by Steven Kent
—Michael Katz, former marketing director, Mattel Toys
In 1976, Mattel began work on a line of calculator-sized sports games that became the world’s first handheld electronic games. The project began when Michael Katz, Mattel’s new product category marketing director, told the engineers in the electronics group to design a game the size of a calculator, using LED (light-emitting diodes) technology.
The engineers returned with a strip of red plastic that housed several rows of LEDs, which could be moved and controlled like shapes on the screen of a video game. Players could control lights as they moved across the strip, making them go forward, backward, up, or down, using four directional buttons.
The unit had built-in collision detection. If the player’s light made contact with other lights on the strip, the toy registered it.
Simple as this unit was, it became the basis for the first generation of portable electronic games. With the right packaging, Katz decided that the toy could be marketed as either a racing game or a football game. He decided to go with racing.
We developed a prototype of an obstacle avoidance game in which you had to guide your one LED, avoiding two or three other rows of LEDs that were coming down. It wasn’t themed; it was just game play that we tested that turned out to be fun. Then we had to theme it.
We could have themed it as football. We could have pretended the LED was a running back, but we knew we had a better game coming along from the developers at Mattel that was going to make for a better football game, so we chose auto racing.
We tested themes with kids by showing them drawings of what the actual game would look like and having them play the prototype. Racing came in second [to football], so we themed our first game as an auto race.
—Michael Katz
Katz’s team made no effort to make the LEDs look like race cars. They were simply lights on a vertical plastic strip with three lanes painted on top. The object of the game was to guide a light from the bottom of the strip to the top four times without colliding with other LEDs. Each trip represented a lap around the race course. The game was called Auto Race.
After Auto Race, Mattel released Football. In this game, players controlled an LED on a horizontal strip with ten lines representing yard lines. The LED represented a quarterback who could either pass the ball or scramble across the strip ten times for a touchdown.
Selling for $25 to $35, Mattel’s handheld sports games were a great success, generating more than $400 million in sales. Mattel formed an electronics division that followed Football and Auto Race with Basketball, Hockey, Baseball, and eventually the Intellivision game console.
Simon
In 1975, Magnavox filed a suit against Atari, claiming that Nolan Bushnell attended a demonstration of the Odyssey game console in Burlingame, California, and stole Ralph Baer’s concept of electronic table tennis. In an ironic twist, Baer attended a 1976 trade show and stole an idea for a portable game from Bushnell.
Howard Morrison, who was a principal at Marvin Glass [a firm that designed toys], and I went to an MOA [Music Operators Association] show and saw a thing called Touch Me, made by Nolan [Bushnell]. It had four buttons and made some horrible noises.
We said, “This has all the earmarks of a great game.” And we sat down and came up with the concept for Simon.
—Ralph Baer, designer of Magnavox Odyssey
Bushnell’s toy had a row of lights that flashed patterns and made sounds that players had to memorize and repeat. Baer, working closely with Marvin Glass Associates, improved the game by replacing the sounds with distinct musical notes. His toy had four bright-colored buttons that lit up and played musical notes when pressed.
I went through Compton’s Encyclopedia for Kids to find an instrument that had four notes that could be played in any sequence without sounding dissonant. It turned out to be the bugle, C-G-E and B, I think. That’s how I determined the four notes that are played in Simon; notes that sound harmonious no matter what sequence you play them in.
—Ralph Baer
Baer’s prototype had a square case and square buttons. After applying for a patent for the toy, engineers at Marvin Glass Associates replaced Baer’s square case with a round one, with four buttons forming a ring. They called the game Simon.
Simon played three memorization games. All of the games involved repeating patterns. In the first game, Simon played musical patterns. Players competed with the machine by watching the buttons light up and listening to the musical notes, then repeating the pattern by pressing the buttons in the correct order. The game lasted until the player made a mistake.
Game two was exactly the same, except that players added one note to the pattern after every turn. The pattern simply became longer until the player made a mistake. In game three, players competed against each other instead of the machine.
Marvin Glass Associates sold Simon to Milton Bradley Electronics, a toy company already in the electronic games industry with Comp IV, the electronic version of the board game Mastermind. Simon was a major hit during the 1977 Christmas season.* Despite Simon’s success, however, Atari did not file suit against Marvin Glass Associates, Milton Bradley, or Ralph Baer for copying the idea.
First of all, I don’t think he [Bushnell] had a patent. Second, I think the scheme he had implemented was an old scheme—following a sequential light. Simon’s claim to fame was the association of discrete sounds with each light. A whole lot of people played Simon by ear.
—Ralph Baer
Handheld electronics were extremely popular in the late 1970s and early 1980s. Most of the earliest games were either sports simulations or memory games, though Mattel experimented with electronic handheld versions of popular game themes such as Sub Chase. In 1980, several companies saw the success of Atari’s Video Computer System (VCS) version of Space Invaders and realized that a big demand existed for home versions of arcade games. Soon afterward, handheld versions of arcade games began appearing in stores.
Nintendo and Mego Electronics created lines of credit card–sized toys with liquid crystal screens that played games and displayed the time. The Mego Time Out series featured original games such as the Exterminator, Fireman, and Flag Man. Nintendo manufactured the Game and Watch series, which included original games and simplified versions of Donkey Kong and other popular Nintendo arcade hits.
Not all portable games were the size of paperback books or credit cards. Joyce Worley, a founder of Electronic Games magazine, dubbed the larger gadgets “tabletop games.” In 1981, three companies introduced new lines of tabletop games that looked like miniature arcade machines. These games would have simplified versions of such top arcade hits as Pac-Man and Galaxian, housed in eight-inch cases that were scale models of arcade cabinets.
Nintendo and Tiger Electronics made some very good tabletop games, but the company that earned the reputation for making the best tabletop games was Coleco—the leather company that nearly cornered the market for Pong-style television games.
Coleco Comes Back
After nearly going bankrupt in 1976 with the collapse of the Home Pong generation of games, Coleco barely survived to the end of the 1970s. Arnold Greenberg, CEO of Coleco, however, had not lost his entrepreneurial ambitions, and he was impressed with the handheld game industry’s potential for growth. Shortly after Mattel released Football, Coleco entered the market with a similar game titled Electronic Quarterback that had a lower price tag and more features.
Whether he was following a set plan or making decisions as he went along, Greenberg seemed to have discovered a way to ride the market. He hired Michael Katz, the Mattel executive who had overseen the launch of Auto Race and Football, to establish Coleco’s marketing department. Greenberg became very aggressive about developing new products.
Arnold knew that I had been responsible for Mattel’s handhelds and he asked me if I wanted to come to Coleco and be part of what he thought would be a wonderful turnaround and establish the first marketing department that Coleco rea
lly ever had. He offered to make me vice president of marketing and to give me stock options that I didn’t have at Mattel.
The timing was good because we got into all kinds of other handheld games, including the Head-to-Head series, which were two player games that sold very well. We got licenses and designed tabletop games that looked exactly like miniature arcade games, like Pac-Man and Donkey Kong. They sold extremely well.
—Michael Katz
By 1980, the handheld game market began fading, but it didn’t matter to Greenberg. He no longer cared about handheld games; he wanted to create a video-game console that could play arcade-quality games. Coleco had made enough money during the heyday of handheld games to begin the research and development phase of building the new console, and Greenberg was ready to try to steal some of Atari’s enormous share of the market.
Greenberg had a tough reputation as an employer. He was known to have a temper and to browbeat his executives. According to Michael Katz, Greenberg’s driven nature often caused him to live up to his rough reputation, but Katz described him as “tough, smart, eloquent, and fair.”
People give me credit for working for both Arnold Greenberg and [Jack Tramiel, the volatile founder of Commodore Computers] in one lifetime and surviving. They ask, “How could you work for Jack Tramiel?” and I say, “I worked for Arnold Greenberg for three and one half years.”
Arnold was incredibly bright and articulate, just a wonderful, spontaneous speaker. I think [he was] a very good leader…. dynamic and very tough and demanding.
—Michael Katz
In 1981, Coleco began manufacturing tabletop versions of arcade hits. It wasn’t just the game play in these tabletop toys that resembled the arcade originals; the cabinets were scale models of arcade machines, right down to the artwork on the outside panels. In order to do this, Greenberg arranged licensing agreements with eight arcade companies, including Sega, Bally/Midway, Exidy, Centuri, Universal, and Nintendo. These arrangements became very important to Coleco with later projects.
Greenberg used his relations with arcade companies to expand his business in another direction. Activision had already launched its first titles by this time, and third-party publishers had become part of the business. Just as Greenberg had seen an opportunity in manufacturing handheld games, he suddenly saw a gold mine in becoming a third-party publisher. Instead of creating new games, however, Greenberg wanted to convert arcade hits into VCS and Intellivision cartridges.
Atari, of course, was out there with its 2600 and Mattel was coming out with Intellivision, so we decided that we would basically become a third-party supplier of programming. We decided to program for Atari and Intellivision at the same time that we were developing ColecoVision.
There were basically two strategies at work. We would take these licenses and use them not only in the major systems, but also put them into the handheld category. That was very appealing to Nintendo at the time. That’s why we got Donkey Kong from Nintendo, because they saw that we could maximize their potential revenue stream by putting this product across a number of formats that existed at that point in time.
—Al Kahn, former executive vice president, Coleco
When I found out that we did not take the consumer license to Donkey Kong, and that Coleco got it, I asked how could that happen. They said, “Well, it was two dollars a cartridge, and you don’t understand. It would have fucked up our cost structure.”
I remember I looked at them and I said, “Guys, you got an 88 percent gross margin on cartridges. Don’t you understand that a year from now you will walk on shards of broken glass to get a two-dollar cartridge deal?” Now that decision basically put Coleco in the business because without Donkey Kong, they couldn’t have gotten anywhere.
—Manny Gerard, former vice president, Warner Communications
ColecoVision
Arnold, to his credit, felt that the world was ready for a new game system. Atari had been out with the 2600, and that was replaced basically by Intellivision, and Arnold thought that Coleco could come out with a game system that would be better and everyone would trade up.
—Michael Katz
It took nearly two years for Greenberg’s team to develop ColecoVision, its new super game console. Greenberg began telling retailers about the system toward the end of 1981, unveiled it at the January Consumer Electronics Show in 1982, and began shipping it in July.
Though ColecoVision had only the standard eight-bit processor, 8K of RAM (random access memory) with an additional 16K of video RAM found in other game consoles, it had several other features. Five years had passed since Atari began developing the VCS. The price of technology had come down so much that Coleco could afford a chip with the memory mapping and frame buffers that Atari left out of Stella, the processing chip in the Video Computer Systems. These added features gave the ColecoVision smoother animation and more arcade-like graphics than the Intellivision and the VCS.
Coleco powered the ColecoVision with a chip set from Zilog that was so advanced, it could even handle video images. When Hasbro engineers began experimenting with interactive video in 1985, they used a modified ColecoVision game console.
The reason we chose ColecoVision to do this kind of down-and-dirty prototype was that it had been designed initially to be able to pass video through it. You could do what I call the wallpaper game, that is, a game in which you have moving video in the background with computer graphics imposed on top of the video.
—Tom Zito, former president and CEO, Digital Pictures
Even with its technological superiority, Coleco faced a tough challenge because its fledgling system had very few games. Atari had more than 100 games for the VCS by 1982, and Atari executives offered huge sums of money for exclusive licensing agreements with arcade companies. Far fewer games were on the market for the Intellivision, but Mattel had already carved out a niche with its realistic sports simulations.
Coleco did not have enough money to compete with Atari for big licenses, but Coleco’s marketers had a knack for selecting small games with strong followings. Coleco secured licenses for Mr. Do, Lady Bug, Cosmic Avenger, and Venture. And ColecoVision’s powerful processor generated games that looked like they belonged in an arcade. Coleco’s good relations with Sega resulted in a Zaxxon cartridge that sported excellent 3D effects.
ColecoVision was a real step forward. It was indisputably the best machine counting hardware and software … the best platform of those early consoles. Michael Katz, no relation, was a genius at finding little known coin-op games that translated beautifully to the home market.
—Arnie Katz, former editor in chief, Electronic Games
Katz’s marketing team even invented a way to compete with Atari’s enormous software library, by creating an adapter that enabled the ColecoVision to play VCS games.
In some ways, using the adapter defeated the purpose of purchasing ColecoVision,* as VCS games looked just as primitive on the ColecoVision as they did on the VCS.
Coleco’s crowning achievement, however, was a six-month exclusive license with Nintendo for Donkey Kong, a game whose worldwide popularity was surpassed only by Pac-Man.*
Nintendo was still a small company in 1981, and Minoru Arakawa, president of Nintendo of America, decided that an outside company with established contacts would do a better job marketing Donkey Kong than he would be able to do. He decided to work with Coleco because Greenberg offered to do both game cartridges and a tabletop console.
A couple of things popped up [around Christmas of 1981]. One was the ColecoVision agreement, in which Nintendo was going to license Coleco to do the home video game…. give them the home video-game rights to Donkey Kong. The Donkey Kong success had been so great that they needed help with merchandise licensing of their properties.
—Howard Lincoln, former outside legal counsel, Nintendo of America
Once they had made contact with Nintendo, Coleco’s representatives moved slowly. They preferred to work with executives at Nintendo’s
Japanese headquarters. What they did not know was that Howard Lincoln, the outside legal council of Nintendo of America, wrote the contract.
This was all new territory to Lincoln. In creating the contract, he discovered that companies traditionally accepted all liabilities on their games—that is, Nintendo would accept responsibility for any legal action against Coleco involving Donkey Kong. Since he could see no reason why Nintendo should accept such liabilities, Lincoln decided to write a clause that made Coleco responsible for the content of the cartridge.
I came up with a clause in our agreement that cleared Nintendo of all liability from Coleco’s product. I hadn’t drafted many of those things [manufacturing agreements], so I was looking in a form book and, typically, you would have the licenser indemnify the licensee or at least make a representation that you own the mark. I asked myself, “Why would we want to do that?”
We drafted the agreement and sent it to Yamauchi. Yamauchi confronted Eric Bromley from Coleco and said, “Sign the license agreement.”
He said, “Well, our attorneys haven’t seen it.”
I think Yamauchi basically said, “Sign the damn thing. You guys are getting ready to ship the product. If you want a license, sign now.”
So they signed it.
—Howard Lincoln
On February 1, 1982, Coleco and Nintendo signed an agreement in which Coleco paid Nintendo an undisclosed amount of money and promised royalties of $1.40 for every Donkey Kong cartridge and $1 for every tabletop machine sold.