Atari, Inc.
Atari, Inc. was an American video game developer and home computer company founded in 1972 by Nolan Bushnell and Ted Dabney. Atari was a key player in the formation of the video arcade and video game industry.
The company was founded in Sunnyvale, California, in the center of Silicon Valley, to develop arcade games, starting with Pong in 1972. As computer technology matured with low-cost integrated circuits, Atari ventured into the consumer market, first with dedicated home versions of Pong and other arcade successes around 1975, and into programmable consoles using game cartridges with the Atari Video Computer System in 1977. To bring the Atari VCS to market, Bushnell sold Atari to Warner Communications in 1976. In 1978, Warner brought in Ray Kassar to help run the company, but over the next few years, gave Kassar more of a leadership role in the company. Bushnell was fired in 1978, with Kassar named CEO in 1979.
From 1978 through 1982, Atari continued to expand at a great pace and was the leading company in the growing video game industry. Its arcade games such as Asteroids helped to usher in a golden age of arcade games from 1979 to 1983, while the arcade conversion of Taito's Space Invaders for the VCS became the console's system seller and killer application. Atari's success drew new console manufacturers to the market, including Mattel Electronics and Coleco, and fostered third-party developers such as Activision and Imagic.
Looking to stave off new competition in 1982, Atari leaders made decisions that resulted in overproduction of units and games that did not meet sales expectations. Atari had also ventured into the home computer market with its first 8-bit computers, but its products did not fare as well as its competitors'. Atari lost more than in 1983, leading to Kassar's resignation and the appointment of James J. Morgan as CEO. Morgan attempted to turn Atari around with layoffs and other cost-cutting efforts, but the company's financial hardships had already reverberated through the industry, leading to the 1983 crash that devastated the U.S. video game market.
In July 1984, Warner Communications sold the home console and computer division of Atari to Jack Tramiel, who then renamed his company Atari Corporation. The original Atari, Inc. was renamed Atari Games, Inc. after the sale. In 1985, Warner formed AT Games, Inc., a joint venture with Namco that acquired the coin-operated assets of Atari Games, Inc. AT Games was subsequently renamed Atari Games Corporation. Atari Games, Inc. was then renamed Atari Holdings, Inc. and remained a non-operating subsidiary of Warner Communications and its successor, Time Warner, until being merged back into the parent company in 1992.
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 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 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 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 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. Other terms Bushnell had offered included sente and hane. 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 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.
After talks to release Pong through Nutting and several other companies broke down, Bushnell and Dabney decided to release the game on their own, and Atari, Inc. transformed into a coin-op design and production company. Using investments and funds from a coin-operated machine route, they leased a former concert hall and roller rink in Santa Clara to produce Pong cabinets with hired help for the production line. Bushnell had also set up arrangements with local coin-op-game distributors to help move units. Atari shipped their first commercial Pong unit in November 1972. Over 2,500 Pong cabinets were made in 1973, and by the end of its production in 1974, Atari had made over 8,000 Pong cabinets.
Atari could not produce Pong cabinets fast enough to meet demand, leading to a number of existing companies in the electro-mechanical games industry and new ventures to produce their own versions of Pong. Ralph H. Baer, who had patented the concepts behind the Odyssey through his employer Sanders Associates, believed that Pong and these other games infringed on his ideas. Magnavox filed suit against Atari and others in April 1974 for patent infringement. Under legal counsel's advice, Bushnell opted to have Atari settle out of court with Magnavox by June 1976, agreeing to pay in eight installments for a perpetual license for Baer's patents, and to share technical information and grant a license to use the technology found in all current Atari products and any new products announced between June 1, 1976, and June 1, 1977.