Atari | Code Like It's 198x

In December 1982 the American magazine Video Games ran a long history of Atari under the headline “from a $500 lark to a $2 billion business in 10 short years”. The $500 was Nolan Bushnell’s royalties from his first arcade game. The $2 billion was Atari’s projected revenue for 1982, up from $165 million in 1979, and the magazine reckoned Atari was earning about two-thirds of the profits of its owner, Warner Communications. Within two years that business had lost hundreds of millions of dollars and been split in two, and its home half spent its last twelve years as an independent company under Jack Tramiel, the man whose Commodore price war had helped to wreck it.

Fast facts

Founded: 1972, by Nolan Bushnell and Ted Dabney. Video Games dated the incorporation to 27 June 1972; Dabney recalled setting up in Santa Clara, California.
First hit: Pong in the arcades, 1972; a home Pong sold through Sears for Christmas 1975.
Owner from October 1976: Warner Communications, for a reported $28 million.
Console: the Video Computer System, later the Atari 2600, 1977, at $180.
Computers: the Atari 400 and 800 from 1979, the ST from 1985.
Split, July 1984: Warner sold the home computer and video game business to Jack Tramiel for $240 million and kept the arcade division, which became Atari Games.
Atari Corporation: the ST, the XE computers, the 7800, the Lynx (1989) and the Jaguar (1993).
1996: merged with the hard drive maker JTS Corporation.

Syzygy, then Atari

Bushnell’s first game was Computer Space, his coin-operated version of Spacewar!, a computer game he had played at the University of Utah. He sold it to Nutting Associates. “We built 1,500 and had to sell some by force,” Bill Nutting told Video Games. Bushnell then reminded Ted Dabney, a colleague from the electronics company Ampex, that they had once planned to start a company together, and they did it with Bushnell’s $500 in Computer Space royalties.

Atari’s own magazine, Atari Connection, asked Dabney about the name in June 1981. There had been three founders, all from Ampex: Bushnell, Dabney and Larry Bryan. Each was to put in $100, “and Bryan didn’t ante up his $100”. Bryan had found their first name while thumbing through a dictionary: Syzygy, “the straight-line configuration of three celestial bodies”. Another California company already had it. They considered “BD, Inc.” and “DB, Inc.”, which were too close to Black & Decker and Dun & Bradstreet. Both men played the Japanese board game Go, so they sent the state a list of Go terms. First was sente; second was atari, which the magazine glossed as “similar meaning to the chess word ‘check’”. A few weeks later the incorporation papers came back: the Secretary of State’s office “had selected their second choice, ATARI”. If it had approved the first, the magazine noted, “you might now be reading ‘THE SENTE CONNECTION.’”

Pong

Pong was shown at the industry’s annual trade show in Chicago in 1972. Bushnell defined it; Al Alcorn, a young engineer he knew from Ampex and Atari’s first full-time engineer, built it. “He defined it, and I built it, though there were little things like the sound that I added to it,” Alcorn told Video Games. Bushnell got the credit, and joked about it: “I get the credit because I have more access to the press.” The game was a hit, and every company copied it.

Three years later Atari took Pong home. The engineer Bob Brown asked a colleague, Harold Lee, whether the game could be put on a single chip, and Atari found a retailer in Sears, whose sporting goods buyer, Tom Quinn, took the gamble. “We went into production with the idea of selling 50,000 units,” Brown said. “We ended up doing double that in the Christmas ’75 season. People were waiting two hours in line to sign up on a list just to get a Pong game.”

Warner and the VCS

Success did not leave Atari with money. The cash from home Pong went back into stock that would not sell until Christmas, and Gene Lipkin, then in charge of marketing, recalled a list of ten companies Atari would be willing to merge with. Warner was not on it, but a contact led to a meeting: “Then boom-boom, the deal was made. I mean, it was that quick.” Warner bought Atari in October 1976. Electronic Games and Vidiot both gave the price as $28 million; Video Games said $32 million.

The next product was the Video Computer System, code-named Stella. Video Games reported that it was conceived at Atari’s Grass Valley think tank “primarily by Steve Meyer” (Steve Mayer) and developed at Los Gatos by engineers led by Jay Miner, who designed its graphics chip. It was shown at the summer Consumer Electronics Show in 1977 and sold for $180, and at first it sold slowly. With Warner’s money Atari built 800,000 in 1978 and was left with about 400,000 in the warehouse. At Warner’s budget meeting that November, Bushnell and Warner’s Manny Gerard shouted at each other for hours; Bushnell was demoted from chairman to director and soon left, and Ray Kassar, a former executive of Burlington Industries who had been running the consumer division since the start of the year, took charge.

The VCS took off after Atari licensed Space Invaders in 1980. “No company has ever grown this fast,” Don Osborne of Atari’s coin-op division told Video Games in 1982. How many consoles it sold depends on who was counting: Video Games put the number of American owners at “nearly 12 million” in June 1983, and ANALOG Computing reported “more than 25 million 2600s” sold worldwide by March 1986. Some of the programmers who wrote its games left to found Activision and sell cartridges of their own. The 2600 entry tells how the machine worked.

The arcade division

Atari never stopped making coin-operated games, and they kept it going when home products did not. Tank carried the company through 1975, according to its designers. The engineer Steve Bristow recalled in 1982 that Breakout came from a young Steve Jobs, paid a bonus for every chip he saved, who brought the design “down from 80 to 30 ICs”; later accounts, Wozniak’s among them, credit the design to Jobs’s friend Steve Wozniak. Video Games gave the division’s two biggest sellers as Asteroids, released on 6 November 1979, at 70,000 machines, and Dona Bailey’s Centipede at 50,000. See the golden age of arcade games.

The crash

The boom ended in the 1983 video game crash. Too many consoles and cartridges met falling demand, and Atari’s own big releases disappointed: the 2600 Pac-Man, and E.T. the Extra-Terrestrial, which its programmer, Howard Scott Warshaw, had five weeks to write. Atari lost $539 million in 1983. That September, the New York Times reported, it dumped 14 truckloads of surplus cartridges and equipment in a landfill at Alamogordo, New Mexico.

Two Ataris

In July 1984 Warner sold Atari’s home computer and video game divisions, “representing over 75% of Atari’s total sales”, to Jack Tramiel for $240 million. Electronic Games reported that the sale left Warner with a pre-tax loss of $425 million for the quarter, and that Warner was keeping Atari’s coin-operated game division and Ataritel, a home communications venture.

ANALOG Computing, a magazine for Atari computer owners, had the news just as it went to press:

Warner Communications had sold its loss-plagued Atari division to Jack Tramiel, former head of Commodore. Thus ended months of half-baked speculation and rampant rumors about the fate of Atari, once the fastest growing company in history.

The same editorial reminded readers that “Commodore’s participation in the bloody price wars of 1982 and 1983 severely damaged Atari”.

Tramiel’s company became Atari Corporation. The arcade business became Atari Games, and the two did not get on. “Our claim always was that we’re the real Atari — the original Atari,” Dan Van Elderen of Atari Games told the journalist David Sheff. Sheff reports that Warner sold control of Atari Games to the Japanese arcade company Namco for a little over $10 million, and that in 1987 Namco sold it on to Warner Communications and a group led by Hide Nakajima, who had run Namco’s American subsidiary. Because the agreement with Tramiel stopped Atari Games from selling home video games under the Atari name, it set up a new label, Tengen, to publish games for the Nintendo Entertainment System.

The Tramiel years

Tramiel’s first new machine was the ST, shown at the Consumer Electronics Show in January 1985 under the slogan “Power without the Price”. Wags in Las Vegas, Personal Computer News reported, called it the “Jackintosh”. Germany became its largest market, and its built-in MIDI ports took it into music studios.

The console Atari had been about to launch fared worse. K-Power reported in 1984 that Atari had “recently introduced” the 7800 ProSystem. Amazing Computing looked back in 1988: the 7800, “which could have been the rage of 1985, instead fell by the wayside during the Warner Communications/Tramiel changeover. By the time the 7800 wobbled out of the warehouse two years later, Japan’s Nintendo captured the new generation Atari had ignored.”

Another machine got away. Under Warner, Atari had put money into Amiga, a start-up that Jay Miner had joined, and hoped to license its chipset. Commodore bought Amiga instead, and Tramiel’s Atari took Amiga to court. Amazing Computing reported in June 1987 that the suit had been dismissed on “mutually satisfactory terms”, and that the Amiga engineers kept a sign reading “Crashin’ tosh” beside an Atari ST in their office.

In 1989 came the Lynx, a hand-held games console with a colour screen. “The kids just go crazy over the Lynx,” Sam Tramiel, Atari’s president, told ST Format that September, and of the next five years: “We’ll dominate the hand-held market and kill off Nintendo!” By Christmas British mail-order dealers were taking orders at £199.90 with California Games.

The last console was the Jaguar. Atari ST User reported in September 1993 that IBM would manufacture it in North Carolina, and in November that Atari was promoting it as a 64-bit RISC machine with 16.7 million colours. It was launched in New York that autumn at $249, to be rolled out in New York and San Francisco first. Atari’s share price, below $1 a share early in 1993, had reached $11 5/8 by Christmas. In February 1994 Atari claimed 40,000 Jaguars delivered in the United States; the first shipment to Britain, according to one insider quoted by the magazine, was “embarrassingly small”.

JTS

In April 1996 ST Format reported that Atari had merged with JTS Corporation, a maker of hard drives, after months of rumours of liquidation and job cuts. The merger followed a reported $25 million investment by Atari in JTS. “Atari will cease to exist as a stand-alone company, but the name Atari will survive as a brand name,” the magazine wrote, and the Jaguar’s future was “clouded in uncertainty”. The following month it reported that the arcade company, Atari Games, had been sold to WMS Industries, the owner of the Williams, Bally and Midway names. According to Retro Gamer, Jack Tramiel came back to oversee the JTS merger and then retired.

Sources

Steve Bloom, “The incredible, incredible story of Atari”, Video Games, vol. 1 no. 3, December 1982, pp. 36–50: the headline and revenue figures; Computer Space and Nutting; Syzygy; the incorporation date and Pong’s unveiling; Alcorn and Bushnell; home Pong, Sears and Tom Quinn; Tank, Breakout and Steve Jobs; the Warner deal in October 1976 and the $32 million price; Stella, Steve Mayer and Jay Miner; the $180 price; 800,000 consoles built in 1978; the November budget meeting and Ray Kassar; Asteroids and Centipede.
Joel Miller, “If Atari isn’t a Japanese company, why does it have a Japanese name?”, Atari Connection, vol. 1 no. 2, June 1981: interview with Ted Dabney on the three founders, Santa Clara and the name.
Electronic Games, October 1984, p. 13, “Ex-Commodore Pres. Tramiel Buys Atari”: the $240 million sale, Warner’s $425 million loss, the coin-op division and Ataritel, and Warner’s purchase of Atari “in 1976 for $28 million”.
Vidiot, vol. 1 no. 3, May 1983, p. 14: “Warner purchased Atari for $28 million in 1976”.
Jon A. Bell, ANALOG Computing issue 23, October 1984: the sale to Tramiel and the price wars.
Electronic Games, Winter 1981, and Compute!, April 1980: the Space Invaders licence; Amiga Computing, December 1988: Jay Miner and the VCS chips; Video Games, June 1983, and Arthur Leyenberger, “Winter CES”, ANALOG Computing issue 40, March 1986, p. 24: VCS sales figures, as set out in the Atari 2600 entry.
Retro Gamer issue 100, March 2012, pp. 90–95: Atari’s 1983 loss; ClassicGamer Magazine, vol. 1 no. 2, interview with Howard Scott Warshaw: E.T.’s five weeks; “Atari Parts Are Dumped”, The New York Times, 28 September 1983, as reported in later coverage (web, secondary): all as set out in the 1983 video game crash entry.
David Sheff, Game Over (GamePress edition, 1999): Atari Games, Namco, the 1987 sale, the agreement with Tramiel and Tengen; Van Elderen’s “the real Atari”.
Steve Bloom’s Video Games history (above) also carries Don Osborne’s “No company has ever grown this fast” (p. 38).
Personal Computer News issue 95, 19 January 1985, p. 1: the ST at the Consumer Electronics Show, “Power without the Price” and “Jackintoshes”; ST Format issue 1, August 1989: Germany as the ST’s largest market, as set out in the Atari ST entry.
K-Power, vol. 1 no. 7, September/October 1984, p. 49: the 7800 ProSystem.
Amazing Computing, vol. 3 no. 6, June 1988: the 5200 and 7800.
Amazing Computing, vol. 2 no. 6, June 1987: the Amiga wake party, the “Crashin’ tosh” sign and the settled lawsuit; vol. 2 no. 1, January 1987: Atari’s loan to Amiga and the lawsuit.
ST Format issue 2, September 1989, news: Sam Tramiel on the Lynx.
Computer & Video Games issue 97, December 1989: mail-order advertisement for the Lynx at £199.90 with California Games.
Atari ST User issue 91, September 1993: IBM to manufacture the Jaguar; John Butters, Atari ST User issue 93, November 1993; issue 95, Christmas 1993; issue 97, February 1994: the Jaguar’s specification, the launch and price, the share price and early deliveries.
ST Format issue 81, April 1996, “Atari in shock merger”; issue 82, May 1996: the sale of Atari Games to WMS Industries.
Retro Gamer issue 103, June 2012, pp. 6–7: Tramiel and the JTS merger, as set out in the Jack Tramiel entry.