by Steven Kent
I had built the company and I had developed the marketing plan. They never advertised their products before, so we spent five million dollars in advertising and that’s when it started taking off.
—Ray Kassar
Early in 1979, Manny Gerard made a suggestion that further increased Atari’s leadership in the video-game industry. Like everyone in the industry, Gerard knew about Space Invaders. One day it occurred to him to license Space Invaders and convert it into a cartridge for the Video Computer System. Kassar loved the idea.
Taito agreed to license Space Invaders to Atari. It was the first time that an arcade game had ever been licensed for home use. Kassar, whose marketing sense proved nearly uncanny, predicted that a home version of Space Invaders would be such a major hit that people would buy VCSs just to play the game. He focused most of his advertising budget into promoting the game. The result was the bestselling game of 1980.
When they came out with the Space Invaders cartridge, all hell broke loose. There were contests. It was a big deal. That was the beginning of licensing coin-op games as consumer products.
—Manny Gerard
With the success of the VCS, Atari expanded its consumer division as quickly as possible, but many of its employees were unhappy. Under Kassar, the executive team knew nothing about technology and corporate policy. Executives discouraged programmers from taking ownership of their games. Kassar would not even allow them to see sales figures.
Under the Kassar regime, management became sort of brain dead about technology. They didn’t know the limitations of technology.
The straw that broke the camel’s back was that we lost respect for Atari. They were not committed to doing great stuff anymore. That was a huge change from when we all started there. When we started, we were very idealistic, hardworking, and committed to creating great stuff.
—Alan Miller
Atari’s first and most significant defection began in 1979 when Alan Miller, one of the first VCS programmers, left the company. He wanted more money and more ownership of his products. He considered game designing an art and wanted to be treated like other popular artists. When he complained about this to a few friends within the company, they agreed. With the support of Crane, Kaplan, and Whitehead, Miller tried to renegotiate his job.
By this time, more than twenty programmers were in the consumer division. The VCS had already surpassed all sales projections, and Kassar and his staff felt extremely comfortable with the system’s future prospects.
I put together a closed contract based on contracts I had read about for [popular] writers and musicians. I presented it to management and told them I wanted to negotiate for more compensation, and we kicked that around for quite a while.
At some point, Larry [Kaplan], Dave [Crane], and Bob [Whitehead], who were my best friends at Atari, became aware of what I was doing and they wanted to try to negotiate on that basis, too. The four of us became a group.
We moved up through the ranks, talking with our boss, George Simcock, then John Ellis, who was first in command of consumer engineering, and then Ray [Kassar] directly. At one point they told George Simcock that they would come to some kind of agreement, but ultimately they just put their feet down and said no.
I remember one guy told us, “For the kind of money you’re wanting I can go out and hire six guys.”
My reaction was, “You can hire them, but I don’t think they can do the kind of job that we’re doing.” I don’t think I actually said that to him.
—Alan Miller
Joe Decuir, one of the hardware engineers who developed the VCS, left Atari to open his own engineering firm shortly before Miller submitted his demands to Kassar. When Kassar rejected his proposal, Miller went to Decuir and asked him which law firm he used to start his company. Decuir suggested Wilson, Sonsini, Goodrich & Rosati, a firm with a good reputation for handling start-up companies.
Miller and his friends visited the law firm and told an attorney about their plan to open an independent company that made games for the VCS. The attorney listened to the plan and carefully considered the patent infringement ramifications of making software for Atari’s hardware.
The group members clearly had enough technological know-how to make good products, but their lack of business acumen showed. They had the creative talent but needed an administrator.
We went to Decuir’s law firm and talked to some of the attorneys there. They started looking for venture capital funding for us. They started the process of getting us incorporated and started pulling us together as a company.
They said that we had an interesting technological opportunity, but they thought we really needed a management type to handle the administrative and marketing side of things.
—Alan Miller
Wilson, Sonsini, Goodrich & Rosati eventually recommended Jim Levy, a businessman with experience in the music industry, as the right person to handle the business side of the new game company. When they met, Miller and his friends agreed and asked Levy to join them. They decided to call their company Activision.
In the meantime, Wilson, Sonsini, Goodrich & Rosati also contacted Sutter Hill, a Palo Alto venture capital firm. Sutter Hill agreed to invest in Activision and placed one of its executives, Bill Draper, on its board of directors.
Bill was on our board of directors—really influential and smart guy. He ultimately became George Bush’s cochairman when Bush ran for president against Ronald Reagan. When Bush became vice president, Bill left our board of directors to go to Washington and perform in many high-level functions. I think he also worked at the United Nations for a while.
—Alan Miller
Activision opened its doors in April 1980, with David Crane, Alan Miller, and Bob Whitehead as its original programmers. Larry Kaplan joined the company a few months later. By the summer Consumer Electronics Show, in June of 1980, they were ready to show their first products.
I saw Jim Levy at the January CES show in Las Vegas, when he announced that Activision had been formed with Alan Miller and Bob Whitehead. I thought he was nuts.
There were so many cartridges available to Atari players from Atari, that we couldn’t imagine that any consumer needed more cartridges. Nobody thought that they [consumers] would perceive any kind of difference in the graphics between the Activision cartridges and the Atari cartridges, and we couldn’t conceive of anyone paying $3 to $5 more at retail for cartridges from a company that no one had ever heard of.
Because of that and the fact that Jim didn’t have any money because he was in the start up, we bought him dinner on the first night of the show.
—Michael Katz, former marketing director, Mattel Toys
As Activision prepared to release its first games that fall, Atari took the company to court. It was a simple case. Atari’s lawyers claimed that their company had engineered the VCS and held claim to its technology. Activision, they said, had no right to create games for its hardware.
This was not the first time in history that an independent company had created software for another company’s computer system; but it was the first time anyone had sued over it. Atari had no choice. Its entire business model was built around selling console hardware as cheaply as possible and making profits from software. Suddenly, Activision was gouging into its profit base.
They sued us repeatedly. We were the first independent video-game publisher. Before us, games were published by hardware manufacturers. I’m very proud of the fact that we created this independent video-game publishing industry.
We had the best games in the industry, as far as I was concerned. Dave Crane and Bob Whitehead were fantastically talented. Larry Kaplan joined us a few months after we started, so we had four designers who were clearly among the top designers in the world.
The first game I did was Checkers, which was not a big seller. Dave, I think, did Dragster; Bob Whitehead did Boxing; Larry did a Bridge game. And those were all good solid games. But the second round [of games was] much stronger. I
did a Tennis game; Dave did Laser Blast; Larry did Kaboom!
—Alan Miller
Atari sued us every six months for the span of a year and a half, and I attended all the depositions, acting as technical interpreter for our attorneys. This was all technical stuff.
I met one of the court reporters who was taking depositions at that time, and we started dating and ultimately got married, and we’ve been together now for fifteen years. That was a positive benefit of the lawsuit. About the only positive benefit I can think of.
—Alan Miller
If Kassar ever regretted not negotiating with Miller while he was still at Atari, he never admitted it. They never met again, and Kassar publicly scorned Activision as a parasite in the video-game industry. Kassar always believed that he had treated his programmers with respect.
I always realized that one of the key groups really [was] the programmers, because without cartridges, without games, we had nothing. I spent a lot of time catering to those programmers. I think eventually they respected me. I really favored the programmers…. spent a lot of time with them.
—Ray Kassar
After every quality designer in the company left, Atari went, “Gee, we’re gonna lose all our designers.” Talk about closing the barn door after the horses have left, Atari didn’t just close the barn doors, they wallpapered them in velvet. Atari started paying royalties to the bums they had left.
—Bill Kunkel, former executive editor, Electronic Games
A Real Contender
Atari’s early history was spent creating successful products and fighting off imitators. With the growing success of the VCS, new companies began entering the market. Coleco returned to the market with a bizarre triangular console, the Telstar Arcade, which had a steering wheel for driving games on one panel, a pistol for shooting games on another, and knobs for games like Pong on the third. The games were stored on triangular cartridges that plugged into the top of the console. The system never caught on.
Mattel, the world’s largest toy manufacturer, also released a video-game console in 1980, the Intellivision. Mattel had already enjoyed phenomenal success with a line of unsophisticated handheld video games in which players controlled light-emitting diodes that represented football players and sports cars. Mattel executives believed that their marketing position and name would help them create a niche in video games, so they formed a special division that specialized in video games called Mattel Electronics.
Intellivision had a newer and more powerful CPU than VCS, slightly more memory, and played better-looking games. Intellivision games tended to have more detailed graphics.
Two things made Intellivision good. The graphics [on the Intellivision] were superior, less stick figure–oriented, with more bright and vibrant colors.
The second thing was the lineup of sports games. Baseball, football, hockey, soccer, backgammon, bowling. Mattel wanted to have every single sport under the sun, all licensed from the right organizations, from the American Backgammon Players Association to the U.S. Chess Federation, to Major League Baseball. Sports really brought new players to video games.
—Al Nilsen, former electronics buyer, JC Penney
Along with more detailed graphics, the Intellivision also played more intricate games. The controllers on the VCS were paddles and a joystick. The controllers on the Intellivision included a 12-key button pad. It also had a disk that worked like a joystick. Players pressed on the disk to make characters move. Unlike Atari’s joystick, which could only move characters in eight directions, the disk on the Intellivision controller could move objects in sixteen directions, adding more precision to games.
We sold about 100,000 units in 1980. By our third year, we did well over a million units. We progressed upward after that into 1983, which was the peak year. As I recall, we did something like 3.5 million units on a worldwide basis that year.
—Paul Rioux, former senior vice president of operations, Mattel Electronics
Back at Atari
I remember one top programmer who was on drugs. You know, these were guys who would come in at 2 A.M. and work till midnight the next night, then disappear for two days. That’s how programmers operate, and I had to accept that. I mean, I didn’t say, “You have to be here at eight o’clock and leave [at a certain hour].” I understood that this was a very talented breed of people.
I remember one guy came in. He was stoned out of his mind. He just wanted to read poetry to me, and I sat with him for four hours because he was one of our top programmers, just to let him feel that I understood him and I cared about him.
At the end he said, “You know, I really appreciate what you’ve done for me.” I mean, that’s what I had to put up with.
—Ray Kassar
VCS sales continued to grow, despite unrest in the consumer division. By mid-1979, Robinett, Reuterdahl, and Huether had become the old men of the division. It was no badge of honor. The programmers who left had formed their own companies; those who stayed were still making less than $30,000 per year. In June, Reuterdahl decided to leave Atari and Robinette felt even more isolated.
Every time somebody left, we’d go out to lunch and end up drinking beer. We stayed at the bar until pretty late sometimes.
The Friday that my friend Reuterdahl was quitting, we all went out drinking. At four o’clock, after I had been drinking for four hours and was pretty smashed, I started thinking about some of the things that were going on at Atari and got kind of pissed off, so I went over to a telephone and called up corporate headquarters and asked to speak to Ray Kassar.
I thought it would be a little bit harder to get through to the president than it was. I got him on the phone and told him I was pissed off at management, and the next thing I knew, I had driven over to the building, and there I was, drunk, talking to the president of the company.
—Warren Robinett
Robinett turned in his resignation the following month and took an extended trip to Europe.* While he was gone, Activision released its first products and became an overnight success. During that same period, Bill Grubb, who had been Atari’s vice president of marketing, formed Imagic, another independent game company. He took several top programmers with him. Like Activision, Imagic became an overnight success.
Ray Kassar was pissed at Grubb for taking all these people, particularly Mark Bradley. (Bradley had been the national accounts manager at Atari.) He offered Mark the world to stay there, but Mark and Bill worked together at Black and Decker for many years before then and they were very close personal friends.
Ray told Mark … he said, “I promise you, I will do everything in my power to destroy your company.” He was furious that Mark was leaving and that Imagic had taken all these key programmers from him. It was a real personal vendetta with Ray. That manifested itself not much later.
—Jim Whims, former executive, Imagic
Defections from the consumer division had become a common event by this time, and Jim Huether was the last of the original programmers who remained. When Robinett returned from Europe, he applied for a job at Imagic but did not like the way Grubb treated him. Grubb offered him a job but only after insulting him. Regarding the pay as too low, Robinett declined the job.
One night I was out with Huether and Reuterdahl, drinking beer. After about six pitchers, we decided we must be dumb shits to not be millionaires like the other guys … the eight filthy rich guys who were our coworkers when we started at Atari. We decided to form the Dumb Shits Club to celebrate our stupidity and bad choices. The requirement for membership: you had to have designed games for Atari and never made any money from it.
We later elected Jim Huether the president of the Dumb Shit’s Club because he was the only one of the original group of twelve that stayed at Atari after three or four years had elapsed.
—Warren Robinett
In the end, Robinett was one of four people who received a grant from the National Science Foundation to create educational software for teaching children
math. When the grant money expired, the four formed their own software publishing firm called the Learning Company. In 1995, SoftKey International purchased the Learning Company for $600 million.
* Since that time, several high-tech companies have surpassed Atari’s record.
* He got the idea from the Beatles’ White Album, which allegedly had a message that could only be found if people played the album backward. According to Robinette, the game became an experiment to see if anyone could ever find his hidden secret.
* The secret room in Adventure was discovered while Robinett was in Europe.
A Case of Two Gorillas
I remember sitting in the Coleco booth (at the Toy Fair trade show in 1981) even before it was announced. They brought out an 8 × 10 photograph of the new system and said, “We’re coming out with this. It’s got a TI (Texas Instrument) chip in it. Stay tuned.”
—Al Nilsen, former electronics buyer, JC Penney
This is a dispute over two gorillas.
—Judge Robert W. Sweet, U.S. District Court, S.D. New York
The Beginning of Handheld Games
Our big success was something that I conceptualized—the first handheld game. I asked the design group to see if they could come up with a game that was electronic that was the same size as a calculator.