From $2 Billion to Nothing - The Rise and Fall of Atari

this video is brought to you by morning brew hi welcome to another episode of cold fusion in the early 1980s a new technology called the video game was changing the face of american business the biggest name in the industry was atari in only three years their annual revenue had gone from 75 million dollars to 2 billion this made atari the fastest growing company in the history of the united states but today atari is nothing more than a shell of its former self existing basically in brand name only so what went wrong in this episode we'll take a look you are watching [Music] back in the 1960s a young electrical engineer by the name of nolan bushnell was attending the university of utah and here he came into contact with a machine called space war space war was a combat video game developed in 1962 by steve russell on a dec pdp-1 computer nolan's university also had a pdp-1 so it didn't take long for the game to arrive on his campus when nolan bushnell first played the game he immediately realised the potential for a coin operated incarnation it was by all definitions of the word an epiphany right and i went into the lab and there on a screen was the game space war but i'd never heard of it and and i saw it then and coincidentally i was manager of the games department at lagoon a local amusement park summers and i that was one of the ways i was putting myself through college and i knew that if i had that screen in my arcades it would make money i knew it yes but then you do the math and you know a million dollar computer and 25 cents a play and the math didn't work but i knew the cost of computing was constantly coming down and i knew that the curve was going to cross at some point and uh and it did in 1972 noland along with his friend ted dabney would start a company to realise this dream they incorporated the company under the name atari a term similar to checkmate in the ancient chinese board game go which they were both fans of atari's first product was the world's first commercially available video game arcade called computer space but unfortunately it didn't bring them much success next the pair hired ao acorn as the design engineer who created the game pong the first atari pong machine was completed by august of 1972 and placed in a bar in sunnyvale california alcorn would receive a call just a few days later the machine had broken this looked like a terrible start for atari they couldn't even build a machine that worked for more than a few days the problem as it turned out was actually that the coin mechanism had been flooded with coins because so many people wanted to play in other words the game was actually too successful and from here atari was off to the races it's big party time at at target o'clock all the executives were in their late 20s early 30s you're you're at what age at this time 30 okay most of the employees were 20 to 23. wow pong was so successful that by 1974 8 000 pong machines were installed in restaurants amusement parks and bars across the world however soon after starting the successful enterprise dabney and bushnell started having their differences which ultimately led to a falling out and dabney selling a steak and moving out by 1975 atari now led by nolan bushnell alone was planning to bring video gaming to consumers at their home the company developed the atari video computer system a cartridge-based home console it used the newly available 8-bit microprocessor the mos technology 6502 sadly atari lacked the scale to manufacture the console for commercial use this led bushnell to make a decision that would forever change the course of atari he sold atari to the entertainment conglomerate warner communications in 1976 for a whopping 28 million dollars while all of this was going on a series of events would set in motion the foundations of apple computer what was the first time that you met steve jobs tell us about that experience do you remember that yeah steve jobs found atari he was hired by al alcorn and that afternoon he came into my office as though that was the right thing to do first day first day i said hi what's up he says i think you've got a really awesome company awesome he uses that a lot and and he said i think that everything is pretty good but i've seen your soldering connections and they're really crappy it's widely known that steve jobs worked for atari before starting apple but did you know that it was at atari where the foundations of apple's success was first laid it all started when nolan bushnell came up with the concept for the breakout game but couldn't find any engineers willing to design the game's prototype the task then went to steve jobs a low-level technician back then working night shifts at atari i didn't see the bad steve jobs but but he caused enough problems that i sort of put him on the engineering night shift which it didn't exist he was the first member of that during those days microchips were extremely expensive and nolan bushnell offered steve jobs a 100 bonus for every chip he managed to eliminate from his concept and it was at this moment that steve jobs did something pretty dishonorable here jobs would rope in his friend steve wozniak who was then employed at hewitt packard wozniak was going to help him create the prototype in just four days fortunately wozniak was able to complete the prototype in four days sacrificing his sleep jobs was paid a five thousand dollar bonus but wozniak who had done all the work was only paid 375 dollars by jobs breakout was launched in april of 1976 just a few days after jobs in wozniak founded apple computer wozniak had one dream though he wanted to play a version of breakout written completely in the programming language basic their first computer the apple one couldn't do this so wozniak wanted to create a new computer to achieve this goal he incorporated features such as color graphic commands circuitry for pedal controllers and a speaker this computer would be called the apple ii and it was an instant success and as we know the rest is history interestingly the apple ii actually originally sold with two paddle controllers to play breakout quote a lot of these features that really made the apple ii stand out in its day came from a game that game being breakout of course meanwhile back at atari nolan bushnell developed differences with the warner company and left atari in 1978. the next year warner hired ray kazar to take over the reigns as ceo of atari now backed with the money of warner media the company would create the atari 2600 console the 2600 featured joysticks and interchangeable game cartridges and thus kicked off a new era in the video gaming industry with warner communications at the helm the focus of atari went from creativity to marketing the r d department was downsized and replaced with mostly marketing staff the move did pay off though the sales of the atari 2600 started to pick up in 1979 it reached 1 million sales and then 2 million in the subsequent year and ultimately leading to 10 million in annual sales in 1982. the atari 2600 was the best-selling game console of the time atari's revenues comprised a huge 70 percent of owners income before we continue today's atari news segment is brought to you by morning brew later this month atari plans to build a virtual casino inside decentraland a crypto based virtual world the casino will be based on ethereum and will include atari themed games and an atari nft it comes during an effort to modernize the company if you want to read more stories like this and have an interest in science technology and business morning brew is a great place to get all your information it brings together high quality news sources each weekday and saturday straight to your email inbox for free you can get up to date with all the latest breaking news in just five minutes and it's news delivered in a fast and fun way go to morningbrew.comcoldfusion or click the link below to subscribe to morningbrew today it takes just 15 seconds to sign up and it's free by the early 1980s the video game market was booming and atari was the undisputed king video games were making insane amounts of money and there had been nothing like it before in any industry but it was beginning to grow too quickly to be sustainable the actual business of gaming was still very young and nobody was really sure what audiences wanted or how to properly monetize products or how to even reward their employees properly but for now all the video game markets saw was money and more companies jumped on board the atari 2600 was dominant but it was also competing against numerous home consoles like the magnavox odyssey colecovision and mattel in television as the money poured into the industry it wasn't only electronics and toy companies that were in the market soon companies would switch industries just to make a quick buck and then the market became completely oversaturated with consoles and yet still more kept coming meanwhile all of these game consoles suddenly found themselves competing against another brand new technology the personal computer pcs had more utility than game consoles they could be business machines as well personal computers also featured long-term memory which meant that games could be saved instead of starting again from scratch every time as computers became affordable there was a realization that buying a home computer would make more sense this would hurt the appeal of game consoles back then in the video game industry it wasn't uncommon for a single programmer to create an entire game for their efforts programmers would be unrecognized by atari credits weren't allowed at atari because atari wanted to be the only creator associated with any work done on the game any of the work that individuals did was just their part of being a cog in a machine a programmer would typically only make twenty to thirty thousand dollars a year even if the game went on to sell millions of copies a few years earlier in 1979 a few programmers had had enough that year david crane larry kaplan bob whitehead and alan miller all left atari to start their own company which they called activision atari and others sold their consoles for cheap but expected to make the money back on game sales but now with activision when one of their games was sold for an atari console atari wouldn't see ascend instantly atari's business model was shattered so of course they sued activision but luckily for consumers atari lost in court now the door was open for anyone to make games for home consoles this would be the rise of third party development and boy did the floodgates open once again everybody jumped on the bandwagon so not only was the market saturated with different consoles but now it was absolutely flooded with game companies that had no entertainment experience whatsoever at one point quaker oats and purina yes the pet food company started making video games because it was an endless gold mine soon more programmers would leave their parent companies to make it on their own atari's best programmers would leave to join the action as more games were made the quality dropped atari keen to keep making money acquired the license to the arcade sensation of the year pac-man executives wanted a version of pac-man for the atari 2600 and this seemed like a great idea but there was one problem atari only got the license late in the year but still wanted the game out by christmas this gave the programmer almost no time to make the game on top of that they contacted an outside freelancer and they agreed to pay him a royalty fee for every unit manufactured not every unit sold but manufactured atari forecast 12 million sales so they'd already promised to make 12 million copies for this guy so the lucky programmer was already guaranteed a giant paycheck before he even had started the game this didn't give him much incentive to make a good game especially because he didn't have enough time to make a good game anyway the result was an absolute unmitigated catastrophe the game was slow ugly buggy and barely resembled the original game that people fell in love with atari made 12 million copies and sold 7 million so in the end it did sell well but they still had 5 million unsold cartridges sitting in a warehouse apparently they didn't learn from their lesson the business executives signed another deal this time with steven spielberg to make an et game et promised to be one of the biggest movies of the year and it was thought that a game based on it would sell well again this was a good idea but once again atari screwed up they gave their programmer almost no time six weeks to design quality test manufacture and ship an absolutely insane schedule when the game went on sale atari thought consumers would see the name et and russian to buy the game but after their experience with the pac-man dilemma audiences waited to see if the game was any good it wasn't exactly sure what's going on [Music] okay i'm beginning to understand why this is the worst game the et game became known as one of the worst pieces of interactive entertainment ever the game was the christmas gift that everybody wanted but nobody liked at one point things got so bad that out of 4 million copies of the game shipped by atari 3.5 million of them were returned these were added to the pile of pacman games sitting in the warehouse so atari was making horrible games and selling them at full price meanwhile competitors were also making horrible games but selling them at cheap prices basically the market was starting to become obliterated it all culminated in december of 1982 with atari's earnings statement they told shareholders that due to all these incredibly negative factors the company would still grow by 10 to 15 percent and that sounds great but the problem was before the announcement they told shareholders that they expected 50 growth it was a huge shock to wall street and this earnings report collapsed the market sales of both consoles and games in this oversaturated market crashed across the board for many decades rumor had it tens of millions of unsold atari game cartridges were all sent to a landfill in new mexico and a bulldozer buried them and covered them up with cement these reports were actually proven to be true only in 2014 when the new mexico site was dug up atari had been the banner of the gaming revolution and was once the fastest growing company in american history but now it was 500 million dollars in debt analysts predicted the end of the gaming industry they told investors and retailers alike that they should look elsewhere but this new little technology called video games struggled on in pcs and slowly continued to get stronger atari 2 continued on after entering the pc business they became moderately successful in europe with their atari st computer released in 1985 it was praised as an amazing tool in the electronic music scene this was largely thanks to the atari st's midi capabilities a feature only found in expensive recording studios at the time the atari st computer was used by music producers like fat boy slim tangerine dream and derude though competing with the commodore amiga and macintosh atari didn't end up gaining much market share in the end in 1993 atari wanted to stun the world with its jaguar console it promised to be a 64-bit gaming console and with five different processors it was going to be a beast but in reality it had average performance was expensive was hard to code games for which meant less games for consumers and lastly the controller was poorly received all in all the failure of the jaguar console essentially spelled the end for atari's hardware business before we finish up let's take a look at a few facts about atari even though atari couldn't maintain its position as the market leader for video games their contribution was so immense and so iconic that in 2007 the atari 2600 was added to the national toy hall of fame in new york sharing the honor with the likes of the rubik's cube and lego apart from having an apple connection atari also has a microsoft connection atari hired bill gates to program basic onto one of atari's computers bill gates kept missing deadlines and eventually had to be fired [Music] it's a well-known fact that after the decline of atari japanese game company nintendo took its place with the nintendo entertainment system replacing the atari 2600 however little do people know that the nes almost became an atari product prior to the crash nintendo approached atari they wanted to release a console under the atari brand in the end fortunately for nintendo the deal fell through [Music] so many of you may be wondering what happened to nolan bushnell after he left atari well it turns out that he went on to start chuck e cheese he thought that a pizza restaurant would be a simple business to start interestingly when he had bought the costume for his mascot noland thought that it was a coyote but when the costume turned out to be a rat he decided to name the restaurant rick ratz pizza but the marketing team thought that a rat would have bad connotations for a pizza restaurant for obvious reasons and with that that concludes the rise and fall of atari thanks for watching if you did enjoy this video be sure to head over to the discord after this video i'll be hanging around for the first 30 minutes after i publish this video so i can have a chat with you all if you're interested in taking some atari cold fusion merge home i've done a new limited line that you can pick up i just love these designs and i'm really happy with how they turned out so if you want to support the channel head over to the merch links in the description below so my name is degogo and you've been watching cold fusion and i'll see you again soon for the next episode cheers guys have a good one cold fusion it's me thinking you

Channel: ColdFusion

Views: 613,614

Rating: 4.9512095 out of 5

Keywords: Coldfusion, TV, Dagogo, Altraide, Technology, Apple, Google, Samsung, Facebook, Tesla

Id: F_kEhHAMupU

Length: 20min 43sec (1243 seconds)

Published: Wed Apr 14 2021

Reddit Comments

[u/cheese_wizard]

way too much rehash about apple