WALK WITH ME ON A TRIP DOWN MEMORY LANE, WON’T you? It’s 1979, The Empire Strikes Back is mere months away, and everyone is losing their damn minds about it. Game arcades are hot, but stagnation in the arcade product has left consumers unsure of its long-term value. As a result, it hasn’t yet become the staple of American pop culture it will just a few years later, attracting kids and teens to their favorite machines to play away their quarters in hopes of breaking that ridiculously challenging, there’s-no-way-he-actually-did-that high score. There’s no Gauntlet or Pac-Man yet, but you can play Space Wars (unappealing), Death Race (even more unappealing), or the newest hit, Breakout, paving the way for the great arcade classics still to come.
Look, it’s not great at this point; but progress is coming fast.
Video games are already grabbing the attention of kids everywhere, and word has gotten around that Atari is finally bringing its top arcade hits to home consoles, making the Atari Video Computer System the hottest ticket of the 1979 holiday season. It had been out for a few years at this point, but now the best of the arcade is finally coming with it—that’s more than enough to cause a stir. It is pandemonium for parents and pure joy for kids—if you can get your hands on one, that is. Maybe you’ll be one of the few lucky enough to wake up or come home to that perfectly wrapped giant box, knowing exactly what it is yet still fearing that you’re getting your hopes up and, in fact, you’ll end up with another boring old toy. Boring old toy? What kid thinks that way? Anyone who has played Pong and Super Breakout, that’s who. That’s how powerful Atari is; there’s been nothing like it before. Home consoles are but a vision of the future; we don’t yet have Sega Genesis, the Nintendo Entertainment System, or affordable home computers, so this is groundbreaking. And everybody wants one.
Now, if it weren’t for the Atari Video Computer System, you’d be all over that Starship Enterprise model, but not this year—oh no, that might as well be a pet rock for all you’re concerned. The Starship Enterprise is what the other kids are getting, but you want the Atari Video Computer System. The games aren’t anything like they are in the arcades; they’re simple and basic, but that doesn’t matter. Sure, action figures and toys are fun, but playing Pong and Space Invaders in the comfort of your own home? That’s revolutionary, and it’s something not every kid can do.
But we’re getting a little ahead of ourselves. Let’s go back to how Atari actually got its start.
IN 1972, NOLAN BUSHNELL and Ted Dabney founded Syzygy Engineering, where they created the world’s first commercially available arcade video game, Computer Space. This was based on the 1961 game Spacewar! by Steve Russell, which is widely regarded as the first digital video game.
As an engineering student at the University of Utah, Bushnell had seen the game running on the university mainframe in the late 1960s and was obsessed. Spacewar! tasked two players with piloting opposing ships, facing off in a death match while attempting to fight gravity pulling them into the sun. It was a hit. He instantly knew how something as special as this could change the future, and knew that he needed to do whatever he could to see this marvelous invention reach the masses.
The main issue was price. Very few computers were capable of even running the game, and those that were came at a high cost. The setup that Steve Russell first developed the game on? It was the DEC PDP-1, a $140,000 computer and display bundle—an extremely expensive purchase in 1961, even for a university. He wanted to find some way to get the costs down enough to bring it to the public, but knew that it just wasn’t feasible with the current financials. Dismayed as he was that it wasn’t something that he could start working on right away, he didn’t give up, always keeping an eye out for how he might be able to accomplish this down the road as the technology became more affordable.
A few years later, fresh out of college, Bushnell found his first engineering job at Ampex, a Silicon Valley technology company pioneering audio and video recording technology, where he was paired up with Ted Dabney as an office mate. The two became friends right away, finding each other’s intellectual and analytical approach to thinking easy to connect with. They knew about different areas of computing—Bushnell knew programming, while Dabney focused on hardware design—and used this to learn from each other, inquiring with each other to learn about how they might approach a situation.
During this time, Bushnell met another Silicon Valley engineer, Jim Stein, and the two quickly became friends. Stein worked at Stanford University’s Artificial Intelligence Lab, and in passing conversation mentioned to Bushnell that the lab had a PDP-6 in its possession. Bushnell was struck with excitement, immediately asking if they could head back to the lab to play Spacewar! And that they did—from that point on, a lot.
Back at Ampex, Bushnell and Dabney’s relationship began to flourish. Sharing an office, they spent the whole day together and soon began blowing off work to play chess and chat. It was during this time that they began to share their ambitions and ideas with each other—using each other’s strengths to explore how they might make things work. As they continued to play together, they get tired of chess, instead taking up the Chinese strategy game Go, the oldest board game still in play today. Though Go was simple to understand, the complexities of the game challenged the two of them and allowed them to really put their minds to use.
One afternoon Bushnell decided he was over chess and Go and decided to take Dabney to see Spacewar! at the Stanford lab. While it was all Bushnell could think about, Dabney didn’t find it too interesting, but he knew that if someone like Bushnell was interested, there had to be something to it, even if he didn’t see it right away. As it turned out, they still couldn’t afford the computers required to make it work outside of a computer lab, and the idea died on the vine. That is, until Bushnell made a startling discovery.
What if they didn’t need an expensive computer to run the game? As Dabney recounted the realization in an interview with Technologizer, “Nolan came to me one time and he said, ‘On a TV set, when you turn the vertical hold on the TV, the picture will go up, and if you turn it the other way, it goes down. Why does it do that?’ I explained it to him. It was the difference between the sync and the picture timing. He said, ‘Could we do that with some control?’ I said, ‘Yeah, we probably can, but we’d have to do it digitally, because analog would not be linear.’”
And that was the moment where they figure out how to make this work. They didn’t need an expensive computer for each instance of the game, but could instead make their own hardware that allowed the user to control the changes in signal using an input. Dabney made quick work of the idea and completed a prototype that allowed the player to interact with a dot on the screen, moving it as the television refreshed. With this technology in hand, the two set off to make Bushnell’s vision of a commercially viable Spacewar! a reality.
It would take many years for the two to fully work through the issues. They were strapped for capital and eventually needed to sign a deal to help cover manufacturing and development costs. They signed a deal with Nutting Associates, a local coin-op game distributor that agreed to cover these costs in exchange for a royalty and Bushnell’s employment (Dabney did join, but later), to produce a single-player version of the game, Computer Space. They finished the game in 1971 and released it to high praise—despite only producing a few thousand units.
This may have been small in Nutting’s eyes, but for Bushnell it was a sign of the possibilities to come. Knowing that Nutting would struggle to adapt to modern advances without him, Bushnell proposed part ownership of the company for his contributions, Nutting declined, and the two decided to leave, believing they could do better on their own now that they knew what they were doing … or at least they thought they did.
And as a result, Atari, Inc. was born on June 27, 1972. Little did they know, within a decade, that Atari would become a technology powerhouse with more than ten thousand employees and an annual revenue of more than $2 billion.
SOON AFTER STARTING Atari (a name taken from a move in the game Go that signaled when a player’s pieces were about to be engulfed by the other, and a name that Bushnell found very symbolic of the rest of the industry), the two realized they were going to need more help if they were to be successful at this. They convinced Al Alcorn, one of their former coworkers from Ampex, to join them to build a prototype for them to sell to a manufacturer, similar to what they had done with Computer Space.
Alcorn agreed, thinking they already had contracts in place, as Bushnell led him to believe was the case. They needed something that would do much larger numbers than Computer Space and was more easily accessible—it fell on Bushnell to figure out just what this might be. “I had to come up with a game people already knew how to play,” said Bushnell in an interview for Zap!: The Rise and Fall of Atari in 1984; “something so simple that any drunk in a bar could play.”
Just a month before quitting Nutting, Bushnell had seen the announcement of the Magnavox Odyssey, the world’s first games console releasing later that year. The Odyssey was a breakthrough machine, using similar analog technology to what Dabney had developed a few years earlier. Lifelong technology inventor Ralph Baer had, unbeknownst to Bushnell and Dabney, been working on the same projects during the same time period they were, but neither was successful enough to really break through into a commercial market. The Odyssey included two paddles and twelve games, allowing players to engage in very simple gameplay, utilizing three controllable dots and varying overlays to create that gameplay. As part of this announcement, Magnavox was giving the public select opportunities to experience the platform prior to its release. One of these opportunities was somewhat nearby.
Bushnell and a few other coworkers at Nutting took a trip to Burlingame, California, to experience the console firsthand. They played the games that were included with the console and were able to watch as others experienced video games for the first time. It was during this trip that Bushnell found the baseline for which Atari needed to strive: the Odyssey’s Table Tennis. It was a basic game that tasked players, displayed as white dots, to hit the ball, another white dot, back and forth until someone missed—similar to real table tennis. It was extremely basic, but they knew that was what most people were gravitating toward at the time. Part of why Computer Space had failed to gain more adoption was the difficulty of play—it was hard to control, and newcomers often had difficulty understanding how to play. Everyone knew how to play table tennis, he surmised; they should just make games that anyone could pick up and play.
Once Alcorn was on board, Bushnell recalled his time with the Table Tennis game and asked Alcorn to make him something similar, hiding the fact that this was just a test of his skills and not the project they were hired to create. Alcorn made easy work of this basic request, finding that, with his own improvements to Bushnell’s Computer Space hardware, the game came together relatively quickly. The digital nature of the project allowed for many improvements over the Odyssey’s hardware, feeling more like a programmed engagement than a series of analog signals being sent back and forth. As a result, it felt slow—Alcorn knew they needed to make some improvements to the core gameplay if they didn’t want to bore players to death.
They broke the player’s cursor into multiple parts, allowing the ball to interact with the paddle in unique ways, bouncing at different angles instead of just directly back and forth. They also added a mechanism that increased the ball’s speed over time, forcing there to be an eventual end to the game; as players progressed, the game would continually speed up until one player was unable to keep up. They also added scoring, which players had previously been required to keep on their own.
Bushnell also wanted them to have sound effects—the Magnavox Odyssey didn’t. He knew that sound was a vital component to immersing players in the experience; it would also one-up the Odyssey, which he didn’t mind either. Alcorn, still new to the process, didn’t know how to accomplish this. He knew how to create digital graphics, but sounds were a whole new thing. Thinking back to his time at Ampex, he did some digging and found that a readily available component within their board, a sync generator responsible for ensuring that video signals were sent out properly, could actually generate basic noises on demand. So that’s what he went with. Bushnell said he wanted “the roar of a crowd of thousands,” explained Alcorn in a 2008 interview with IGN, but he had no idea how to accomplish that. Instead, he just made the simplest sound he could and moved on. “There’s the sound—if you don’t like it, you do it!” he told Bushnell—and that’s exactly how it stayed, birthing some of the most iconic sounds in gaming history.
Now that the design was out of the way, it was time for them to put the cabinet together. He purchased a small television, built a four-foot wooden cabinet to house everything, added a laundromat coin slot with a milk jug to collect coins, and soldered the boards in place. It was quick and somewhat crude, but they had accomplished the entire project to this point in just two months. While Bushnell had originally intended for it to be nothing but a test of Alcorn’s skills, he found it to be great fun and exactly what he was looking for all those years ago. They spent hours playing the early prototype and settled on the name Pong.
Believing that it could be successful if done properly, they reached out to a local bar, Andy Capp’s Tavern in Sunnyvale, to see if they could place the Pong prototype next to the bar’s other games as a test. They had worked with tavern manager Bill Gattis before through their pinball dealings, and Gattis agreed to let them test their prototype. Less than a month later, in September 1972, Alcorn and Bushnell delivered the machine themselves, setting it up on one of the wine barrels the bar used for tables.
As a way to supplement their income, Atari had begun taking orders for pinball machines, knowing they could buy and maintain the machines inexpensively. At the time, they could own a “route” of stores, a similar process to vending machines, that allowed them to place the machines and earn the revenue without having to cover the overhead that the rest of the business required. It was a low-cost effort that became extremely profitable for them, allowing them to fund their video game adventure and create contacts that would be invaluable down the road, such as Bill Gattis.
Alcorn and Bushnell sat at the bar, drinking a beer and waiting for anyone to come up and play. Eventually they got two players who were willing to give their quarter to an unknown machine—this was a big deal considering it was placed alongside a pinball machine and Computer Space, two much more familiar staples at Andy Capp’s. The two players quickly figured out how to play and found themselves enchanted with the unknown game. Bushnell approached the two, getting their feedback to see what they thought. It was overwhelmingly positive, and Alcorn and Bushnell thought they might have finally found a hit.
But beer after beer, people passed the machine without hesitation. Alcorn and Bushnell waited through a few more drinks before realizing that they must have just gotten lucky—it wasn’t a hit after all. Dejected, they went home for the night, rethinking their approach. Little did they know it would slowly become a major hit with the crowd and word would spread like wildfire. A few days later, Alcorn received a phone call from Gattis. “Al, this is the weirdest thing. When I opened the bar this morning, there were two or three people at the door waiting to get in,” recounted Alcorn for Steven Kent’s The Ultimate History of Video Games (2001). “They walked in and played that machine. They didn’t buy anything. I’ve never seen anything like it before.” Despite their false start the first night, things were starting to heat up, and this slow burn had them hopeful about the game’s future. But they weren’t ready for what was to come.
Two weeks later, Gattis called again—Pong had stopped working and he needed Alcorn to come fix it. Alcorn was anticipating getting the call eventually—they had used pretty basic hardware for their initial prototype, so as the game’s popularity increased, it was bound to have issues. But when he arrived, the paddles didn’t seem to be having any issues. They looked fine. He decided to play a game to see if he could diagnose what the issue was. He opened the coin box to grant himself a free game and was greeted by a flood of quarters overflowing the modified milk jug. The game had been so popular that the sheer number of quarters had caused the game to malfunction. Unable to process what was happening, Alcorn grabbed handfuls of the quarters and started shoving them in his pockets. Realizing just how popular the game had become, he gave Gattis his home number, knowing this would likely continue.
They had a hit on their hands, but now they needed to worry about getting more units manufactured and out to other establishments along their route. They tried to strike a deal with Bally’s Midway Manufacturing, with whom they had an existing pinball deal, but Bally was unconvinced of both the game and their success. At that time, a typical coin-op game would bring in roughly fifty dollars a week; Pong was doing four times that, even at this early stage. Still, Bally declined to purchase Pong.
Once that deal failed to go through, Bushnell knew they had to do it on their own. They took all of the capital they had available to them from Pong and their pinball business, about thirty-three hundred dollars, and manufactured an initial run of eleven new machines. This was a huge risk; they knew that Pong had been a success in one location, but would others get on board when they had to pay for the nine-hundred-dollar cabinet? As it turned out, the answer was very much yes. Upon completion of the cabinets, they sold all eleven right away, funding a rolling run of fifty more units. Though they were seeing great success, they were still short on funds, space, and manpower.
Upon completion of the fifty orders, Bushnell was able to convince Wells Fargo to give the company a fifty-thousand-dollar loan, thanks to 150 pending orders of Pong cabinets, and used part of it to acquire a lease on an abandoned roller-skating rink down the road from their current office that would allow them to expand production capabilities. Now that funds and space were settled, they needed to figure out their people solution. They knew that Alcorn could handle all of the boards and higher-end components, but they still needed people to build the cabinets and assemble everything. There were only three of them; they couldn’t do it on their own. They had to start hiring—and fast.
But with only fifty thousand dollars in capital, they couldn’t afford to pay craftsmen to put them together; instead they drove to the local unemployment office and told them they’d hire anyone for $1.75 per hour, just over minimum wage, to assemble the cabinets. Under Alcorn’s supervision, they hired each and every person the unemployment office would send them—no matter who they were or what skills they had. They had Pong cabinets being assembled by members of the Hell’s Angels and even heroin addicts; they had such high demand that they couldn’t afford to be picky when it came to their workers.
As a result, however, the factory culture at Atari suffered. It became a den of drugs and illegal activity, with almost every employee smoking marijuana while they worked and some even doing heroin during particularly stressful weeks. With long hours necessary to get these cabinets ready for public consumption, workers ran the show, knowing it wouldn’t go on without them.
When Atari first started, there was no assembly line. Instead, each worker installed a component, piece-by-piece, until the cabinet was finished. This was an extremely inefficient process that only allowed them to finish ten machines a day. That might sound like a lot, but they received orders for 2,500 Pong cabinets in 1973, so getting through ten a day wasn’t going to work.
Alcorn, Bushnell, and Dabney eventually figured out how to pull together a more efficient process as the business grew, and they were able to keep up with demand, but as they grew, culture changed in ways they hadn’t expected. While they had started small, they were growing larger than ever. They weren’t losing what made them special, and they certainly weren’t growing any more corporate, but their predicaments were. Decisions that once affected only a small handful of people now affected many. They weren’t producing orders of eleven or fifty units anymore, they were producing them in the thousands, with cash payments up front. The game had broken out of the bar scene, finding itself in popular locations like airports and office buildings that wanted to seem high-end. They didn’t have the luxury of small-time thinking anymore.
While some were able to adapt, others weren’t, and after a tumultuous falling out with Bushnell, Dabney was bought out of the company and retained the company’s coin route business. By the end of 1974 they had manufactured more than eight thousand Pong machines and were operating at a scale never before imagined by Bushnell.
Yet, even then, they continued to operate less like a traditional company and more like a pioneering cooperative. While most board meetings occur in boardrooms, Atari’s were conducted in the hot tub of Bushnell’s Los Gatos estate. Group planning sessions with white boards and markers were exchanged for bongs and beers as the group sat around sharing ideas. In fact, these planning sessions in the aptly named Grass Valley, California, became such a large part of Atari culture that Bushnell ended up purchasing Cyan Engineering, the tech company where they would often hold corporate retreats for planning sessions, to ensure they maintained a close relationship and could always use the facilities. During these retreats, the board members would get high and try to hash out (pun intended) solutions to the problems that were plaguing their business, whether it was a technical feat or an issue with a competitor.
It was these types of occurrences that set the basis for the culture of Atari and, as far as Bushnell was concerned, was directly responsible for the success they encountered. What they were doing was so different and unique at the time that this level of freedom was required for them to create in a way that made them different from everyone else. By the end of 1974, this uniqueness would be the factor that allowed them to thrive in a market dominated by copycats.
When creating Pong, the Atari founders had been so focused on being able to manufacture it that they hadn’t managed to secure patents for the technology they had developed. Meanwhile, their competitors were researching the machines to find out everything they could to implement their own clone. By the time Pong was successful, there were too many other similar games on the market for a patent to be granted, and they began to realize that Atari’s standing in arcades would not live forever. Something new was necessary if they were to survive.
That same year, Alcorn reached out to a former board designer, Harold Lee, who had recently left Atari to inquire about the possibilities of putting Pong on a single chip. Lee had been a chip designer prior to working at Atari, and Alcorn felt that he would be the best person to help accomplish the job. The two of them began work on a home version of Pong and soon found a way to replicate the same hardware Alcorn had created for the arcade release in a much smaller package that could be placed on a single chip.
The main hurdle became actually selling this home console, as most stores didn’t believe it would actually sell—a fair assumption, considering that most home consoles sales at the time were very small. They were able to convince Sears to take a chance on them, though, and they ended up selling 150,000 units for the 1975 holiday season.
This was much larger than anything they had ever manufactured before (and more than double what they had initially proposed), but they were confident they could make it happen, and they did. While they were unsure if there was a large enough market at the time, they were soon validated as the product became the hottest item that holiday season, selling out completely and becoming Sears’s highest-selling item ever. Meanwhile, Atari’s Coin-Op Division had been producing dozens of other arcade games, though most were different variations of Pong that failed to innovate in unique ways and had most of the industry stuck in a state where they assumed that only simple games could be made, that there was no future. Despite Atari’s manifesto to always innovate and move forward rather than look backward, the company experienced its own share of failures in this regard, often creating games that didn’t sell due to little variation from their predecessors: Pong vs. Super Pong.
Atari launched thirteen different games in 1974, some through a competitor that Bushnell secretly funded and staffed to get around distributor exclusivity. For as annoyed as he was that competitors were stealing Atari’s product ideas, he was fine with using such practices himself if they allowed Atari to increase profits. This was his solution to the copycat problem, to use the increased resources that Atari had over their competitors to outproduce them. If they were going to copy Atari’s games, Atari would release a new one every month, something their competitors couldn’t even dream of, and this allowed the company to stay one step ahead of the competition.
Bushnell knew Atari could no longer rely on the sales of one style of game; it had to innovate. With the sales of Home Pong in hand, it became clear to him that the home console market was the future of gaming, but that the technology wasn’t yet there to make it commercially viable at scale, a barrier he once again found himself encountering just as he had with Pong a few years earlier.
Atari couldn’t keep releasing one-game systems if it was to cement its position in the home console market and begin creating the progress that its founders wanted to see in the whole. The company needed to develop a home console capable of playing multiple games. Once it did this, it would be able to sell people multiple games a year, keep down manufacturing costs, and, since Atari was the most dominant name brand at the time, capture the one coveted spot that most households would have, by the TV, cutting out the competition in the process.
At the same time, the company would continue to flesh out its arcade offerings; this would allow it to build a massive catalog of games that could easily be ported into the home console once it was clear which ones were successful. It was a long-term play, but one that Bushnell believed to be the future for Atari. He didn’t want to see arcades die out, but knew that, at least for Atari, the competition was becoming more of a problem with each passing day.
In May 1974 a young Steve Jobs arrived at the doorstop of Atari headquarters asking for a job. Alcorn wasn’t sure whether to hire him or call the cops, but eventually he gave Jobs a chance. He didn’t have any real experience, and Alcorn wasn’t even sure if Jobs had the skills to do anything for them, but he saw Jobs’s passion and decided it was worth a shot. He quickly found himself questioning if it was worth it, however, as Jobs began annoying the other employees of Atari whom he deemed to be “incompetent.” Alcorn’s solution was to have Jobs work at Atari during the night shift, when the other engineers weren’t around.
Bushnell and Steve Bristow had just finished designing a single-player version of Pong and needed someone to create the prototype. Bushnell was upset with the high production costs mounting over the number of chips used on each board, so he offered a bounty to the person who could design it with the fewest chips. Jobs accepted, despite not knowing how to actually accomplish this.
During his time on the night shift, Jobs would often invite his good friend Steve Wozniak to join him. Once he had accepted the project of designing this single-player game of Pong they had named Breakout, he enlisted the help of Wozniak to design the board, offering to split the pay with him. Over the course of four sleepless nights, they finished and presented Alcorn with a forty-four-chip version of Breakout. It was extremely impressive, and they were awarded the bounty of seven hundred dollars. Little did Wozniak know, however, that Jobs had been given an additional five thousand dollars for the job, which he didn’t share between the two.
While still working at Atari and Hewlett-Packard, Jobs and Wozniak began creating their own version of the home computer. Believing it to be the future of modern technology, they soon left their respective jobs and started their own company, Apple.
Atari was offered the Apple II prior to Jobs and Wozniak doing it on their own, but Atari wasn’t interested. They were in the business of making video game hardware, and the personal computer market was too niche for it to be a profitable business, at least at the time. However, they would be happy to supply Apple with all the components needed for the Apple II, as Jobs and Wozniak couldn’t get their own trade accounts.
Alcorn was happy to do it, selling to them for 15% above cost. He liked them, even if he considered them “fun little guys, but harmless.” In fact, they thought the chances of Apple succeeding were so small that both Alcorn and Bushnell declined to invest in the formation of Apple at 33% for $50,000, with Alcorn telling Jobs, “I got enough wallpaper, but I’ll take a free computer.” He did go on to get that computer, and still has it to this day, but would much rather have the wallpaper.
Following the success of Home Pong in 1975, Bushnell immediately commissioned the engineers from Cyan Engineering to begin work on creating the Atari Video Computer System, or VCS (later renamed the Atari 2600), to handle this monumental task. They quickly began prototyping out other options and realized just how feasible this could be. If they were able to build a unit that didn’t rely on custom logic boards (as did most arcade units) but instead housed only its own central processing unit, display, memory, and sound board, allowing the games to be stored on removable memory units, this could all work just fine.
Up to this point, most removable games platforms had used paper tape to store the game programs on them, but that wouldn’t work for the games that Atari was now creating. The company wanted to be able to use memory of some kind—with the popular options being cassette tapes and floppy disks. But Atari engineers found that they could simulate a cartridge-based system simply by housing the storage with a connector inside a thick plastic housing; this would give the appearance of an expensive product while being inexpensive to manufacture. It was also more durable and consumer-friendly, so they knew that it would increase its value even more.
As a result, they would be able to sell these games, which cost ten dollars to design and manufacture, for thirty dollars each. This allowed Atari to offset the low profitability of the system and form the basis for the gaming industry, which today follows a very similar model.
Despite these cost-saving measures, sales of Pong had dipped so low that Atari wouldn’t be able to cover production costs for the unit. The company needed to find some way to raise the capital required to make it happen; this was the last hope for recovering and steering the company toward the future Bushnell so wholeheartedly believed in. Rather than attempting to acquire traditional funding, Bushnell proposed two options: go public or sell the company to someone who shared its vision.
Unfortunately, the timing just didn’t work out. The United States had just exited a recession prompted by President Richard Nixon’s policy decisions and was in a fragile economic state. In an attempt to cut down on unemployment, Nixon had pressured the Federal Reserve to disallow the conversion of gold into US dollars, prompting an eventual 40 percent decline in the US stock market. Things were starting to recover, but there was still too much uncertainty for the Atari board members to feel comfortable with. As a result, they chose instead to find a private company that would be interested in buying them. With that they’d be able to get the capital they needed to produce the VCS without having to worry about outside pressures.
The decline in interest in video games following the endless clones of Pong had major companies wondering if home console gaming was just another fad that wouldn’t last, an assessment Bushnell didn’t entirely disagree with. At the same time that he was trying to secure funding for the VCS, he had also created a pinball division at Atari specifically focused on creating new machines for the again burgeoning pinball market. He hoped this division would serve to hedge any big bets that they were looking to make on home console gaming in case, yet again, the public wasn’t ready for that.
They were cautious to invest, but found a suitable partner in Warner Communications, a staple of the growing entertainment industry that was looking to expand its offerings to video games. Warner was on board with the vision that Bushnell proposed and offered $28 million for the company. It was a nobrainer, and in October 1976 Atari was sold to Warner, with Bushnell remaining at the helm of the company. Warner believed in what he had done and the vision he had for the future; there was no reason to replace him.
With newly secured funds and a renewed vision for the future, Bushnell and crew pushed forward, releasing the VCS in October 1977, just a year after the acquisition. It was a whole new era for them. They had what felt like unlimited resources, and regularly took trips on the company Gulf Stream. “Life was good,” as Alcorn put it. They suddenly had the money to do the things they wanted to do, both personally and in the business. They could both create the VCS and purchase a 1965 AC Cobra muscle car (which Alcorn did almost immediately following the acquisition).
Unfortunately, a lot had happened in the span of that year; multiple competitors had released products into a market already suffering from oversaturation. With too many options and too few buyers, none of these home consoles found success, and the market began to decline even further than it already had.
After a disappointing first year, Warner was concerned. The VCS has seen slow sales and there wasn’t any sign of them increasing to the point that was expected. Sales weren’t terrible, but this certainly wasn’t the dream Warner had been sold when it acquired Atari. Warner thought every household in America would be lining up to get a VCS, but instead found it unable to penetrate the mainstream culture barrier. The company began to reevaluate its options, wondering if it should just cut its losses and abandon Atari.
Warner wasn’t the only one who felt this way. Bushnell was disappointed with the failure of the VCS and pushed for Atari to move on to new products. He wasn’t exactly sure what those might be at the time, but he knew there had to be something out there that could give Atari the advantage over the thick competition.
In order to help solve this predicament, Warner hired Ray Kassar, a former textile executive, to help understand what the company should be doing with Atari. Should Warner get rid of it entirely, or should it figure out how to right the ship and double down? That was for Kassar to find out, but it wouldn’t be a walk in the park.
From the very start, it was clear that Bushnell and Kassar weren’t going to get along. They were two very different people, on opposite ends of every spectrum imaginable. Bushnell wore T-shirts, often drinking and smoking marijuana in the office, while Kassar wore tailored suits and didn’t come to work to get high. These clashes occurred early on, causing much tension. Yet despite all this Kassar was hopeful. He had tried the VCS and believed it to be the future.
Meanwhile, Bushnell wanted to look to the future, doubling down on the pinball division by creating unique game tables that others couldn’t afford to make and selling off all remaining stock of the VCS immediately so they could focus on future iterations of their home console product. He felt that the crowded market and poor performance were indicators enough that they should be focusing their attentions elsewhere. “We wanted to build the next generation,” said Alcorn of the meeting, “That was the way we did it. We obsoleted our product.” They didn’t want to rely on the VCS to carry them forever. “We’ll make a bigger, faster, better one.” But Warner disagreed, and Kassar recommended focusing on building out the VCS lineup, which he felt would sell exceptionally well that holiday season rather than abandoning the console at the height of its success. Bushnell disagreed, telling Kassar and the rest of the board that they were “a bunch of idiots,” recalls Alcorn. They didn’t like that very much and knew they were going to have a problem on their hands.
After this meeting, Bushnell attempted to circumvent the Warner board members and make the decision on his own. Warner found out and immediately relieved Bushnell of his duties as CEO, replacing him with Kassar, who they believed could help steer Atari toward a more profitable future.
Bushnell was oddly calm about this ousting. He had other projects he wanted to work on and knew that he couldn’t go on in a company that didn’t follow the ideals that he had created. “I got increasingly uncomfortable with management style of Warner,” he told me, explaining what caused the rift between the two halves. “I think those guys were not used to being called dumb shits,” he said, laughing, “And I kinda did that a little bit too much.” It wasn’t even really about this argument. He knew that they wanted him gone and that they would find another way to do it, so he went quietly.
As a result of his removal as CEO, Bushnell’s noncompete clause forced him to leave gaming for the next seven years, giving him the opportunity to work on another passion project he had been trying to figure out for the last decade. He had always been perplexed by the stigma attached to video games, that they couldn’t possibly be fun for anyone other than drunks and dropouts; he knew it was more about the environment the games were often found in than the games themselves, and wanted to find a solution to fix this. Unable to create gaming consoles, he set off building out the plan for what would eventually become the family entertainment restaurant Chuck E. Cheese’s.
He wanted to create an environment where kids could get together with their friends and experience new arcade games together. Video games were all about discovery and imagination, something that aligned very well with how kids typically approach things, so he knew it would be the perfect fit. As it turns out, Chuck E. Cheese’s became one of the premier birthday and celebration destinations for children and teenagers for the better part of three decades, helping to solidify arcade gaming as an experiential hobby even as home console gaming became more prevalent.
Bushnell turned out to be right for the 1978 holiday season, with less than 70 percent of Atari’s 550,000 VCS units selling through retailers. This was a devastating blow to Atari and Kassar, who had believed things would finally be turning in their favor. Instead they were treated to their second consecutive failed year in a row, increasing tensions around an already concerning investment for Warner. Bushnell, wanting to prove his theory, shorted Warner Communications stock and saw great success as he earned more from that short position than from the sale of Atari to Warner. Despite reservations, they held strong and remained focused on Kassar’s vision for the future.
As vindicated as Bushnell must have felt, he couldn’t predict that the revival of the VCS was just around the bend. In 1979 Atari released Adventure, a multiscreen adventure game that opened the eyes of many to the degrees to which gaming could go. Players were no longer relegated to Pong clones and simple sports games, but could instead experience a whole new world in the comfort of their own homes.
For many, it was the first time that video games felt real, like they could go on to become more than just a momentary escape from reality and develop into something much larger. This not only surprised consumers but also other developers at Atari; they became heavily influenced by Adventure and began thinking much bigger when creating games. They were no longer just re-creating things that were already popular in the gaming world; they were now creating entirely new worlds and pushing the hardware beyond previous limits.
By the end of 1979, the VCS had gone on to sell a million units, nearly doubling the previous year’s sales and becoming the best-selling item that year. Though it was just the start of the VCS’s dominance, Kassar knew they made the right choice, and he proceeded to double down on Atari’s efforts toward building great games for both the VCS and arcades.
Yet despite this success, the rest of the folks at Atari weren’t convinced that Kassar was the best leader for them, signaling a massive change in how the Consumer Division felt from the inside. It wasn’t the same Atari they had helped build under Bushnell’s direction. Key members of the organization, including almost every early Atari member who had worked to create the fledgling arcade business, began to depart the company, citing difficulties adapting to Kassar’s ever-evolving shift in culture away from the Atari they had once loved. This shake-up—upsetting and something that Kassar wishes, in retrospect, he had worked to deter—would leave many of Atari’s younger programmers’ confidence in the company shaken despite its continued meteoric rise.
“He fucked everything up,” Bushnell bluntly puts it. In the eyes of everyone who had been there since the early days, this strong shift in culture led astray the driving force that had made Atari the powerhouse it had once been. They were losing steam, most just couldn’t see it yet.
It was a scary time, one they weren’t entirely sure how to feel about. They had come to Atari hoping to be a part of the famous culture that thrived on creativity and innovation, but as more of that began to dissolve, they wondered what the future might hold. It was still Atari, and those who remained were more than happy to be there making games that reached more players than ever before, but those who had worked with the company’s visionary leaders began to worry about the company’s increasing focus on profitability as a cornerstone of the Warner Communications business.
They knew a business needed to make money, and definitely didn’t want to trade the freedom they were afforded by Atari’s financial success for the old atmosphere, but just questioned whether Kassar was the one best equipped to lead them. He wore three-piece suits and came to work in a limousine: that didn’t sound like Atari to them. Atari was about getting high with your friends and creating games the world had never thought possible, all the while having as much fun as possible. It just didn’t seem like a good fit, and left them wondering how the company might continue to change under Kassar’s leadership. Would the Atari they had come to know and love be gone forever in favor of one that was more profitable? Potentially. But Kassar was undeterred, and continued to focus on the VCS, which he believed to be the future of the company.
Ironically, in ignoring the coin-op side of the business, Kassar essentially allowed it to operate independently. While the Coin-Op Division didn’t get any of the praise for the success of its work, it was also allowed to just do its own thing. Kassar didn’t want anything to do with it, so it was given free rein to build its own culture, one that flew in stark contrast to the consumer side of the business and allowed Coin-Op to thrive.
Through this many were able to hold on to Bushnell’s sense of creativity and innovation, doing all they could to stay faithful to the core tenets of what made Atari great, despite Kassar’s influence; it was a move that ultimately resulted in the creation of some of the best arcade games ever made.