Atari, Inc.

Origins

While studying at the University of Utah, electrical engineering student Nolan Bushnell had a part-time job at an amusement arcade, where he became familiar with arcade electro-mechanical games. Bushnell watched customers play and helped maintain the machinery, while learning how it worked and developing his understanding of how the game business operates.

In 1968, Bushnell graduated, became an employee of Ampex in San Francisco and worked alongside Ted Dabney. The two found they had shared interests and became friends. Bushnell shared with Dabney his gaming-pizza parlor idea, and had taken him to the computer lab at Stanford Artificial Intelligence Laboratory to see the games on those systems. They jointly developed the concept of using a standalone computer system with a monitor and attaching a coin slot to it to play games on.

To create the game, Bushnell and Dabney decided to start a partnership called Syzygy Engineering in 1971, each putting in US$250 of their own funds to support it. They had also asked fellow Ampex employee Larry Bryan to participate, and while he had been on board with their ideas, he backed out when asked to contribute financially to starting the company.

Bushnell and Dabney worked with Nutting Associates to manufacture their product. Dabney developed a method of using video circuitry components to mimic functions of a computer for a much cheaper cost and a smaller space. Bushnell and Dabney used this to develop a variation on Spacewar! called Computer Space, where the player shot at two UFOs. Nutting manufactured the game. While they were developing this, they joined Nutting as engineers, but they also made sure that Nutting placed a "Syzygy Engineered" label on the control panel of each Computer Space unit to reflect their work in the game. Computer Space did not fare well commercially when it was placed in bars, Nutting's customary market. Feeling that the game was simply too complex for the average customer unfamiliar and unsure with the new technology, Bushnell started looking for new ideas. About 1,500 Computer Space cabinets were made, but were a difficult product to sell. While Bushnell blamed Nutting for its poor marketing, he later recognized that Computer Space was too complex of a game, as players had to read the instructions on the cabinet before they could play. Bushnell said, "To be successful, I had to come up with a game people already knew how to play; something so simple that any drunk at any bar could play."

As a private company

Founding and Pong (1972)

Bushnell began seeking other partners outside of Nutting, and approached pinball game manufacturer Bally Manufacturing, who indicated interest in funding future efforts in arcade games by Bushnell and Dabney if Nutting was not involved. The two quit Nutting and established offices for Syzygy in Santa Clara, at that point not yet taking a salary since they had no products. Bally then offered them US$4,000 a month for six months to design a new video game and a new pinball machine. With those funds, they hired Al Alcorn, a former co-worker at Ampex, as their first design engineer. Initially wanting to start Syzygy off with a driving game, Bushnell had concerns that it might be too complicated for Alcorn's first game.

In May 1972, Bushnell had seen a demonstration of the Magnavox Odyssey, which included a tennis game. According to Alcorn, Bushnell decided to have him produce an arcade version of the Odyssey's Tennis game, which would become known as Pong. Bushnell had Alcorn use Dabney's video circuit concepts to help develop the game, believing it would be a first prototype. However, Alcorn's success impressed both Bushnell and Dabney, leading them to believe they had a major success on hand and prepared to offer the game to Bally as part of the contract.

Meanwhile, Bushnell and Dabney had gone to incorporate the firm, but found that a company called Syzygy (an astronomical term) already existed in California. Bushnell enjoyed the strategy board game Go, and in considering various terms from the game, they chose to name the company atari, a Japanese term 当たり that, in the context of the game, means a state where a stone or group of stones is imminently in danger of being taken by one's opponent (equivalent to the concept of check in chess). Other terms Bushnell had offered included sente (when a Go player has the initiative; Bushnell would use this term years later to name another company of his) and hane (a Go move to go around an opponent's pieces). Atari was incorporated in the state of California on June 27, 1972.

Bushnell and Dabney offered to license Pong to both Bally and its Midway subsidiary, but both companies rejected it because it required two players. Instead, Bushnell and Dabney opted to create a test unit themselves and see how it was received at a local establishment. By August 1972, the first Pong arcade cabinet was completed. It consisted of a black and white television from Walgreens, the special game hardware, and a coin mechanism from a laundromat on the side, which featured a milk carton inside to catch coins. It was placed at Andy Capp's, a local tavern in Sunnyvale, to test its viability. The test was extremely successful, so the company created twelve more test units, ten of which were distributed across other local bars. They found that the machines were averaging around US$400 a week each; in several cases, when bar owners reported that the machines were malfunctioning, Alcorn found that it was because the coin collector had been overflowing with quarters, shorting out the coin slot mechanism. They reported these numbers to Bally, who still had not decided on taking the license. Bushnell and Dabney realized that they needed to expand on the game, but formally needed to get out of their contract with Bally. Bushnell told Bally that they could offer to make another game for them, but only if they rejected Pong; Bally agreed, letting Atari off the hook for the pinball machine design as well.

Early arcade and home games (1973–1976)

Around 1973, Bushnell began to expand out the company, moving their corporate headquarters to Los Gatos. Bushnell contracted graphic design artist George Opperman, who ran his own design firm, to create a logo for Atari. Opperman has stated that the logo that was selected was based on the letter "A", but considering Atari's success with Pong, created the logo to fit the "A" shape, with two players on opposite sides of a center line. However, some within Atari at the time dispute this, stating that Opperman had provided several different possible designs, and that this was the one selected by Bushnell and others. The logo first appeared on Atari's arcade game Space Race in 1973, and became known as the "Fuji" due to its resemblance to Mount Fuji. In 1976, Atari hired Opperman to establish the company's own art and design division.

From late 1972 to early 1973, a rift in the business relationship between Bushnell and Dabney began to develop, with Dabney believing he had been pushed to the side by Bushnell, who saw Dabney as a potential roadblock to his larger plans for Atari. By March 1973, Dabney formally left Atari, selling his portion of the company for US$250,000. While Dabney would continue to work for Bushnell on other ventures, including Pizza Time Theaters, he had a falling out with Bushnell and ultimately left the video game industry.

In mid-1973, Atari acquired Cyan Engineering, a computer engineering firm founded by Steve Mayer and Larry Emmons, following a consulting contract with Atari. Bushnell established Atari's internal Grass Valley Think Tank at Cyan to promote research and development of new games and products.

In September 1973, Atari secretly spawned a "competitor" called Kee Games, headed by Bushnell's next door neighbor Joe Keenan, to circumvent pinball distributors' insistence on exclusive distribution deals. Both Atari and Kee could market (virtually) the same game to different distributors, with each getting an "exclusive" deal. Kee was further led by Atari employees: Steve Bristow (a developer that worked under Alcorn on arcade games), Bill White, and Gil Williams. While early Kee games were near-copies of Atari's own games, Kee began developing their own titles, which drew distributor interest to the subsidiary and helped Bushnell realize the disruption of the exclusive distribution deals.

In 1974, Atari began to see financial struggles, and Bushnell was forced to lay off half the staff. Atari was facing increased competition from new arcade game producers, many which made clones of Pong and other Atari games. An accounting mistake caused the company to lose money on the release of Gran Trak 10. Atari also tried to open Atari Japan, a division to sell their games in Japan, but the venture had several roadblocks. In a 2018 interview, Alcorn described the situation as "an utter disaster beyond recognition". Bushnell said, "We didn't realize that Japan was a closed market, and so we were in violation of all kinds of rules and regulations of the Japanese, and they were starting to give us a real bad time." Ron Gordon, who had established his own international distribution company, Multi-National Corporation, learned of Atari's problems in international markets, and in 1973 introduced himself to Bushnell to help. Gordon worked on commission through his company, helping Atari sell to Europe, as well as reducing their costs by shipping only the circuit boards for their arcade games and letting local manufacturers supply the chassis and display. John Wakefield, Atari's first president, believed that the company should own its own international distribution channels, establishing Atari Japan and Atari Pacific and Computer Games, Ltd, for Hawaii and South Korea, but these failed to gain interest and contributed to Atari's 1974 financial issues. Gordon urged Bushnell to fire Wakefield due to the 1974 financials, and following that, Gordon was temporarily named president of Atari as to let go of the relatively new management staff and sell off the international sales subsidiaries. After Atari Japan was sold to Namco for $500,000, Namco would be the exclusive distributor of Atari's games in Japan. Bushnell has claimed that deals arranged by Gordon saved Atari.

Workplace culture

Atari, as a private company under Bushnell, gained a reputation for its relaxed employee policies in areas such as formal hours and dress codes, and company-sponsored recreational activities involving alcohol, marijuana, and hot tubs. Board and management meetings to discuss new ideas moved from formal events at hotel meeting rooms to more casual gatherings at Bushnell's home, Cyan Engineering, and a coastal resort in Pajaro Dunes. Dress codes were considered atypical for a professional setting, with most working in jeans and T-shirts. Many of the workers hired early on to construct games were hippies who knew enough to help to solder components together and took minimal wages. Several former employees, speaking in years that followed, described this as the common culture of the 1970s and not unique to Atari.

This approach changed in 1978, after Ray Kassar was brought on from Warner initially to help with marketing, but eventually took on a larger role in the company, displacing Bushnell and Keenan, and instituting more formal employee policies for the company.

As a subsidiary of Warner Communications

Under Nolan Bushnell (1976–1978)

Before entering the home console market, Atari recognized they needed additional capital to support this market; the company had acquired smaller investments through 1975, but needed a larger infusion of funds. Bushnell had considered going public and tried to sell the company to MCA and Disney, both of whom passed. Instead, after at least six months of negotiations in 1976, Atari took an acquisition offer from Warner Communications for $28 million that was completed in November 1976, of which Bushnell received $15 million. Bushnell remained chairman and CEO, while Keenan remained president. Atari had about $40 million in annual revenue; for Warner, the deal represented an opportunity to buoy its underperforming film and music divisions. Along with Warner's purchase, Atari had established its new headquarters in the Moffett Park area in Sunnyvale, California.

During Atari's negotiations with Warner, Fairchild Camera and Instrument announced the Fairchild Channel F, the first programmable home console that used cartridges to play different games. Following the acquisition, Warner provided Atari with $120 million for Stella's development, making it possible to complete the console by early 1977. The console's announcement, which took place on June 4, 1977, may have been delayed until after June 1 so that Atari could wait out the terms of the Magnavox settlement from the earlier Pong patent lawsuit and would not have to disclose information on it. The Atari VCS was released in September 1977. Most of the launch titles for the console were based on Atari's successful arcade games, such as Combat, which incorporated elements of both Tank and Jet Fighter. Around 400,000 Atari VCS units were produced for the 1977 holiday season, but the company had lost around $25 million due to production problems that caused some units to be delivered late to retailers.

In addition to the VCS, Atari continued to manufacture dedicated home console units through 1977; however, these were discontinued by 1978, with unsold stock destroyed soon after. Another one-off device from the consumer products division in 1977 was the Atari Video Music, a computerized device that takes an audio input and creates graphics displays to a monitor. The unit did not sell well and was discontinued in 1978.

Atari continued its arcade game line as it built up its consumer division. Breakout, released in 1976, was one of Atari's last games based on transistor–transistor logic (TTL) discrete logic design before the company transitioned to microprocessors. It was engineered by future Apple Computer co-founder Steve Wozniak, based on Bushnell's concept of a single-player Pong, and used as few TTL chips as possible from an informal challenge given to Wozniak by then-Atari employee and future Apple co-founder Steve Jobs. Breakout was successful and sold around 11,000 units, but Atari still struggled to meet demand. Atari exported a limited number of units to Namco via its prior Atari Japan venture, which led Namco to create its own clone of the game to meet demand in Japan, helping establish it as a major company in the Japanese video game industry. Subsequently, Atari moved to microprocessors for its arcade games such as Cops 'N Robbers, Sprint 2, Tank 8, and Night Driver.

Under Ray Kassar (1979–1982)

After Bushnell's departure, Kassar implemented significant changes in the workplace culture in early 1979 to make Atari appear more professional, and cancelled several of the engineering programs that Bushnell had established. Kassar also had expressed some frustration with the programmers at Atari, and was known to have called them "spoiled brats" and "prima donnas" at times.

These changes in management style led to rising tensions from the developers at Atari, who had been used to freedom in developing their titles. One example was Superman in 1979, one of the first movie tie-ins that had been sought by Warner to accompany the release of the 1978 film. Warner, through Kassar, had pressured Warren Robinett to convert his game-in-progress Adventure from a generic adventure game to a Superman-themed title. Robinett refused, but nonetheless helped fellow programmer John Dunn develop the conversion after he volunteered. Furthermore, after Warner refused to let Atari include programmer credits into game manuals for fear that competitors may try to hire them away, Robinett secretly stuck his name into Adventure, marking one of the first known Easter eggs, to bypass this issue. The transition from Bushnell to Kassar led to a large number of departures from the company over the next few years. Four programmers — David Crane, Bob Whitehead, Larry Kaplan, and Alan Miller — whose games had contributed collectively to over 60% of Atari's game sales in 1978, left the company in mid-1979 after requesting and being denied additional compensation for their performance; they formed Activision in October of that year to make their own Atari VCS games based on their knowledge of the console. Similarly, Rob Fulop, who programmed the arcade conversion of Missile Command for the VCS in 1981 that sold over 2.5 million units, received only a minimal bonus that year, and left with other disgruntled Atari programmers to form Imagic in 1981.

In 1979, the Atari coin-op division began releasing arcade games incorporating vector graphics displays after the success of the Cinematronics game Space Wars in 1977. Their first vector graphics game, Lunar Lander, was a modest success, but their second arcade title, Asteroids, was highly popular, displacing Space Invaders as the most popular game in the United States. Atari produced over 70,000 Asteroids cabinets, and made an estimated $150 million from sales. Asteroids, along with Space Invaders, helped usher in the golden age of arcade video games, which lasted until around 1983; Atari contributed several more games that were considered part of this golden age, including Missile Command, Centipede, and Tempest.

The video game crash of 1983

In October 1981, in an attempt to remain competitive against Mattel's Intellivision, Atari requested all of its distributors to commit to orders for home console games in 1982, so as to allow the company to anticipate production numbers and meet expected demand. Distributors expected Atari's games to do well and ordered in large volumes, placing more orders than expected given Atari's past failures to meet demand. By the middle of 1982, a new home console marketplace had appeared, which one distributor called "a totally different business". In addition to Mattel, Coleco had introduced the ColecoVision, which shipped in August 1982 with an arcade conversion of the popular Donkey Kong as a pack-in game, as well as add-ons that could play Atari 2600 games. Further, Activision, Imagic, along with other third-party game developers like Parker Brothers, had begun releasing Atari 2600 titles that rivaled Atari's own games, reducing its market share of games to 40%. Distributors began cancelling the Atari orders they had placed the prior year, which Gerard said they were "blind-sided" by, having never faced this type of competition before.

Additionally, around October 1981, Atari looked to other licensed properties for games. They secured the rights for Raiders of the Lost Ark in late 1981, shortly after the release of the blockbuster film earlier that year. Similarly, after the film E.T. the Extra-Terrestrial was released in June 1982, Warner chairman Steve Ross negotiated directly with director Steven Spielberg to secure video game rights, estimated to have cost Atari $20−25 million, to make a video game based on the film. The game was programmed by Howard Scott Warshaw over a period of five weeks in advance of the 1982 holiday season. Raiders and E.T. were released in November and December 1982, respectively. As distributors had already cancelled orders, these and other games began to stockpile in Atari's warehouses without any sellers. Neither game sold as much as Atari had expected. Notably, E.T. was critically panned and later became known as one of the worst games ever made. Despite selling 2.6 million copies in 1982, it suffered massive returns in 1983, making it a financial failure.

In December 1982, Warner Communications announced that it expected significant decline in investor earnings of about 40% for the fourth quarter of the year, mostly as a result of slower game sales from Atari. Warner still remained confident that it would see a 10 to 15% growth through 1982, which it considered fair given the early 1980s recession. However, earlier in 1982, Warner had expected a 50% growth and used Atari's profits to help support its other media subsidiaries, and analysts were less confident in Warner's current outlook; one asked, "Why did it happen so quickly? And why were they not in tune with it while it was building?" Later that month, Warner announced that Kassar, along with one other Atari executive, had sold numerous shares of Warner stock prior to the investor announcement and were engaged with insider trading. The Securities and Exchange Commission (SEC) investigated Kassar's sale and, in September 1983, fined Kassar about $81,000. Kassar signed a consent agreement neither admitting nor denying the charges.

Breakup and sale (1984)

By the end of 1983, Warner's stock price slid from $60 to $20, and the company began searching for a buyer for Atari. When Texas Instruments exited the home-computer market in November 1983 due to its price war with Commodore, many believed that Atari would be next. Its Atarisoft games for rival computers sold well, and a rumor stated that Atari planned to discontinue hardware and only sell software. Morgan stated that he expected to bring Atari back to profitability by mid-1984, but warned that he was expecting more losses for the first six months of the year.

On July 3, 1984, in a surprise announcement, Warner announced that they had sold off the assets of the consumer electronics and home computer divisions of Atari, which included the console and computer production, game development, and Atarisoft divisions, to former Commodore International CEO Jack Tramiel in exchange for taking on roughly $240 million in debt held by Warner. Tramiel merged these assets into his own Tramel Technology Limited, which he renamed Atari Corporation. In the transition, Morgan was given "a leave of several months", with Tramiel's son Sam Tramiel and his other aides already taking leadership of the company. Warner renamed Atari, Inc. to Atari Games, which now primarily consisted of the coin-operated games, arcade operations, and Ataritel divisions. Ataritel was sold to Mitsubishi later in 1984; Mitsubishi released one of the first digital videophones based on Atari's original designs under the brand Lumaphone by 1986.

Under Tramiel, Atari Corporation initially focused heavily on home computers before it revisited game consoles, including the Atari 2600 Jr., a redesign of the Atari 2600. However, it eventually dropped out of the hardware market by 1996, following the failure of its Atari Jaguar console. In 1998, Atari Corporation's properties were acquired by Hasbro Interactive; in 2001, they were sold to Infogrames, which would rebrand itself as Atari SA, and held most of the intellectual property rights to the console games developed by Atari, Inc.

In 1985, Warner created a new joint venture with Namco, subsequently named Atari Games Corporation, and transferred the coin-operated games division to the new entity. Namco owned the majority stake in Atari Games Corporation, while Warner retained a 40% share. Namco later lost interest in operating Atari Games and sold 33% of its shares to a group of employees led by then-president Hideyuki Nakajima in 1986. As the company was now split between Warner (40%), Namco (40%), and the employees (20%), and none of them held a controlling share, Atari Games effectively became an independent company. The company re-entered home console publishing as well, but were unable to use the Atari name in the home market as the rights were held by Atari Corporation; to resolve this issue, they launched the Tengen subsidiary for console publishing. In 1994, Time Warner, as it had become known following its merger with Time Inc., bought out Namco's share of Atari Games, placing it under their new Time Warner Interactive label. After only two years, it was sold again to WMS Industries in 1996, and made part of Midway Games when that company was spun off as an independent company in 1998 as the Midway Games West studio. The studio was disbanded in 2003, marking the end of the last remaining part of the original Atari. The Atari Games library was retained by Midway until 2009, when Midway was sold to Warner Bros. Interactive Entertainment amidst financial troubles.

Products

Hardware products

Home Pong (1975)

Stunt Cycle (1976)

Atari Video Music (1977)

Video Pinball (1977)

Atari 2600 (1977)

Atari 8-bit computers (1979)

Atari 2700 (cancelled)

Atari Cosmos (cancelled)

Atari 5200 (1982)

Software

Atari's software is organized by platform:

List of Atari 2600 games

List of Atari 5200 games

Atari 8-bit computer software

List of Atarisoft games