Atari, Inc.

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 $1,500,000 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.

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.

Gordon further suggested that Kee Games be merged into Atari in September 1974, just ahead of the release of Tank in November of that year. Tank was a success in the arcade, and Atari was able to reestablish its financial stability by the end of 1974. In the merger, Joe Keenan was kept on as president of Atari while Bushnell stayed as CEO.

Having avoided bankruptcy, Atari continued to expand on its arcade game offerings in 1975. The additional financial stability also allowed the company to pursue new product ideas. One of these a home version of Pong, a concept that Atari had first considered as early as 1973. The cost of integrated circuits to support a home version had fallen enough to be suitable for a home console by then, and initial design work on console began in earnest in late 1974 by Alcorn, Harold Lee and Bob Brown. Atari struggled to find a distributor for the console, but eventually arranged a deal with Sears to produce 150,000 units by the 1975 holiday season. Atari was able to meet Sears' order with additional $900,000 investments during 1975. The home Pong console (branded as Sears Tele-Game) was a high-demand product that season, and resulted in Atari having a viable home console division in addition to their arcade division. By 1976, Atari began releasing home Pong consoles, including Pong variants, under their own brand name. The success of home Pong drew a similar range of competitors to this market, including Coleco with their Telstar series of consoles.

In 1975, Bushnell started an effort to produce a flexible video game console capable of playing all four of Atari's then-current games. Bushnell was concerned that arcade games took about $250,000 to develop and had about a 10% chance of being successful. Similarly, dedicated home consoles had cost about $100,000 to design but, with increased competition, had a limited practical shelf life of a few months. Instead, a programmable console with swappable games would be far more lucrative. Development took place at Cyan Engineering, which initially had serious difficulties trying to produce such a machine. However, in early 1976, MOS Technology released the first inexpensive microprocessor, the 6502, which had sufficient performance for Atari's needs. Atari hired Joe Decuir and Jay Miner to develop the hardware and custom Television Interface Adaptor for this new console. Their project, under the codename of "Stella", would become known as the Atari Video Computer System (Atari VCS).

Alongside continuing work in arcade game development and their preparations to launch the Atari VCS, Atari launched two more ventures in 1977. The first was the Atari Pinball division, which included Steve Ritchie and Eugene Jarvis. Around 1976, Atari was concerned that arcade operators had become nervous on the prospects of future arcade games, and thus launched their own pinball machines to accompany their arcade games. Atari's pinball machines were built upon the technology principles that they had learned from arcade and home console games, using solid-state electronics over electro-mechanical components to make them easier to design and repair. The division released about ten different pinball units between 1977 and 1979. Many of the machines were considered to be innovative for their time, but were difficult to produce and meet distributors' demand. The second new venture in 1977 was the first of the Pizza Time Theatre (later known as Chuck E. Cheese), based on the pizza arcade concept that Bushnell had from the start. At this stage, Atari used the concept to bypass problems with getting their arcade games placed into arcades by effectively controlling the arcade itself while also creating a family-friendly environment. The first restaurant/arcade was launched in San Jose in May 1977.

After releasing the VCS, Atari hired more programmers to start work on a second wave of games for release in 1978. In contrast to the launch titles inspired by Atari's arcade games, the second batch of games featured more novel ideas, including some based on board games, and were more difficult to sell. Warner's Manny Gerard, who oversaw Atari, brought in former Burlington Industries vice president Ray Kassar to help market Atari's products. Kassar was hired in February 1978 as president of the Atari consumer division, and helped develop a commercialization strategy for these games through 1978. Kassar also oversaw the creation of a new marketing campaign for the VCS, featuring multiple celebrities and the slogan "Don't watch TV tonight, play it." Kassar also instituted programs to increase production of the VCS and improve quality assurance of the console and games. As they approached the end of 1978, Atari had prepared 800,000 VCS units, but sales were languishing ahead of the holiday sales period.

Kassar's influence on Atari grew throughout 1978, leading to conflict between Bushnell and Warner Communications. Among other concerns about the direction Kassar was taking the company, Bushnell cautioned Warner that they needed to continue to innovate on the home console and could not simply release games for the VCS indefinitely like a music business. In a November 1978 meeting with Warner Communications, Bushnell told Gerard that they had produced far too many VCS units to be sold that season, and that Atari's consumer division would suffer a major loss. However, Kassar's marketing plan, alongside the influence of the arcade hit Space Invaders from Taito, led to a large surge in VCS sales, and Atari's consumer division ended the year with $200 million in sales. Warner removed Bushnell as chairman and co-CEO of the company, but offered to let him stay on as a director and creative consultant; Bushnell refused and left the company. Bushnell purchased the rights for Pizza Time Theatre for $500,000 from Warner before leaving. Keenan was moved to Atari's chairman, and Kassar was assigned as president after Bushnell's departure; Keenan left the company a few months later to join Bushnell in managing Pizza Time Theatre, and Kassar was promoted to CEO and chairman of Atari.

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.

Work on a successor to the Atari VCS began shortly after the system was introduced in mid-1977. The original development team, which included Meyer, Miner and Decuir, estimated that the VCS had a lifespan of about three years, and decided to build the most powerful machine they could when given that time frame. They set a goal to be able to support concurrent arcade games, as well as features of personal computers such as the Apple II. The project resulted in the first home computers from Atari, the Atari 800 and 400, both launched in 1979. These systems were mostly closed systems, and most of the initial games were developed by Atari, drawing from programmers from the VCS line. Sales into early 1980 were poor, and there was little to distinguish the computer line from the console products of the time. In March 1980, the company released Star Raiders, a space combat game developed by Doug Neubauer based on the Star Trek game that had been popular on mainframe computers. Star Raiders became the Atari 400/800's system seller, but its success emphasized the lack of software for the computers due to the system's closed nature and the limited rate at which Atari's programmers could produce titles. Third-party programmers found means to get technical information about the computer specifications either directly from Atari employees or from reverse engineering. By late 1980, third-party applications and games began to emerge for the 8-bit computer family, and the specialized magazine ANALOG Computing was established for Atari programmers to share programming information. While Atari did not formally release development information, they supported this external community by launching the Atari Program Exchange (APX) in 1981, a mail-order service through which programmers could offer their applications and games to other users of Atari's 8-bit computers. By this point, Atari's computers were facing new competition from the VIC-20.

A short-lived Atari Electronics division was created to make electronic games, and ran from 1979 to 1981. They successfully released one product: a handheld version of Atari's arcade game Touch Me, which played similar to Simon, in 1979. The division began work on Cosmos, a system that was to combine LED lights and a holographic screen. Atari had promoted the game at the 1981 CES, but opted not to follow through on releasing it following Alcorn's departure in 1981, and closed down the Electronics division.

Moving into 1980, the VCS still lacked a system-selling game. After Space Invaders had hit arcades in 1979, Warner instructed Kassar to try to get the rights to a home conversion for the game from Taito; around this time, Rick Maurer had already begun prototype work for a possible game on his own. Once Kassar has secured the rights, Maurer was able to transfer his work to a form for the VCS, and Space Invaders for the VCS was released in March 1980. The game became the VCS's "killer app", helping sell the console alongside the game, and made Atari an estimated $100 million. It also set a roadmap for future game releases on the VCS under Kassar, with more scheduled release plans throughout the year and Atari looking for more licensed arcade conversions and tie-in media.

Until 1980, the Atari VCS was the only major programmable console on the market, and Atari the only supplier for its games; that same year, however, Atari began to experience its first major competition as Mattel Electronics brought the Intellivision to market. Around this time, Activision also released its first set of third-party games for the Atari VCS. Atari took legal action against Activision, first by trying to tarnish the company's reputation, then by accusing Activision's four programmers of stealing trade secrets and violating non-disclosure agreements. This lawsuit was eventually settled out of court in 1982, with Activision agreeing to pay a small license fee to Atari for every game sold. This effectively validated Activision's development model and made it the first third-party developer in the video game industry.

In 1980, Namco produced the arcade game Pac-Man, which reached the United States market by the end of the year. Pac-Man soon became a nationwide success, surpassing the popularity of Asteroids and creating a wave of "Pac-Mania". Atari was able to secure an exclusive deal with Namco to convert Pac-Man to home systems, starting with the Atari VCS version. Atari management believed that the game would be a surefire hit in the same manner as Space Invaders, but the game exceeded the hardware capabilities of the VCS. While Tod Frye was able to get a version of Pac-Man on the VCS within the system's limitations, the resulting game was critically panned for technical issues, such as the excessive flickering of the ghosts. Pac-Man was released in March 1982, with Atari running several promotions to increase sales. It sold over seven million units and ultimately was the best-selling VCS game, bringing in over $200 million. However, due to its poor technical implementation, the game led many consumers to be more cautious on rushing to purchase new games in the future, and tarnished Atari's image at a time when the company was trying to compete against low-quality third-party titles that were starting to flood the market.

In 1981, Atari discovered that General Computer Corporation (GCC) had developed hardware that could be installed onto arcade games to give operators additional options to modify the game, such as their Super Missile Attack board, which modified Atari's Missile Command. Atari initially filed suit to stop GCC's products, but as they learned more about their products, they recognized that GCC had talented engineers, as one of their other products, a modification board for Pac-Man, was sold back to Midway and eventually became the basis of Ms. Pac-Man. Atari settled with GCC out of court and brought the company on in a consulting position. GCC developed arcade and VCS games for Atari, and also programmed most of the games for the upcoming Atari 5200 system.

Atari launched its second major programmable console, the Atari 5200, in late 1982. It was based on the same design features that had gone into the Atari 800 and Atari 400 computers, but repackaged as a home console. Alongside the 5200's release, Atari announced that it would rebranding the Atari VCS as the Atari 2600 to create a more consistent product naming system. The Atari 5200 did not do well on the market, as it lacked backward compatibility with Atari VCS/2600 cartridges, a feature offered by the ColecoVision. The Atari 5200 only sold about a million units before it was discontinued in 1984.

By the end of 1982, Atari had hired 4,000 additional employees for a total of 10,000 across its three divisions, each of which focused on arcade games, consumer home consoles, and home computers. The company had more than fifty facilities in the Silicon Valley area. For the first nine months of 1982, Atari contributed half of Warner's $2.9 billion revenue and a third of their $471 million operating profit. However, the company was seeing a high rate of turnover in management positions, which Kassar attributed to the rapid growth of the company. As an industry, the video game market reached about $1.7 billion in 1982 and was expected to reach $3 billion in 1984, rivalling revenues of the film industry, and making video games an overall lucrative prospect.

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.

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