by Steven Kent
The program wasn’t totally debugged, and the printer still had some issues that had to be worked out. Arnold was fully committed to bringing Adam to market for Christmas, and he was not going to let anything stop him.
—Al Kahn
Wall Street was not impressed. Over the next year, Coleco’s stock dropped from 22 points per share to 13. Greenberg claimed that his company had fixed the problems when he released his next shipment of Adam computers, but the public wasn’t interested. “It’s almost impossible to resurrect a lemon like that,” one analyst told Financial World.16
By this time, Coleco’s electronics sales were nearly nonexistent. When Atari dropped the price of the 5200 in 1984, Coleco responded by dropping the price of the ColecoVision and giving a Cabbage Patch doll to people who purchased both a console and a game cartridge.
Adam sales were equally dismal. Unable to re-ignite public interest in its computer, Coleco discontinued the Adam in January 1985. Cabbage Patch Kids were still popular at that time, but their popularity peaked that year.
Still hoping to save his company, Greenberg acquired the company that published Trivial Pursuit in 1986. He was too late to catch the Trivial Pursuit fad. In 1988, Coleco filed for bankruptcy.
Mattel Drops Out of the Race17
The hardware price spiral really impacted the hardware manufacturers, who were breaking even before that on the hardware system. As things started to spiral down, they spiraled down very, very quickly…. The hardware came down $50 or $60 or $70 in an 18-month period. If you’re selling 2 million units or 3 million units and you’re losing $70 a unit, you’re talking about significant losses.
—Paul Rioux, former senior vice president of operations, Mattel Electronics
It is impossible to piece together the conflicting stories surrounding the collapse of Mattel Electronics. According to former Mattel Electronics vice president Paul Rioux and other former employees, 1983 was a banner year for the Intellivision.* That October, however, Time reported that Mattel had a $201 million deficit and a layoff of over 600 employees.18 Asked about rumors that they planned to close the electronics division in 1984, Mattel executives told Fortune that they would not.19
By the end of the year, Mattel canceled all new hardware projects. The following March, Mattel closed the division down and sold it to Terrence Valeski, Mattel Electronics senior vice president of marketing and sales, for $20 million. Valeski believed that the 3 million people who owned Intellivisions still constituted a viable market. He and his partners renamed their company Intellivision Inc. and later changed it again to INTV, but after 1983, Intellivision was never a major force in the video game industry again.
“Freedom Day”
Yeah, Bushnell is quite a showman. He had this huge party to which he brought safari animals from a game park. There were animals all over. The food was great, but the place stunk of elephant shit.
—Eddie Adlum, publisher, RePlay Magazine
With the end of his noncompete agreement in sight, Bushnell dropped too many hints about his planned reentry into video games, and Warner Communications filed a lawsuit against him for breach of contract. Warner executives didn’t mind his involvement with the video game industry through Pizza Time Theaters because it was an arcade and a big customer, but Sente Technologies was a direct competitor.
Bushnell held a party to celebrate the end of his noncompete agreement on September 30, 1984. At 12:00 midnight, the moment that the agreement expired, he officially announced his involvement with Sente Technologies. (He even referred to this event as his “Freedom Day party.”) He might also have unveiled his new line of games at that time, but the suit knocked him off schedule. His next “magic” hour, he announced in several trade papers, would be on December 9, 1984.
Nolan sort of came back into the games business with great hoopla. There was a huge warehouse over in Fremont that was rented, and we had jungle animals from the local wild animal theme park that were brought in. The whole warehouse was dressed with palm trees and volcanoes and rivers and tons of dirt brought in and these animals and their trainers were walking around. And this was all part of, sort of the showbiz presentation of the whole Sente system.
—Roger Hector
Bushnell held a larger party to mark the unveiling of the Sente line. He rented game animals from Marine World’s Africa U.S.A. and had them walk around the floor to create atmosphere. At 10:00 A.M., the guests gathered around a stage.
There was a large box on stage with an alarm clock on it. When the clock struck 10:08, Bushnell burst out of the box to celebrate his freedom. He then introduced his customers to his new Sente concept—arcade machines that played games stored on cartridges.
Bushnell came along with an idea that was in his head right practically from the early 1970s, and that was to make a universal cabinet and just change the software with a cartridge.
He wasn’t the first to come up with such a “system”; that was Nintendo. Nintendo had some wonderful games like Hogan’s Alley and so on, where you just changed the cartridge. Made a lot of money.
Nolan came out with the Sente system. As he said, instead of two grunts on a truck moving video games around, one girl in a Pinto with an attaché case could change the game. What was wrong with Sente system was that while everything made sense, the games weren’t any fun to play.
—Eddie Adlum
Bushnell needed money to build his games, so he tried a new tactic—he strong-armed the distributors who came to his show. Instead of simply showing his games and asking for orders, he told the distributors that no companies could buy into his system unless they ordered hardware ahead of time. Because he was Nolan Bushnell, the father of video games, founder of Atari, and genius behind Chuck E. Cheese, several companies gave in to Bushnell’s strong-arm tactics.
And so there was this big hoopla presentation and Nolan stood up at the right moment and pitched the deal. And the industry, the buyers, the distributors out there were just lathered up. And they wrote checks on the spot for all of this stuff. We had a tremendously successful launch.
—Roger Hector
Unfortunately, Sente Technologies was doomed to fail before it ever got started. Bushnell purchased it through Pizza Time Theaters before the financial problems became apparent, so Sente was a subsidiary company. When Pizza Time Theaters declared bankruptcy in March, 1984, Sente was tainted.
Bally purchased Sente Technologies from Pizza Time Theaters, but Sente’s hardware was expensive and all but one of its games got bad reviews. Shortly after purchasing Sente, the president of Bally shut it down.
* Another Tramielism was “Business is like sex—you have to be involved.”
* Atari hired Alan Alda as a spokesman for its computers and Mattel hired George Plimpton.
** Commodore had a particularly strong following in Europe.
* According to Leonard Herman (Phoenix: The Fall & Rise of Video Games), video game sales were actually up in 1983. He reports that Atari, Mattel, Coleco, and other competitors sold a combined 7 million consoles and 75 million game cartridges in 1983, 15 million more cartridges than they sold in 1982. Herman also claims that only 27 percent of those games were purchased from clearance bins.
Album Covers
I thought to myself, “Yeah, boy, if you are going to be able to get computers from retail stores, this is going to become a mass market. Let’s see now, I want to start a company to make entertainment software. When can I do that?”
That afternoon I did some analysis and I decided that by 1982 the technology would have made enough progress that I could start an entertainment software company. By that time there would be enough of these devices in homes to support a software company.
—Trip Hawkins, founder, Electronic Arts
I wound up writing a New Yorker profile on Nolan. We sort of remained friendly, then lo and behold, in November of 1984, Nolan called me up and said, “Hey, I’m starting a toy company and I’d like you to come be vice president of mar
keting.”
I had covered the toy business a bit as a reporter and I said “No way. I don’t know anything about marketing.”
He said, “Sure, nobody does. Just come on out and do it.”
—Tom Zito, former vice president of marketing, Axlon Inc.
New Faces
The success of the Commodore 64 was previously unheard of among home computer manufacturers. In 1983, Commodore surpassed Apple in overall sales and became the first computer company to report a $1-billion sales year.1 At the January 1984 Consumer Electronics Show, Commodore posted an enormous back-lit sign boasting sales of more than two million VIC-20s and one million Commodore 64s.
Unlike Atari and Coleco, companies that barely broke even on their hardware and recouped their investment by selling software, Commodore sold hardware profitably and did nothing to discourage outside software development. As Tramiel saw it, every time a developer created a good program, he created a new reason for people to buy a Commodore computer.
But the key factor was our manufacturing cost, which in the end determined whether we would make money or not.
The cost of making a VIC was estimated by the press at under $60, while the Commodore 64 was thought to be slightly more expensive. One reporter estimated that Commodore could sell the Commodore 64—introduced at $595—for as low as $99 and still make a profit.2
The Commodore 64 had a slot for game cartridges, and the manufacturer also sold a separate floppy disk drive. Since floppy disks cost less to make and held more information than cartridges, both entertainment and serious software makers preferred publishing their products on disks, even though the overall install base of users with disk drives was smaller.
Commodore’s success attracted a new breed of game companies.
The Birth of Electronic Arts
The biggest and most successful game company that emerged during the Commodore 64’s reign was Electronic Arts, a company with a central tenet that ran counter to the entire fabric of the computer and video game industries—promoting game designers.
Electronic Arts was founded by Trip Hawkins, a visionary man who could generally be described as half salesman and half technophile. In many ways, Hawkins was the antithesis of the computer industry executives who preceded him. Other executives had engineering and business backgrounds; Hawkins was a marketer—Harvard educated and outwardly cultured. He was the kind of man who fits in better with Wall Street analysts than engineers. It wasn’t just education that set him apart, it was his handsome facial features, his taste in suits, and his polished public demeanor. In 1995, People magazine included Hawkins in its annual list of the fifty most attractive people.
Hawkins’s sense of style, learned or natural, had an air of sophistication. Other industry executives threw huge parties for the press and buyers at trade shows; Hawkins held small dinners at trendy restaurants.
Hawkins first got the idea to enter the computer industry in 1975, during his time at Harvard. While at school, Hawkins struck up a friendship with a home computer enthusiast. One day the friend told him about a home computer he had seen for sale. Whereas the friend was excited by the technology that home computers represented, Hawkins was intrigued with computers becoming a consumer item.
I thought about how many of these computers there were [in people’s homes], and what they cost, and market penetration rates, and how people would purchase them, and how big an audience you might need to support if you opened a software company, and how big of a fraction of them [computer owners] would be interested in the kind of things that I wanted to do.
I don’t remember a single number from the analysis, but I remember deciding that 1982 was the year it could all be done. I never forgot that, and from then on, I was always thinking in the back of my mind, 1982, 1982, 1982.
—Trip Hawkins
After graduating from Harvard, Hawkins enrolled at Stanford, where he earned an M.B.A. Both opportunistic and persuasive, Hawkins used his status at Stanford to establish himself around Silicon Valley. As part of his graduate studies, he researched projects on the future of personal computing and used these projects as excuses to introduce himself to top executives.
I did a study on personal computing. I used it as a calling card, so I had an excuse to call up every company in the business. I got to know all the pioneers in the business at that time, guys like Chuck Peddle, the guy who designed the 6502 microprocessor and … the Commodore Pet. You know, guys like Steve Jobs.
Apple actually called me to ask me about the study, and I said, “Well I’m looking for a job. Why don’t I come in and we can talk about the study?”
That’s how I got in for my job interview at Apple. Of course, they thought that they were basically acquiring an instant market-research department.
—Trip Hawkins
Hawkins, Apple Computer’s 68th employee, was involved in many of the company’s biggest projects. He helped to formulate the strategy Apple used to establish the Apple II as a business machine. Hawkins was with Steve Jobs when Jobs made the fateful visit to Xerox and saw a prototypical workstation with pop-up windows for menus and a mouse controller.
Once at Apple, Hawkins worked his way into the company’s inner circle. When the company went public, the 26-year-old Hawkins became a multimillionaire. He also made valuable contacts, including Don Valentine, the venture capitalist who helped Nolan Bushnell expand Atari and Jobs and Wozniak start Apple. When 1982 rolled around and Hawkins prepared to start his company, he went to Valentine for funding.
I heard about Don Valentine and thought, this is the guy who I want on my board, so I went to see him. I said, “Well, you know, here’s what I’m doing at Apple, and I’m thinking about leaving to start this company and do this other stuff.”
I was nervous that he would be critical of me because I was leaving a big company like Apple, you know, “Who the hell am I to think I’m ready to start a company?” And “Gee, you’re leaving Apple in the middle of your project? Aren’t you a follow-through kind of guy?”
Instead, he said, “Quit dragging your feet. Get the hell out of Apple. When you’re ready, I’ll provide an office for you.”
—Trip Hawkins
We knew Trip Hawkins a little bit at Apple as one of the marketing guys. He went to Harvard. He looked like he went to Harvard.
We invited him to come live in our office while he was organizing his company, writing his [business] plan, and hiring people. The first territorial people at Electronic Arts all began working in our office, and the company was started in our office.
Sequoia (Valentine’s venture capital firm) was not an especially large company at that time. At one point they had twice as many people as we did.
—Don Valentine
With Valentine’s backing, Hawkins began to assemble his company. He hand-picked people he thought were dynamic and smart, invited them to meetings at his home, and persuaded them to join his team. Hawkins also actively proselytized game designers.
The best way to find game developers at the time was to attend computer trade shows. Hawkins walked the floors of these shows, looking for the designers he wanted and then talking to them about his plans. He found Bill Budge, David Maynard, and Dan Bunten, the programmers who became the heart of his design team.
Hawkins and crew decided to name their new company “Electronic Arts” during one of the evening meetings at Hawkins’s house. They chose this name to emphasize the artists and artistry of the games he would publish.
In the meantime, Hawkins continued meeting with Budge and other designers he hoped to attract. He told them that game designers should be treated like stars. In an industry that was still rife with the stories of Atari’s abusive attitude toward designers, Hawkins’s message sounded very attractive.
Promoting designers was only one of several innovations Hawkins had planned. In the early 1980s, computer game makers still sold their games in plastic bags with labels. Hawkins found the situation laughable and proceeded to apply his
marketing wizardry to revolutionize the way computer games were packaged.
Hawkins referred to his packaging as “album covers.” Album covers were custom-made boxes with professional art and the designers’ names placed prominently on the label. In Hawkins’s mind, having the best games in the store meant nothing if the packaging didn’t attract buyers. With better packaging and a stable of established designers, he would create a following to make Electronic Arts the industry leader.
Of all of Hawkins’s progressive proposals, the one involving the most risk was his decision to challenge the distribution system. At the time, companies that distributed software to retailers kept most of the revenues from software sales. Hawkins didn’t like the distributors’ stranglehold on the market and wanted to pay them a smaller commission. When he proposed the idea at a board meeting, Don Valentine objected.
Everyone was selling [their games] to distributors at a 55 percent discount. I said, “We’re going to go to some of these distributors, and we’re going to offer them 52 percent.”
Valentine said, “Who the hell are you people to think that you can just rewrite any of the rules of the industry? What makes you think you can get away with that?”
I said, “We really don’t have any choice. Either we’re going to pull this off or we’re not going make it.”
Pushing a lower discount worked. Don pounded his fist on the table at our next board meeting and said, “You people have to continue to challenge convention.”