for Manny and Ray.

And I got called into Steve
Ross's office who was

the chairman of Warner,
and we were alone,

and he said "What are
we going to do?"

Now remember, this is about
December 10th. I said,

"On December 26th,
there won't be a 2600

on any shelf in any
store in America.

If I'm right, we've
got a huge business.

If I'm wrong, we're in trouble.
But there

is nothing we can do
in the next 15 days,

so let's relax and
see what happens."

And of course, December 26, you

couldn't get your
hands on a 2600.

I mean, the thing just
blew through, it was one

of the biggest products
in the country.

1979 was the year and
it was Space Invaders.

This is an interesting story.

Manny Gerard was the
kind of New Yorker

that liked to be on the West
Coast most of the time.

One day

I went over to coin-operated
engineering with the

people that made the
games for the arcades.

And here are all our engineers,

with coin-operated Space
Invaders, not even our game,

and they're playing
Space Invaders.

I went into Ray Kassar's
office and I said "Ray,

I want to make a Space
Invaders cartridge

and I want to
license the name."

Licensing a coin-op title for
the home was rather new:

more often you simply
stole the technology.

And I said to him,
"Ray if we can't

license the name, steal
the technology."

I said "Duplicate it.

But I'd rather license
the name," and we did.

Licensing became reasonable
when video games became brands.

Through '78 the majority of
things are Pong and racing.

Space Invaders creates
this relentless world.

You know you're gonna
die sooner or later,

those Space Invaders, they just
keep on marching back and forth

and back and forth
and you know, your

bases are dissolving
around you,

and it's a pretty good
representation of a nightmare.

Two things made
Space Invaders a

breakthrough: one
was the gameplay.

Space Invaders was
a monster game,

I mean, it was
such a good game.

Space Invaders was another
game that had the beauty of

the "simple to learn,
hard to master,"

you could see how the game was
getting more difficult as

the aliens move faster
and drop down lower.

But Space Invaders
could also convey

the idea that you
were "there" somehow.

The game play, the pacing
of the game, the suspense,

the theme, was, you know,
just completely captivating.

I think it captured the
entire world really to the

potential of video games
and where they could go.

It was clear from
the start that

Space Invaders could
start a craze.

When Space Invaders
started in Japan,

many thousands of
arcades opened up

just to be able to
play Space Invaders.

They were called
Invader Houses.

This caused a shortage of the
hundred yen coin in Japan.

Manny Gerard move proved
to be the right one.

We licensed Space Invaders,

and the game was introduced
in September of '79,

and it was an
instant phenomenon.

Suddenly the 2600 was the most

exciting product
anybody had ever seen.

This was more a brand
licence than anything else.

The Atari VCS technically could
not actually do Space Invaders.

You were not supposed
to be able to have rows

full of enemies that could
be individually shot.

So they would tell
it to draw that same

sprite over and over
and over again.

It didn't quite look
like the arcade version,

but it was unmistakably
Space Invaders,

and it was a big,
big hit for Atari.

Space Invaders had
opened a brief

era, now known as
the Golden Age.

There was an arcade
golden age that started

in late '79. It really
lasted through '81.

In 1981, Americans spent 75,000
man-years playing arcade games.

They dropped 20 billion
quarters into arcade machines -

that's a golden age.

Video game creativity
was probably

reaching a peak in those days.

You get Galaxian, Moon Cresta,

and people are enjoying those,
and then comes Pac-man,

and no one was ready for that.

Pac-man was yet another
shift in terms of audience.

Iwatani wanted to
appeal to women,

and specifically he wanted
to appeal to couples.

You know, if I can
get these two people

on a date to play
this game together,

then I could really possibly
have a hit on my hands.

Toru Iwatani had been
doing marketing.

from the developer's

Girls love getting
dessert at restaurants,

so you know, what if
I had a game with

all these little
food items in it,

let's make the monsters cute.
Let's not do a

space game where everything
is black and white,

let's make very
vibrant colours.

The girl, who was
probably the one

dragging the guy to
the bowling alley,

she would actually
say, "Oh, that's

so cute, I wanna go
play this game."

Iwatani's ideas
definitely hit the mark.

Within a year, Pac-man's on
the cover of Time magazine

and MAD magazine
in the same year.

Before Pac-man,

most of the people
who would hang out there

would have lots of
tattoos and smoke cigars.

Pac-man came out, it
started bringing the

public into the
recreational centres.

Once again, the gameplay
was pretty easy to learn.

You are pretty much
guaranteed of making

progress when you first
start playing it.

You start eating dots, your
score starts going up,

I mean it's very,
very easy in Pac-man

to eat the first energizer dot.

And it's very easy to
eat your first ghost.

At the same time Atari was

experimenting with
vector displays.

They were very clear: you could

create Star Wars-looking

that's what Space Wars had
looked like from the start.

One of the smartest
engineers in the coin-op

division was Ed Logg:
the Golden Boy.

Ed Logg did Asteroids, which was
Atari's all-time biggest game.

Every time you shoot one
to blow it up and protect

your ship it breaks
into smaller asteroids.

I think he wanted to include
elements of the game,

the 'impending doom' kind of
elements, the self-preservation

that were found in
Space Invaders.

Asteroids perfectly applied the
Atari mantra about gameplay.

If you looked up
"Easy to learn,

hard to master" in
a book of quotes

there would be a picture of
Asteroids right next to it.

Also, Ed Rotberg achieved huge
outcomes with vector displays.

Ed Rotberg came up
with Battle Zone.

The game was based upon taking
the original Tank game idea

and making a first-person 3-D
game using the vector graphics.

Battlezone was a step forward
to an immersive environment.

This was the first game
that let you freely

move around in a
three-dimensional world.

That was new, that
was not something

that most people experienced.

The arcade games had progressed
to the point where they were

more like a computer that
you might recognize today.

You should design your business

on the assumption
that not all of the

smart people in the
world work for you.

By the beginning of
the 1980s the VCS

was still surprisingly

They were doubling their
sales volume every year.

They went from 30
million, to 60 million,

to 120 million, to a
quarter of a billion

to half a billion, to
a billion dollars,

to 2 billion dollars
in consecutive years.

In 1982 they grossed
2 billion dollars.

This was the hardware that

appeared severely
limited in 1977.

The programmers
continually surprised

us with how clever they were,

and it went a lot farther
than anybody expected.

David Crane from the
consumer division was

considered to be one of
the wizards of the VCS.

I actually loved that machine.

You have the hardware
telling you,

well this is all you can do.

The technical boundaries, they
could lead you in a direction.

Throughout 1978
Mattel had considered

entering the console market.

Mattel looked and said,
"You know what, that VCS,

that's a toy. We should
be doing that too."

Mattel was saying,

"Technology is coming
down the pipes

to do a better job to put up
an entire screen at a time."

Not so different from
the VCS, Intellivision

relied on a dedicated
chip for graphics.

They called it STIC, S-T-I-C.

Standard Television
Interface Chip,

which sounds nice and
generic and presumptuous.

Basically it created
eight positionable

objects so that freed
up the processor

to concentrate entirely
on the gameplay.

Cleverly enough, Dave
Rolfe compiled an

operating system for
the Intellivision.

You have to draw the
object, you have to

put the picture into
the video memory,

you have to give commands
to the computer hardware.

A lot of that is very generic,

so all of the stuff
which is similar,

common between
games, could be put

into a common operating system,

which was another reason
we could do better games.

In 1981 the console war
was reaching its climax,

and Nintendo was trying
to benefit from it.

We were not in home video
game business yet, so

we decided the successful
Donkey Kong in coin-op

we should license it to
different companies.

We looked at Atari and
Coleco and other companies.

The console war had ignited
another war: the licence war.

You had kids that were going
to arcades and playing games.

You knew what the
hits were in advance.

It's like saying,

"Gee, I'd like Harry Potter
books to make movies."

Of course you would. They're
pre-sold. The marketing is done.

Coleco had entered the video
game market as early as 1976.

Coleco was short for
Connecticut Leather Company.

Greenberg, the guy who owned
Coleco, had big ideas.

He's like Nolan. He
doesn't wanna stay

small. And so he expanded
into video games.

The Coleco Telstar had
been the competitor

of the Atari Home
Pong back in 1976.

Coleco made a pretty good
splash with the Telstar,

and their early
Pong competition.

Made a much bigger splash,
years later in '81

when they came out with
the Coleco Vision.

In 1982, Coleco
hardware could beat

the VCS by an order
of magnitude.

We decided Coleco Vision is

probably the best
quality hardware.

Coleco doesn't have
many hot games,

so they will really
push Donkey Kong

in order to sell the hardware.

So Coleco started marketing

Coleco Vision together
with Donkey Kong.

Donkey Kong on Coleco Vision

looked just like
the arcade game.

Manny Gerard was the strongest

supporter of a
Donkey Kong licence.

I said to Ray Kassar, "Why
didn't we license Donkey Kong?"

And he said, and this
one's burned in my brain,

he said, "Because they
wanted two dollars a

cartridge for it". We
still paid 50-60 cents

"Ray, we got 88 per cent gross
margins on these cartridges.

A year from now, Ray,
we will collectively

crawl through shards
of broken glass

to pay 2 dollars a cartridge."

I don't remember any
serious discussion

about Donkey Kong,
quite frankly.

At that moment licensing
coin-op brands, or any

other brand or concept,
was the key to success.

The business was outrageously
profitable and what

was driving the business
was the coin-op title.

Mattel was interested
in licensing product,

Coleco was interested
in licensing product,

everybody wanted to license.

Mattel had found a decent
market share in sports games.

Mattel was very big on
buying company logos.

It wasn't baseball,
it was Major-League

Baseball. They had the logo.

Blackjack and Poker
wasn't Blackjack and

Poker, it was Las Vegas
Blackjack and Poker.

They paid, I think, the city
of Las Vegas for that logo.

Colecovision was
indisputably more

powerful than any
other console around.

And their whole thing
was arcade fidelity.

They look so much more like
the arcade counterparts

than anything you're
gonna get on the Atari,

anything you're gonna get
on the Intellivision.

Most popular home video game!

More and more, the
consumer division at Atari

was relying on third
party properties.

Strategically it
was very smart.

The execution was not
always very good.

In fact, it was
poor in some cases.

The downside of
licensing a brand

is that you have a
promise to honour.

You know, people were
expecting to see, you know,

the detailed graphics of
the arcade machines, but

they would end up
seeing the simple

graphics of the,
the VCS machine.

Most of the conversions
of the arcade games

into the VCS turned out
to be quite challenging.

The explosion in
software created what I

like to call the
intellectual blue collar.

One day Atari
programmers understood

their actual role
in the business.

The marketing department
sent out a memo.

What they were saying was,

"Do more that sold a lot
of games, instead of

the kind that sold
a few games."

The memo, for the sake of

exactitude, reported
some numbers.

We added them up,
and the four of us

were responsible for 60 per
cent of Atari's sales.

So the four of us
were responsible

for 60 million
dollars in one year.

Needless to say, those engineers
were very good at maths.

In the software
industry, the people

at the bottom of the org chart

were just as smart,
if not smarter,

than the people who
were managing them.

Which was OK, as long
as the people who were

managing them didn't try
to manipulate them.

Ray's relation with
game designers

was not ideal from
the very start.

Ray famously held a meeting
when he first got in

and he said, you know, "I want
to put everyone's fears to rest.

I've worked with designers
for years in my career."

and somebody thought
"Oh my Lord,

he's talking about
towel designers."

Bob Whitehead, Alan
Miller, Larry Kaplan and

David Crane decided
to go see Ray Kassar.

We took that memo and
we went to Ray Kassar,

we said "You know, we're good
company men. We love Atari."

A lot of these, these games,
they were created by one guy.

If there's music in the game,
the guy did the music.

If there' s art in the
game, the guy did the art.

They made a proposal which
saw royalties involved.

Can you just take 10
cents out of every

cartridge and put it
into a bonus pool

and you know, divide
it up so that those

people who do better
games make more money?

They can't put
their names on the

games. They can take no credit.

They're not even really
supposed to go home and say,

"Hey I worked on this game," if
they see someone playing it.

This was not the business model
that Kassar had in mind.

Ray Kassar looked
us in the eye and said,

"You are no more important
to Atari than the person

on the assembly line who
puts them together."

I don't remember, they were
coming to me asking for a bonus.

The engineers started
to think seriously

that Kassar didn't
like them at all.

He was quoted in, I
think, Fortune magazine

calling our engineers as a bunch
of high strung prima Donnas

that are a dime-a-dozen.

They are prima donnas, they
were, but they were great.

Within a week we
had a T-shirt made

that said "I'm
just a high-strung

prima donna engineer
from Atari."

The four programmers left Ray's

office with a precise
idea in mind.

We were escorted
out of his office

by one of his senior
vice presidents.

He said,

"It's pretty clear you
guys are going to

be leaving, good luck,
I wish you well.

There's nothing we can do."

The initial idea
behind Activision

was still very
corporate indeed.

We should either go out and
form just a small company

to develop games and
sell them back to Atari.

We weren't ready to work
with an outside group like that.

Or maybe we just go all the way
and create a publishing company.

Activision was the
first third party

developer of video
game software.

Manny Gerard had known
from the very start that

Atari was just another form of
the entertainment industry.

Let's be straight about this.

Forget the superstars, the
superstars always reach

a place where they can
get whatever they want,

but in the main, as you go
through any creative industry.

I don't care if it is movies,
or music, or video games,

the creators of great success,

frequently feel, and
maybe correctly,

but the business
model doesn't allow,

that they don't
get enough money

because you don't know
what a great success is.

You don't know until
after it happens.

Interest about the new
company was rising high.

Activision went to
its first trade show

with four games for sale:

Dragster, Boxing, Checkers
and Fishing Derby.

Activision was, it was the hit
of the show, I have to say.

Initially Atari wasn't that much
concerned about the competition.

They thought they were safe

because they had trade secrets
that weren't published

on a machine that was
difficult to program.

We tried to stop them by suing
them and that didn't work.

In court Activision
easily demonstrated

that they didn't
steal any secrets.

It was possible to reverse
engineer how it was programmed

so that they could
do business without

being subject to a theft of
trade secrets prosecution.

I think Atari actually
tried to sue them

to find out how they'd done some
of the things they were doing.

Activision's games actually had

something that the
Atari ones lacked.

We used a number of techniques.

They were doing 2 or 3 times
the number of colours

that the system was supposed
to be able to show.

We would only use the greenest
grass and the bluest sky.

You would say, "Wow,
that looks better

than the games that
Atari was doing,"

and nobody understood why.

David Crane went on
to design one of

the best known VCS
games of all time.

I figured out a way to
draw a little running man.

So I asked myself, "All
right, he's running...

Where is he running?"

So I made a path, now
he's running on a path.

Where is the path?
Let's put the path

in a jungle. I drew
a couple of trees.

Why is he running? I
put some treasures

and, you know, the scorpions.

Pitfall urged the
player to explore a

whole new world
within the machine.

I used a special binary
counter to define the screens

instead of making every
screen a block of data.

There were 254 screens, I
think, in the Pitfall world.

Technically, Pitfall inspired
thousands of games yet to come.

What it did do is it created an
entire genre of video games.

What are called the
platform games.

There were maybe 600 platformer
games made after Pitfall.

Activision's success

inspired emulation
in the Atari ranks.

Most of the people

didn't particularly like
the guys at Activision.

They kind of looked
down on everyone

else, according to
everyone else at least.

Especially Dave
Crane, who has that

side of inherent
personality anyway.

Activision's success

made people say, "Well
gee, all I have to do is

borrow some money from
a venture capitalist,

put some programmers
in a room and

tell them to design
video games."

Other key people
in the consumer

division were thinking
about leaving.

About that time I had decided

that the five thousand
person, multi-billion-dollar

company environment
wasn't for me anymore.

I called my good friend
Bill Grub who was

the vice-president
of sales at Atari

for the consumer division.

Two weeks later,
Imagic was born.

We went out and raised a couple

million dollars in
a couple of days.

The game developers
were becoming

something closer to
an entertainment star

than some weird engineer.

It's easy to say it
wasn't only the money.

Atari wanted the programmers
to remain anonymous,

and we made it a
point to identify

the programmers
and the artists.

Competition brought better
games, at least initially.

We as programmers took
it upon ourselves

to continually
challenge Activision.

Our biggest hit out of
the chute was a product

called Demon Attack, which
was done by Rob Fulop.

That was a big hit for Imagic,
we sold many millions of those.

As entertainment
stars, programmers

started to behave accordingly.

Programmer egos were
much larger than

what would have
fitted in 128 bytes.

I used to drive, at that
time, a Porsche 928,

David Crane had a BMW 7 series.

We all drove, you
know, fancy fast

cars, we all made
a lot of money.

Behaving as stars
had its upsides

as well as the downsides.

They were very sensitive,
very sensitive,

very creative, like children,

so I spent a lot of
time trying to reassure

them that I wasn't
really a bad guy.

I remember we had this
one guy, he stayed with

me for three hours telling
me about his poetry,

and that he came to
work at midnight

'cos he couldn't
work during the day.

He told me all his
idiosyncrasies and

I had to be a very
good listener.

Kassar's concessions came
too late, and too little.

All the good engineers, all the
good programmers left Atari.

Even though Ray raised
the salaries, he didn't

even know how to hire
the best engineers.

He couldn't tell the good
ones from the bad ones.

Kassar avoided
disaster just a few

seconds before all of
the programmers left.

I was about to leave
on the third round

of company formations

that Atari came up with their
own competitive bonus plan.

1980 had been the
year of Pac-man.

We concluded that
nobody was ever

gonna make a better
game than Pac-man.

Atari reacted rapidly in the
wave of the licence war.

It was a big hit in Japan. And
we did make a deal with Namco.

The 2600 was limited in
its technology, and the

technology got pushed
and pushed and pushed

until you couldn't
push it anymore

and you couldn't
do anymore with it.

Despite hardware
constraints, Atari

put out tons of
their own Pac-man.

They made more
games than there were

consoles out there
in use at that time.

They'd figured people would
be so excited to buy Pac-man

that they'd buy a console
just to play the game.

But hardware
constraints backlashed

against the Pac-man conversion.

Converting coin-op
games to the VCS

was never really a
good thing to do

'cause the VCS was a
static technology, and

coin-op games kept getting
better and better.

Pac-man had too many
objects on the screen,

moving too fast and
too independently.

Pac-man kind of flickered
back and forth.

The system only
supports two 8-bit sprites.

The designer of
Pac-man cartridge

uses one of them for
the little eater

thing that runs
around the screen

and he uses one of them
for all the other ghosts.

Now, there are four of them on
the screen at any given time,

so he's basically
displaying each

ghost one quarter of the time.

Now that makes it flicker.

Only some executives
at Atari were taking

the technical
limitation of the VCS

in the proper account.

It sold zillions of
copies, just because

the name was powerful
enough to carry.

I may not be proud
of the cartridge

and the public had a right
to be disappointed.

Game quality didn't
seem to be a serious

issue as long as
sales kept going.

It sold six million copies.

I don't know what else
I can say to confirm.

It was probably the
most successful launch

of a video game or any
product in America.

The game wasn't bad, it
could've been better.

It wasn't maybe the
greatest, it was fine.

At the engineering level,

the opinions were
much less forgiving.

They marketed it as
Pac-man and what they

released had nothing
to do with Pac-man,

which made the Pac-man
experience look that much worse.

Disaffection started
to spread like a virus

among the VCS users.

When Atari released 10
million Pac-man cartridges,

that was the beginning
of the end of Atari.

OK, the ET video
game was a very

interesting situation
to say the least.

The Atari collapse was
really the story about ET.

Steve Ross was once at lunch
with Steven Spielberg,

and had what he thought
was a great idea.

Steve Ross cuts a
deal with Steven Spielberg

for the name ET.

He said, "We make a video
game out of [his] movie ET,

and I have guaranteed
a twenty-five

million dollar payment."

He said, "What you think?"

I said, "I think that's is the

dumbest thing I've ever heard."

In 1982, the licensing
war seemed to peak.

the 2600 hardware

couldn't do
just any video game.

The reason video games that
were done as movie titles

didn't do very well is because
they couldn't be done very well.

What was clear from the
very start was that the

available time was insufficient
for doing anything.

I said, "It is now August,
Steve," he wanted this product

created and shipped for
Christmas business.

I said, "The lead
time just getting the

semiconductor chips is
longer than six months.

We are going to have a hard time
getting the chips we need."

Also, creative concerns arose.

The character wasn't
basically appealing other

than in the movie. It
was this ugly creature.

I didn't know if we can make an

action game out
of a story like ET.

Atari had gone through these
kind of operations before.

Atari had negotiated
with Steven Spielberg to

get the rights for
Raiders of the Lost Ark.

Inevitably, movies had
an emotional component

that no one had ever
explored in games.

I sat down

ten and a half to eleven months
of solid work doing that game.

It was a million-seller.

Ray Kassar was still
very sceptical

about going through
the process.

I tried to convince Steve
that it doesn't make sense.

He said, "Do the best you can."
We did the best we could.

The schedule was
extremely tight.

The movie was in the spring, and
then by Christmas the same year

Atari wanted to come
up with an ET game.

That leaves about five and a
half weeks to do the game.

At that point, the
notorious Howard

Warshaw entered the picture.

They called up our
department and said,

"Who can do the ET game in
five and a half weeks?"

And my boss's boss told
Ray Kassar, "No one!"

But Ray Kassar

decided it was worth
calling me anyway,

"You know, Howard, we just
got the rights to ET,

can you do the ET video
game in five weeks?"

I said, "I absolutely can
do the game in 5 weeks,

provided we reach the right
deal." And he said OK.

Kassar thought Warshaw was the
only one who could make it.

Actually he was the only
one that didn't say no.

The deal was that I
got an additional

bonus, and I got an
additional advance,

and they signed it off,
and they gave me a

cheque and I did the game.

Warshaw got his deal
and went back to work.

They came out with an ET
game that was a real bummer.

The ET was a truly
terrible game.

I mean ET kept on falling
into all those little ditches

and then you had to float
him out and the game stunk.

Warshaw had to meet
with Steven Spielberg

to discuss the concept.

The secret to doing a
game in five weeks is to

design a game that can
be done in five weeks.

I had a couple of days to design
the game and then we flew to LA

to present the design
to Steven Spielberg.

Mr. Spielberg proved
once again to

understand the entertainment
business very well.

"Pretty cool," he goes,
"I kind of like that, but

couldn't you do something a
little more like Pac-man?"

I looked at him and what I

wanted to say to him was,
"Gee Steven, you know.

couldn't you do
something a little more

like the Day the
Earth Stood Still?"

But I didn't say
that, because it was

Steven Spielberg,
and I was just me.

At that time Warshaw
thought he would

just stuck with
his ditches idea.

Maybe he was right.
Maybe we should have

done something a little
more like Pac-man.

Atari pushed the game like
they never had before.

It didn't take long until people
find it's not a good game.

So people returned
it to the store

and retailers tried to
return it to Atari,

and it was chaos.

Once a toy goes into the closet,
it never comes out again.

The ET flop triggered a domino
effect on the whole business.

One of the reasons
it's known as

one of the worst
games of all time

is not even because
of the gameplay.

One of the reasons it's
known is because of the

financial disaster that it
seems to have generated.

We produced four million and
four million came back.

I knew we were going to
have a terrible quarter.

There were a lot of returns

along with millions
and millions of

other cartridges that
weren't selling.

A sense of panic started to
spread through the ranks.

Movies are going to fail,
records are going to fail,

and the minute you
get a management

that gets beat up
the minute they

have something that
fails, you're dead,

because they no
longer think clearly.

Ray Kassar felt he
couldn't really

rely on his team the
way he used to do.

There was a lack of
really good product.

No one was very creative,
suddenly something happened.

We all got depressed.

We were doing so well
and all of a sudden,

because of something
we had to do,

we had this failure and it was

tough, was very
tough on all of us.

Worse than that, gamers
all over the country

started to be less enthusiastic
about video games.

Pac-man was a failure
in delivering the

most popular video
game at the time,

and then ET was a
failure in delivering

the most popular
movie of the time.

A lot of people said, "You know
what? I'm done with this."

Howard Warshaw took
the money home

and is still thinking about it.

Was it the worst
game ever made?

I've also done Yar's Revenge,

which frequently, on a
lot of lists, is known

as the best game of
all time on the VCS.

So having done the
best and the worst

I figure, I have
the greatest range

of any game designer
in history.

I'm very proud of that fact.

On December 7th 1982,

we had to make an announcement

about the fact that
our earnings were

going to be well
below expectation.

For several days Manny
Gerard had tried to

understand what his
intuition was telling him.

I remember it well.

It all started because I
kept asking questions

of the salespeople about the
sales of the ET cartridge.

"How are they selling?
Was Pac-man there?"

"Oh they're selling
great, we're going to

meet the projections,
everything's fine."

Unfortunately, one of the
most difficult things at

Atari seemed to be obtaining
the numbers easily.

They had created such a
stratified management that

top management was unaware of
what was going on in the field,

and by the time they realized

nothing was selling
it was too late.

Apparently, Manny
was the only one

to feel something
was going wrong.

I didn't believe it. My gut told
me it wasn't going to happen.

I was nervous. So I had
called up Dennis Groth,

who was the CFO of Atari,
Chief Financial Officer,

and I said, "Dennis, I want
you to go through the numbers

and I want you to tell
me what is happening."

And the night of December
6th, I got a call.

And he said, "I've been
through the numbers Manny,

we're not going to make
the numbers at all."

Not meeting projections was not
appreciated on Wall Street.

Atari was making, I think, over
between 1-2 billion a year.

We were the largest
revenue producer

for all of Warner

After Atari was
making lots of money

we got T-shirts that said,
"Warner: An Atari company."

Obviously, Warner
had to be crystal

clear about the situation.

We waited for Steve
Ross to come in,

and we sat down in
the room and we all

came to the same
obvious conclusion,

and we put out that
announcement, and

as you know, the
stock got murdered.

They were not going
to go in the red,

but they were going to grow 15
per cent instead of 50 per cent,

which was not appreciated.

By the end of the day,
Warner Communications'

stock had dropped by a third.

It was not the fun
day, I will tell you.

The reason why Atari
didn't meet the

projections was a whole
different matter.

They'd sold as many 2600s
to anybody who wanted them,

and to try to push
another 10-15

million units into
the marketplace...

It was too much,

and you had a lot of retailers
getting very scared.

One undeniable fact was the
Atari VCS obsolescence.

Coleco comes along and
Intellivision is there,

and Atari realizes that

way too late, that they
need to step it up.

If I had been running Atari

the VCS2

would've been out in 1980,

and the people who had
grown tired of the 2600

would've started to buy
the next generation,

which is what we see today.

Engineers blamed the management

for not understanding
videogaming at all.

It takes more than
one person to

create a failure
of this magnitude.

Atari was the fastest
growing company

in the history of
American business.

Nolan Bushnell sold it
for 22 million, and like

two years later it had
a billion in sales.

The video game
industry was still at

that point quite a
mysterious object.

There were plenty of
games that hadn't

sold well before
Pac-man and ET,

but they didn't
create the kind of

financial crisis and
the kind of consumer

confidence crisis that
Pac-man and ET did.

The business model
at Atari was still

a trial and error
learning process -

a billion dollars a shot.

All of the business
models subsequently have

built up on the
fact that I have complete

control over the software
that goes on my system.

We spent hours with
lawyers, is there

any way we can control
the software?

The answer was no.

Literally everyone was
publishing video games,

putting quality and price
point severely at risk.

The Quaker Oats
company that makes

breakfast cereals had
a video game company.

Every one of those
companies built a

million cartridges
that didn't sell,

so they end up selling
them for 5 dollars apiece.

This roller coaster ride filled

the retailers with
mixed feelings.

The retailers were
never really sure that this

whole video games
thing was gonna keep going.

Atari, on its side,
had the power for

putting distributors
under pressure.

When the tide started to turn

everyone who got the
chance to screw

Atari screwed them to the wall.

The dam started to
crack with Pac-man.

The cracks got a
little wider with ET,

when the first few major
cracks occurred, Bam!

Killed the village, it
drowned the whole town.

The only one to have a
different opinion about

the quality issue is
Mr. Bushnell himself.

I believe that controlling
the software has been

a very, very faulty
analysis of what happened.

The crappy software story

had nothing to do with
what was going on.

Warner did try to
put 15 million VCS

into a market that
only wanted two.

And whenever you have that much
supply overhang, markets crash.

There's little doubt
that the man who pushed

the market so far
was Ray Kassar.

Ray was in charge of a
wild runaway train and

he didn't really know
what was going on.

Could it be that Atari was
simply not manageable at all?

When I got there in '78
the company was doing

about seventy-eight
million dollars in sales.

Three years later, we were
doing over three billion.

When Atari was moving
up so rapidly,

we added a lot of overhead.

We, for example, went and
built a factory in Hong Kong.

We decided, now we'll go and
build a plant in Ireland.

Atari's growth was
one never heard of

before, and quite astonishing.

When I got there I don't
remember the exact

head count, but let's
say maybe it was 150.

When I left it was 12,000.

To go from 150 to 12,000.
It's a nightmare.

When income started to
slow down, Ray Kassar

was not prepared to
kill his creature.

I remember I made an effort.

I came up with a plan to
reorganize the company.

You've got to go in
and just hack it away

with incredible
speed, and very few

people are capable
of doing that.

Ray and Manny were looking at

things getting worse
day after day.

Next year it went down
to 200 million dollars.

So it's not, it's not like down
10 per cent or down 15 per cent,

it's like less than one tenth,
or less than one twentieth.

Nolan Bushnell was
clever enough to

make a profit from
the bad situation.

I actually had a big
short on the Warner

stock, I made a lot of
money when they failed.

But at the same time
I would've preferred

to continue to be
running Atari.

My own opinion, and I

take some responsibility
for part of this too,

was Atari became so successful,
so fast, and was so profitable,

I think it went to
everybody's head.

And I think that led
to some mistakes.

Atari had invented an entire
industry from scratch.

We spent a lot
of time looking at

the business
and asking ourselves

"Where can it go?"

To some extent, in the
short run, it was a fad.

The inception of Atari had been
coin-operated video games.

The arcade business has dropped
off the face of the earth.

People said, "You know,
this year I think

I'm gonna take up tennis,

or next time I go to
the bowling alley..."

Their parents, their mother
and father, suddenly said,

"I just bought you this home
game system, I'm not going

to pay for you to go to
the arcade anymore."

The turning point happened when
Warner bought Atari with cash.

Just doing a
spreadsheet to show that

it makes economic
sense isn't enough.

There's a thing called culture,

the way people behave,
the way they work.

Atari was the first
genuine Silicon Valley

Age of Aquarius company.

As in many cases,
entrepreneurs who create

great businesses, were
not meant to run them.

I see Atari more of a case
of that than anything else.

As in every Silicon Valley
company from then on,

handling technology was the
key to success, or failure.

Atari didn't really
have much of a plan

for what was going
to happen next year.

Warner attempted to
make it into a company

with long term plans,
long term goals.

It's hard to plan for,
um, you know, brilliant ideas.

In a single moment, Atari lost
control of its technology core.

You've got to obsolete your own
products as fast as you can,

because if you don't someone
else is gonna do it.

And I don't believe, now,

that that was our
mindset at the time,

and I'm partly responsible.

Surely no one had
envisioned the growing rate

that Warner would have been
able to give to Atari.

Nobody, even Nolan
Bushnell, had any idea

how big Atari was going to be,

or Bushnell would
never have sold it

as he did to Warner
for 22 million.

The fundamentals of the business
were very easy to learn.

I felt that the nature
of man is to play,

that there have been
games throughout history

and games have always taken on
the technology of the time.

The video game technology
was digital technology and now

it allowed you to have
unique rules, and motion,

and dynamics, and
speed, and simulation.

At one point the
medium itself became

the drive for the
video game success.

This exciting new thing to
do is what made it big.

It was a natural thing, and it
was huge and so it took off.

And then Warner money,
with Manny Gerard's

and Ray Kassar's skills,

made it happen on a
never expected scale.

While it was a
terrific experience

for me we all felt
we were doing

almost something historic and
would go down in history.

Since he really
didn't understand how

the success was
made in the first place,

when it turned around, he had
no idea how to fix it either.

Sadly, Manny Gerard
can only conclude

that it was too hard to master.

It's the nature of
companies that nothing

grows straight-lines
to the moon.

The mark of a great management
is not managing the upside.

Everybody manages
the upside well.

It's managing the downside,

and very few people
manage the downside well.

No one was ever able to cut
overhead enough to survive.

You've got to really go, and
not cut costs 15 per cent,

you've got to cut
costs 45 per cent,

and emotionally it's
impossible to do.

I'm not envious of Ray Kassar's
position in that thing.

1982 was the perfect
representation of a nightmare.

You come in and they say, "OK,
it looks like this," and you

come in two weeks later and, as
I said, it's down ten percent,

and two weeks later it's
down another ten percent,

and it was just chaos.

There was no fixed
point that stayed

solid for more
than ten minutes.

Atari had a fate
that no one from the

inside could actually
see or avoid.

The fact is, the industry
which had grown like a rocket

fell back dramatically, but the
basic business didn't go away.

Atari's legacy exists
on several levels.

The people at Atari contributed
dramatically to shape

the digital revolution
of the 8-bit generation.

People like to
tell me the story

about the first
time they saw Pong.

They like to tell me the
stories about how they

met their husband or
their wife playing Pong.

People like to tell me
how excited they were

when they got the 2600 under
their Christmas tree.

How it was the most
important thing that

happened in their childhood,
things like that,

and it's gratifying, it's fun.

Atari was also the
testbed for companies

based on creativity
and technology alike.

The environment there was

unique in the freedom that
they gave us to be creative,

to try different
things, because we were

doing things no one
else had done before,

and to this day it
remains the single

most talented collection of

individuals I've
ever worked with.

Nolan Bushnell started the
Aquarium business style

that rules Silicon
Valley to this day.

But more than that he
introduced people, all kinds

of people, well-educated
college professors,

working class folk,
and legions of kids,

to the upcoming digital world.

For some reason that I don't
quite understand is that

I have been able to be
a business chameleon.

If I'm dropped in a pond of

marketing guys I can
talk marketing.

If I'm dropped in a pond of

engineers, I can
talk engineering.

You know, people call
me a visionary but

I'm not really sure
what that means.

The Atari ride
stands as one of the

most unforgettable experiences

for anyone who was involved.

The Atari experience
for me, good and

bad, is not an experience
I would trade.

It was a great education, it
was one of the great rides up

and, as we all know, one
of the great rides down.

Trust me, up is more fun.

[ominous music]

[electronic music]