by Steven Kent
On the third day of negotiations, Lincoln warned Paul that Yamauchi was getting annoyed with all of the haggling and delays. Paul excused himself to call Kassar. When he came back, he said he had received final approval and that a contract should be drawn up.
I mean, it was a done deal. We spent a week putting this thing together, this elaborate agreement in Kyoto. Skip Paul was over there…. we had the whole thing put together. It was a deal.
—Howard Lincoln
The deal never went through.
The collapse began at the 1983 Summer Consumer Electronics Show in Chicago. While all appeared to be moving smoothly, Coleco debuted the Adam Computer. It was playing Donkey Kong, a game Nintendo had licensed to Coleco.*
Yamauchi, Arakawa, and Lincoln went to the show expecting to finalize their marketing arrangement with Atari. Instead, they received an angry message from Kassar, claiming that Coleco’s use of Donkey Kong on the Adam breached the licensing agreement Atari had made with Nintendo for the home-computer rights to the game.
You have to understand that Donkey Kong was the main reason anyone would be interested in working with Nintendo. Mario Bros. and our other games were good B-titles, Super Mario Brothers had not come out yet, and the only game that did better than Donkey Kong was Pac-Man.
If Coleco had Donkey Kong, Atari had no reason to work with us.
—Howard Phillips, early employee, Nintendo of America
And then at the June 1983 CES, Coleco introduced Adam. And they had Donkey Kong running on Adam. They only had the home video game rights. And the next thing we knew, they [Kassar] were screaming and yelling at us and, oh … they claimed that they couldn’t go through with the Family Computer deal until we straightened out the mess with Donkey Kong.
—Howard Lincoln
In an effort to pacify Atari, Lincoln called for a meeting that evening with Arnold Greenberg, president of Coleco. Perhaps Arakawa and Lincoln remembered how quickly Greenberg had backed down when threatened by Universal Studios, or they may simply have been enraged that Coleco had made a new version of Donkey Kong without clearing it, but they sat back and watched as Hiroshi Yamauchi put on a show for Greenberg.
Yamauchi entered the room abruptly and, without addressing anyone, stood at the end of a table. He became, as one of those present put it, “unglued.”
He began with a breathy, high-pitched tirade in a Marlon Brando monotone and quickly became loud and abusive. With a piercing cry, he swung his arm in an arc in front of him, shooting his outstretched index finger toward Greenberg.
Yamauchi’s diatribe, all in Japanese, completely stunned everyone in the room, with the possible exception of the Arakawas.2
Yamauchi demanded that Coleco refrain from showing or selling Donkey Kong on the Adam Computer, and Greenberg backed off, though he had legal grounds to challenge that demand. Atari had purchased only the floppy disk license; the Adam version of Donkey Kong was cartridge-based.
Even with Coleco out of the way, the deal between Atari and Nintendo never took place. Kassar was fired the following month, and no deal was ever signed.
First Impressions
We kind of all looked at it and chuckled as we walked through the show because we all knew that video games were dead. This was the age of the floppy disk, the Commodore 64, the Apple IIc, the IBM PC, and the little one, what did they call it? … it was PC Junior.
Everybody was talking about the Amiga and the Atari ST. That was where everybody thought the business was, really. Nobody thought that Nintendo had much of a chance, and they kind of all laughed at what [Nintendo was] doing.
—Greg Fischbach, founder, Acclaim Entertainment
Nintendo was a company ruled by strong personalities. Back at Nintendo Co. Ltd. (NCL), the Japanese parent, Hiroshi Yamauchi controlled his company with an imperial hand, seldom complimenting workers’ successes and often criticizing them harshly for mistakes. One person he openly criticized was Minoru Arakawa, who was both his son-in-law and the president of Nintendo of America.
When Nintendo could not break into America’s burgeoning arcade business, Yamauchi blamed the failures on his son-in-law. Though he never accused Arakawa of ruining the deal with Atari, he did not hesitate to voice his opinion that a more competent person would have no trouble marketing the Famicom in the United States.
Minoru Arakawa was quiet-natured, sometimes jovial, and very determined. He surrounded himself with friends in whom he had complete confidence. During his tenure as president of Nintendo of America, Arakawa sometimes sided with his employees even when it put him in direct opposition with Yamauchi himself.
The Famicom continued to sell extremely well in Japan through 1984. Nintendo managed to sell more than three million game consoles in the eighteen months since its release. As 1985 rolled around, Yamauchi decided to make another attempt at breaking into the American market. There would be no more discussions of partners. However, he now believed that the best course would be to market the system through his American offices.
In the 1980s, the ideal place to unveil new consumer electronics products was at the Consumer Electronics Show. CES was held twice a year—January, in Las Vegas, and June, in Chicago. Both shows were held in enormous convention centers, with sprawling show floors large enough to hold row after row of spacious one- and two-story booths.
CES served the entire electronics industry, not just the video games branch of it.* During the CES’s peak years, video and computer game companies reserved nearly half the floor space for the show; the other half sported televisions, stereos, video cassette recorders, refrigerators, car alarms, and the like.
CES had the atmosphere of a carnival. Large companies such as Sony, Panasonic, and RCA generally set up huge, flashy booths with walls of televisions displaying their latest achievements. Stereo and record companies blared music in their booths, and auto alarm companies brought in cars to broadcast their goods. Many companies hired attractive models in sexy outfits to work their booths. Some even brought in actors or actresses.** One section of the floor was sectioned off for adult film and software makers. It was not unusual for exhibitors in this section to bring in actors and actresses from pornographic movies to work in their booths.
Companies often spent as much as $5 million on a single show. They could spend up to $1 million alone on floor space and another $500,000 to host a spectacular party one night of the show. CES gave electronics companies an opportunity to impress retailers and journalists, and no expense was spared in that attempt.
Arakawa decided to officially unveil the Famicom at the January 1985 show in Las Vegas. Instead of calling the system the Famicom, a name that both Arakawa and Lincoln agreed might not appeal to American consumers, they decided on Advanced Video System (AVS).
At the time, Arakawa had serious doubts about Nintendo’s ability to restart the video game market. He did not know if retailers would bother looking at a new system, and he had no idea what kind of competition he might face at the show.
Nintendo rented a small booth in a corner of the Las Vegas Convention Center and set up a simple display that included a basic Famicom (with an AVS label), a computer keyboard, a music keyboard, and twenty-five games.
We didn’t even know if we really wanted to get into the home video game business in the United States. We got a mixed reception at the show.
The reaction, as I recall, was that anybody who would get into the video game business was nuts. They liked the hardware, though, and the games.
—Howard Lincoln
In January 1985 we introduced the Advance Video System with the music keyboard and keyboard and computer exercise, and it wasn’t popular at all. Everybody really thought we were crazy or dumb.
—Minoru Arakawa
Arakawa manned the booth himself. One person who saw him there described him as a small Japanese man who looked completely lost. Although a few retailers stopped by the booth and several people commented on the quality of the games, no one placed orders.
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After returning to Seattle, Arakawa and Lincoln decided to reposition the Famicom. The people who played Nintendo’s games liked them, but buyers for big department stores and toy stores were not interested in reentering the video game business. If the Famicom was going to break into the U. S. retail circuit, it would have to be marketed as something other than a video game system.
The solution came in the form of a light pistol and a little robot.
Nintendo’s arcade division had two successful arcade shooting games called Hogan’s Alley and Duck Hunt. (Hogan’s Alley was popular enough to have been used in Steven Spielberg’s film Back to the Future. The hero of the movie, played by Michael J. Fox, was supposed to be completely addicted to the game.) By adding a light gun, which was called “the Zapper,” to the Famicom, Nintendo turned the system into a virtual shooting arcade—allowing Lincoln and Arakawa to position it as a gun game instead of a video game.
The robot, called Robot Operating Buddy (ROB), was developed by Gumpei Yokoi and the engineers of Nintendo’s Research and Development Team number 1, the same team that developed the Game & Watch handheld games and the arcade hardware for Donkey Kong. ROB was a small plastic robot that worked in conjunction with two Famicom games—Gyromite and Stack-Up. Technologically speaking, ROB was a pretty simple toy that offered very little play value. It was mostly a decoy designed to prove that the Famicom was not just a video game.
When we first got the robot, it did not look like anything that you could associate with the fun and excitement of our arcade games. When you put the batteries in, he made this horrible grinding sound and his arms slowly closed and slowly opened. It was scary.
At the same time, he did this really cool thing. He did this technology thing where he would look at the screen. It was new technology; he could somehow read what was going on on the screen.
That allowed the consumer retailers to think about it as a new toy.
—Howard Phillips
As they prepared for Summer CES in June, Lincoln and Arakawa came up with a new name for the Famicom. Instead of calling it the Advanced Video System, they changed the name to the Nintendo Entertainment System (NES).
In the spring of 1985, we added this robot. At the June 1985 show, we had a booth, and we launched the product as the Nintendo Entertainment System.
We changed our position. We were selling a robot game, not a video game. It also let you play Duck Hunt, Wild Gunman, and Hogan’s Alley.
—Howard Lincoln
As he had done in January, Arakawa chose to run a small, quiet booth at the 1985 show. Although this booth, about 600 square feet, was larger than the one he had rented in Las Vegas, it was tiny compared to most booths on the floor. Arakawa purposely positioned ROB as his center attraction.
Though the NES was far from the hit of the show, several buyers expressed interest in it. As Lincoln and Arakawa had predicted, retail buyers were more receptive to gun and robot games than they were to video games. They inspected the NES carefully, and many commented that they liked the games. At the end of the show, however, there were again no orders.
Though he was disappointed by the lukewarm response, Arakawa did not give up. In an attempt to test whether the retailers’ hesitance reflected consumer opinion, he hired a marketing firm to test the NES on focus groups. The response was disappointing.
Arakawa observed sessions as they took place. From behind a one-way mirror, he watched a random sampling of young boys play the NES and heard them say how much they hated it. Typical was the comment of an eight-year-old who said, “This is shit!”3
Arakawa faced several low points during his career with Nintendo of America. He faced hardship when he tried to establish Nintendo’s arcade games. He faced another low point when Ron Judy and Al Stone, the men distributing Nintendo arcade games, wanted to leave him. He’d also braved the threats of Sidney Sheinberg, president of Universal Studios, but his latest challenge was the toughest. This was the first time Arakawa ever actually talked about backing away.
After the focus tests, Arakawa called his father-in-law and suggested giving up. He began to believe that the American video game market had shut down for good.
The Beginning of Rare
There was a certain situation that took place right around 1983. I happened to go to Japan and see the Nintendo Entertainment System…. the Family Computer. As soon as I saw the Famicom, I said, “That’s it. This is the system that we’ve been waiting for.” So I purchased a system and sent it to the UK, and that was the start of that latest and greatest group called Rare.
—Joel Hochberg, former Allied Leisure executive, former coin-op repairman, cofounder of Rare Ltd.
By 1983, Joel Hochberg had been in the arcade and coin-operated game business for twenty-seven years. He had started as a repairman in 1956 and worked his way into the executive team of Allied Leisure in the 1970s.
While at Allied, Hochberg traveled to Europe and Japan to attend amusement industry trade shows and seek out international partners. One relationship he created was a partnership with Zilec, a small British company that made arcade conversions.
During one of his frequent trips to England, Hochberg attended a trade show and met Chris and Tim Stamper. Chris Stamper was a 19-year-old game designer for Zilec. Tim, his 16-year-old brother, was still in school.
The Stampers were a unique team. Chris was an electronics genius who, as a boy, had built an oscilloscope. Chris often took Tim to work with him. Both brothers—Tim in particular—had an air of confidence. They felt that they knew what made some games good and others bad.
There’s a dispute about this. Tim doesn’t agree with me. But I’m almost positive, unless that was his charming personality I’m thinking of, there was an ATE show—Amusements Trade Exhibition Show. Chris attended it as a member of Zilec. I attended it as an independent, and Tim was there as an interested individual without any direct association. Very young guy. And I was very taken aback because here was a young man, very bright, very set in respect to what he thought a very good, successful product should look like, what it should represent on screen.
—Joel Hochberg
Hochberg met the Stampers during the end of the Space Invaders era. A lot of changes were taking place within the industry. Centuri had bought Allied Leisure, and Hochberg decided to start his own business. Although the game business had fallen off in the United States, the worldwide market was still fairly strong. The Stampers wanted to leave Zilec and start their own company.
During one of Hochberg’s visits, Chris Stamper revealed that he wanted to leave Zilec. He wanted to start a company with Tim, now nineteen, for more creative freedom and larger rewards. Hochberg’s first reaction was to try and convince him to stay at Zilec, but Chris was determined. When that failed, Hochberg decided to set up a partnership with the Stampers.
Chris and Tim Stamper set up a game company called Ashby Computer Graphics (ACG) and began publishing games for the Sinclair Spectrum, a tiny computer that sold very well in Europe but never caught on in the United States.
I visited with Tim and Chris and we discussed certain possibilities. Chris was absolutely set on the fact that he wanted to do games for Sinclair Spectrum (a small personal computer that Timex unsuccessfully tried to market in the United States). They did a host of games for the Sinclair Spectrum in 1983 and 1984.
—Joel Hochberg
One of Tim Stamper’s first games, JetPac, was a major success by Sinclair standards. Nearly one million people owned Sinclair Spectrum computers in 1983, and ACG sold more than 300,000 copies of JetPac.
It was incredible penetration for a single product.
We had an advantage—we’d been working on an arcade product. We just took that expertise and transferred it directly to the Sinclair Spectrum.
—Chris Stamper
Toward the end of 1983, Hochberg visited Tokyo. While there, he saw a Famicom and instantly recognized it as the future of video games. He purchased a console and sent it to t
he Stampers to get their reaction.
The Stampers were not immediately impressed. Nintendo had not begun exporting Famicom from Japan at the time, and the Stampers were not convinced that they wanted to deal with the Japanese market. They preferred to work on computer games. At the time, it seemed as if computers were the only viable market for electronic games. With a little prodding from Hochberg, the Stampers agreed that they would design games for the Famicom system if Nintendo started shipping to the United States and Europe.
In order to make games for the new system, however, they needed to obtain system specifications, schematics, and a license to make games from Nintendo. As an arcade owner, Hochberg was familiar with Nintendo of America. He made an appointment with Minoru Arakawa and flew out to Redmond, Washington, to propose a partnership.
I contacted Nintendo and found out that they were not completely interested in sharing the technical specs with us. My question to Mr. Arakawa was, “Why?”
He said, “You have to prove that you have the technical expertise,” which was not a bad answer.
Chris spent a good deal of time, practically six months, reverse engineering the hardware and then proceeded to do for me an audiovisual display, very simple but utilizing graphic and other capabilities of the hardware that would show what we could do. We really weren’t interested in giving Nintendo a product; we were interested in giving Nintendo a view of what could be done.