The Ultimate History of Video Games: From Pong to Pokémon and Beyond—The Story Behind the Craze That Touched Our Lives and Changed the World

by Steven Kent

  Surprised by Pong’s success, Bushnell decided that he should manufacture the game himself rather than sell it to an established game maker. The problem was, he had discussed the game with executives at Bally and Midway and stirred up some interest. Now he had to find a way to steer them away from Pong while keeping the door open for future projects. In the end, Bushnell played one side against the other.

  Nolan decided he didn’t really want Bally to take Pong because he knew it was too good. So he met with Bally and Midway and decided to tell Bally that the Midway guys didn’t want it. And so the Bally guys decided that they didn’t want it.

  Then he told the Midway guys that the Bally guys didn’t want it. He got them convinced that it was no good. [Once they heard Bally didn’t want it] it … didn’t take much convincing.

  —Al Alcorn

  The Big Debate

  There are unanswered questions in the history of video games. One question involves Ralph Baer, the designer of the Magnavox Odyssey, and Nolan Bushnell. It is a question of ownership.

  In 1972, while Nutting Associates tried to market Computer Space as the beginning of a new generation of arcade games, Magnavox quietly circulated the Odyssey television game around the country in special demonstrations for dealers and distributors. Most demonstrations took place in private showings, but the new device was also displayed at a few trade shows.

  The first show began on May 3, 1972, in Phoenix, Arizona. Three weeks later, Odyssey came to the San Francisco Bay area in a large trade show held in the town of Burlingame. According to Magnavox, a Nutting Associates employee named Nolan Bushnell attended the show on May 24. Depositions taken from Magnavox witnesses claimed that while at the show, Bushnell tested Odyssey.

  Some time after Atari began marketing Pong, in 1972, Magnavox took the California start-up to court. Pong, Magnavox argued, violated several of Baer’s patents. It infringed upon his patents for projecting electronic games on a television screen, and, more important, it infringed on his concept of electronic ping-pong.

  What they’ve always alleged was that there was a meeting or a distributor show somewhere in the valley, and I should have, would have, could have been there. So it’s one of those pissing matches.

  —Nolan Bushnell

  Atari was up against a stacked deck. First of all, the methodical Ralph Baer considered filing for patents an integral part of the invention process. During his life, Baer was awarded more than seventy patents and was once named “inventor of the year” by the state of New York. He documented everything.

  By comparison, Bushnell, with his haphazard style, allowed the mundane details of invention and legal filing to escape him. Even when he created schematics, like the one he had made for Computer Space, they were often illegible.

  More important, whether Bushnell attended the Magnavox show or missed it, there had been a show.*Magnavox could prove that it had demonstrated Odyssey in Burlingame prior to the creation of Pong and even prior to the incorporation of Atari. Magnavox also had Baer’s patents and notes, all of which clearly predated Pong and Computer Space.

  Bushnell considered his options. Magnavox had more lawyers and resources than Atari could ever hope to afford. His attorney urged him to take the matter to court, claiming they would win; but when Bushnell asked how much it might cost, the lawyer thought the expenses could be as much as $1.5 million—more money than Atari had to spend. Atari could not afford to fight, even if it won.

  In order for his company to survive, Bushnell had to find another alternative. It came in the form of a settlement. Magnavox offered Bushnell a very inexpensive settlement proposal. Bushnell followed up by asking for special terms in the agreement.

  It was all settled outside and Nolan and Atari got extremely favorable terms. They paid very little. He got away with a very, very, very small licensing fee up front.

  Atari became a licensee under a prepaid arrangement. It paid some fixed sum, some ridiculous number like a few hundred grand. I don’t remember the details. But he [Nolan] had an extremely advantageous, nonburdensome license from us. And as far as we were concerned, that was the end of our problems with Atari.

  If anybody had had any inkling of what was going to happen to this business at Atari, they would never have gotten those terms.

  —Ralph Baer

  Bushnell played the legal action like a chess game. In exchange for settling, Atari became Magnavox’s sole licensee. By this time other companies had begun making similar games. While Atari had already paid its licensing fees, future competitors would have to pay stiff royalties to Magnavox. In several later litigations, Magnavox zealously prosecuted all violators.

  Magnavox said, “For $700,000 we’ll give you a paid-up license.” And Nolan said, wisely, “You got it.” So we had a paid license and everybody else had to pay royalties.

  That was negotiated in June of 1976, a very key date. It was a week before the consumer electronics show opened, and one of the caveats of that agreement was that Magnavox got the rights to any product we came up with in the next 365 days. Anything we released.

  So we said at one point, we’re not going to release any consumer products for a year; we’ll release them at the next CES [Consumer Electronics Show]. That was the only time we ever kept our mouths shut about a product, and it was funny because when the Magnavox attorneys came by to analyze our stuff, we had Steve Bristow show them around. Bristow knew nothing about the consumer stuff—the stuff that Magnavox wanted.

  —Al Alcorn

  I helped negotiate that deal. We paid so little money, and yet we agreed that they would go after, as part of the settlement, all our other competitors. Well, we were the dominant people, and all of a sudden Magnavox said, “We’ll help, we’ll give you a sweetheart deal, and we’ll beat up on everybody else.”

  —Nolan Bushnell

  With the settlement signed, the case never went to court. Bushnell and Baer met in Chicago, on the steps of a courthouse, the day that settlement was sealed. Baer remembered being introduced to Bushnell and shaking hands. They exchanged pleasantries, then went in different directions.

  Over the years, Bushnell became a national celebrity as the “father of video games.” In the late 1970s, as he prepared to retire, Ralph Baer finally told his story to the press.

  I finally got tired of being a shrinking lily and I started tooting my horn a little bit. But it didn’t have any financial effect because it was all over by then.

  I also didn’t open up my mouth, didn’t make any loud press for myself, because guys like Nolan were clients. He was a licensee. He put the business on the map. In fact, without him there would never have been any money in the till. If Nolan wants to say he was the great inventor, hooray Nolan. You’re a nice guy, you made a lot of money for us, say anything you want to.

  —Ralph Baer

  Years later, Baer ran into Nolan Bushnell and Gene Lipkin, Atari director of marketing, on the floor of the Consumer Electronics Show. According to Baer, Bushnell introduced him as “the father of video games.” Baer smiled and said, “I wish you would have said that to the press.”

  * In later litigation, it was revealed that Bushnell not only attended the Burlingame show but also played the tennis game on Odyssey.

  The King and Court

  We had vendor credit from Cramer Electronics. Banks wouldn’t talk to us because we were obviously in the Mafia if we were in coin-op.

  —Al Alcorn

  Guilt by Association

  More than thirty years had passed since Fiorello LaGuardia’s crusade successfully shut down pinball in New York City, but the stigma of organized crime still plagued the coin-operated amusement business. Politicians and bankers remembered bingo and pay-out machines. When Joel Hochberg was assaulted by thugs while repairing a game in a Brooklyn bar, local authorities assumed it was a mob action and refused to believe that it was a case of mistaken identity. Conscious of their bad image, amusement operators tried to change the public’s perception of the in
dustry.

  Jukebox was considered within our industry to be a dirty word. It was a word associated with organized crime that would bring up images of racketeering, and we bent over backward to call it anything but a jukebox. My favorite was “coin-activated musical device.” Of course, even people in the industry would call it a jukebox when no one was listening.

  —Eddie Adlum

  As an all-cash business, the amusement industry naturally attracted suspicion and some members undoubtedly engaged in money-laundering activities. But most of the stories about the Mafia controlling the industry were exaggerations or myths. The truth was less interesting. “There isn’t enough money in the business to attract that kind of people,” according to Eddie Adlum, who began covering the coin-operated amusement industry in 1964.

  It’s like a piece of ancient history that we’ll grin and giggle about today. It was a sad thing when a little kid would go home and ask his daddy, “Daddy, are you a crook?” And the daddy had to say, “No, why?” And the kid would say, “Because my friend Joey says that all people who own jukeboxes are crooks.”

  —Eddie Adlum

  Even though Nolan Bushnell was quickly developing an understanding of the coin-operated machine market, had an attractive high-technology gadget that seemed like a sure hit, and had strong presentation skills—all necessary ingredients for financial backing—he found banks unwilling to lend him money. Lenders saw his machine as a new form of pinball. He might just as well have approached them about opening a casino or a racetrack.

  Even if his ideas did not scare people, Bushnell’s appearance did. He was tall and gangly, with unruly long hair. He looked more like a biker or a hippie than a gangster, but bankers were not impressed by bikers or hippies either.

  In the end, only Wells Fargo was willing to take a chance on Atari, extending the company a $50,000 credit line. Though only a fraction of what Bushnell wanted, it was the best he could do.

  For Atari to compete with such established coin-operated amusement companies as Bally and Midway, Bushnell needed to expand his facilities. By removing the concrete walls separating his space from an adjacent space in the building, Bushnell doubled Atari’s size to 2,000 square feet. Bushnell leased another space and had the wall separating the two facilities torn down, doubling his space again to 4,000 square feet.

  It wasn’t enough. A few months later, Bushnell tried to get out of his lease with Cole Properties. Instead, he ended up moving operations to another Cole location, a defunct roller-rink a few blocks away. While Atari’s administrative offices remained at the Scott Boulevard address, the new Martin Avenue facility served as the assembly plant.

  The next step was hiring workers. Trusting the more technical issues of design and quality assurance to Al Alcorn, Bushnell and Ted Dabney decided to risk hiring untrained workers to assemble Pong machines. They went to a local unemployment office and hired nearly every prospect the office sent them.

  That’s when we started bringing in these guys that we got at the unemployment office. There were members of motorcycle gangs and people who found that they could fence the televisions and buy heroin. We didn’t think that any of that existed here. I mean, this was San Jose, California, really a very pristine community.

  —Nolan Bushnell

  In the beginning, Atari offered a fun atmosphere but less than generous wages. New line workers made slightly above minimum wage—$1.75 per hour, plus benefits. One of the more popular benefits was “Friday night beer busts” on the loading dock. Employees also got to play free games.

  As Pong orders mounted, however, it became impossible to keep up with demand. Bushnell hired nearly anyone who came in the door. Line personnel sometimes worked 16-hour shifts. Tensions mounted, and there was a failed attempt to unionize the company. A rift grew between management and the rank and file.

  Atari also became a notorious Mecca of drug abuse. The Martin Avenue roller-rink facility smelled of marijuana. One ex-employee later quipped that “you could get stoned just breathing the air coming out of the building.” Steve Bristow, who later became a vice president of the company, remembered the facility in a less extreme light. “Parts of the building smelled like pot, but I don’t remember getting stoned just walking through.”

  Former Atari executives described the people manning the assembly line as long-haired bikers, junkies, and hippies. Even Bushnell admitted they made him nervous.

  It didn’t take long for some enterprising assembly-line workers to discover that they could supplement their low wages by stealing televisions and parts and selling them at local pawnshops.

  There was about a six-week period [when employee theft was rampant]. We figured out what was going on and then tightened things down, and that went away. The theft was incredible until we woke up and fixed it. We fired a lot of people, and there was still a lot of marijuana use.

  One of the kids set up a jar and took donations to help other employees with unwanted pregnancies. It was never an official Atari thing, but we didn’t hide it [the jar] from vendors.

  —Nolan Bushnell

  Other employees remembered the drug use as an ongoing problem. When the entire research and development team was asked to work on the line in a last-minute effort to meet deadlines for the 1977 holiday season, a newly hired designer named Roger Hector nervously took his place among the regulars. When he went to use the bathroom, he found empty syringes on the bathroom floor. “I was amazed with what went on,” said Hector.

  The Work Begins

  We were getting cash up front for Pong machines. I think we were selling them for $1,200—up-front cash—and it cost us about $300 or $400 to build them. So we had positive cash flow from the get go, and we were doing it without any venture capital or anything.

  —Al Alcorn

  Though Atari’s game production eventually evolved into a sophisticated assembly line, it began as a haphazard dash. Workers wheeled empty Pong cabinets to the center of the production facility, and employees took turns installing the various components until the machines were finished. The process was slow and undisciplined and resulted in the production of about ten machines a day, many of which did not pass quality testing.

  The first order was for ten units for Advance Automatic Sales in San Francisco. These were guys that I knew from my days at Nutting. Portale Automatic was down in Los Angeles, and that was my second order. They ordered ten.

  By that time, the word had gotten out. Advance Automatic had heard about what had gone on with Andy Capp’s [Tavern].

  —Nolan Bushnell

  Bushnell began using Pong at other locations on the Atari amusement route, as he drummed up business from other distributors. Word spread quickly. Pong had become one of the most profitable coin-operated games in history. Other machines collected $40 or $50 dollars a week. In those early days, Pong frequently brought in four times as much as other machines, often topping $200 a week.

  As the route’s profits expanded, Bushnell hired Steve Bristow, the engineering student at Cal-Berkeley who replaced Alcorn in the Ampex work-study program, to collect quarters along the route. Since Atari had just opened a game room in Berkeley, the route was a convenient way for Bristow to earn some income, and he received 1 percent of the receipts.

  We had the game route operation that was giving us cash flow. And he [Steve Bristow] was setting up the route in the summer, along with doing the other things, because we needed to do everything we could to build cash flow.

  We ran the first game room in Berkeley. It was Steve’s job to maintain that game room and collect the money and bring it down to us. So while he was still in college at Berkeley that fall, this was his shtick.

  Steve usually took his wife on the route. When they’d go to collect, his wife would carry a hatchet. They were afraid because they were carrying hundreds of dollars’ worth of quarters, and they couldn’t carry a gun.

  —Nolan Bushnell

  We tried to get a permit to carry a gun, and they wouldn’t let us h
ave one, so we asked if there were any laws against carrying a hatchet. There weren’t, so we took one along.

  —Steve Bristow

  Word traveled quickly in the amusement industry. Though the first orders were small, they mounted. By the end of 1973, Atari had filled orders for 2,500 Pong machines. By the end of 1974, that number grew to more than 8,000. It became more popular than the best pinball machines of the day.

  Interestingly, another company benefited from Atari’s mounting success. Though the Magnavox Odyssey attracted very little attention when it was first released, the home entertainment system became increasingly more popular as Pong expanded into new markets. Atari’s success spread quickly, and Odyssey rode in its solid-state wake, selling 100,000 units in its first year.

  … and I think if it hadn’t been for Nolan showing up that summer with Pong and heightening the sensitivity to playing games on a television set, Magnavox’s Odyssey wouldn’t have sold as well as it did. There was definitely a complementary effect.

  —Ralph Baer

  The King, the Queen, and the Five Princes