What%factorsledtothecollapseofthe … · ·...

IB History Internal Assessment – Sample from the IST via www.activehistory.co.uk

Niall Rutherford

What factors led to the collapse of the North American video games industry in 1983?

Image from http://cdn.slashgear.com/wp-‐content/uploads/2010/04/atari-‐sq.jpg

“Atari was one of the great rides…it was one of the greatest business educations in the history of the universe.”1

Manny Gerard (former Vice-‐President of Warner)

International Baccalaureate History Internal Assessment

Word count: 1,999

International School of Toulouse

1 Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 102


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Contents

3 Plan of the Investigation

4 Summary of Evidence

6 Evaluation of Sources

8 Analysis

10 Conclusion

11 List of Sources

12 Appendices


Niall Rutherford

Plan of the Investigation This investigation will assess the factors that led to the North American video game industry crash in 1983. I chose

this topic due to my personal enthusiasm for video games and the immense importance of the crash in video game history: without Atari’s downfall, Nintendo would never have been successful worldwide and gaming may never

have recovered. In addition, the mistakes of the biggest contemporary competitors (especially Atari) are relevant today when discussing the future avoidance of such a disaster.

I have evaluated the two key interpretations of the crash in my analysis: namely, the notion that Atari and Warner

were almost entirely to blame for the crash and the counterargument that external factors such as Activision and Commodore had the bigger impact.

To keep the scope of the study manageable I have carefully selected sources to include Replay: The History of Video Games by Tristan Donovan, The Ultimate History of Video Games by Steven L. Kent, contemporary articles from the crash and interviews with key individuals.2

167 words.

2 This includes testimonies from Ray Kassar (the contemporary CEO of Atari), Manny Gerard (the contemporary vice-‐President of Warner), David Crane (the founder of Activision) and a full 2005 interview with Howard Scott Warshaw (the programmer of E.T.). I have also used Racing the Beam by Nick Montfort and Ian Bogost, and the articles used are sourced from 1982-‐84 issues of the New York Magazine, InfoWorld, the Washington Post and The New York Times (see List of Sources).


Niall Rutherford

Summary of Evidence Context With the release and success of the Atari 2600 VCS,3 Atari became the unequivocal king of the home video game

market, despite competition from Coleco and Mattel. Sixteen million 2600s were sold by the end of 1983.4 In 1982, they garnered 70% of Warner Communication's operating profits5 as the fastest growing company in the US.

Factors In 1982, Commodore released the Commodore 64 personal computer. The immense commercial success of the

C64 undermined Atari's own PC sales due to the ever-‐decreasing cost6 and the high capabilities of the computer for gaming and other applications.7 By extension, the growing PC market negatively affected the home console

market due to their multifunctional nature.8

March 1982 also saw the release of Pac-‐Man on the 2600. Due to the massive success of the Pac-‐Man arcade cabinet, Atari were convinced that the 2600 version would be a system-‐seller, optimistically ordering twelve

million cartridges; more copies than there were consoles to play them on.9 It eventually became the best-‐selling game on the system10 but Atari were still left with five million unsold copies and more flooding in from consumers

dissatisfied with the quality of the game;11 a result of low memory cartridges and time restrictions.12

Warner then licensed E.T. from Steven Spielberg, promising him $25 million in royalties.13 In the rush to complete the game for Christmas, Howard Scott Warshaw was given five weeks14 to program the game (by comparison, lead

time for development was typically six months).15 Atari released it without having play-‐tested it in time for the Christmas market boom. The game itself was a mess16 and Atari ended up allegedly dumping the majority of the 5

million cartridges17 they had produced into a landfill in New Mexico.18

3 Atari's first cartridge-‐based home video game system. For the purposes of this paper I will be abbreviating this to "the 2600". 4 “…the 16 million owners of the VCS...” Mace, Scott, (February 27th 1984). Can Atari Bounce Back? InfoWorld, pp. 103. 5 “…Atari still garnered 70 percent of Warner’s operating profits.” 5 Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 237. 6 “By the summer [of 1983] the Commodore 64 was on sale for just $200…” Donovan, Tristan, (2010). Replay: The History of Video Games. Yellow Ant Media Ltd (ISBN: 0956507204), pp. 103. 7 Reiner, Jeremy, (2005). Total Share: 30 years of personal computer market share figures. Ars Technica http://arstechnica.com/old/content/2005/12/total-‐share.ars, accessed November 5th 2011. 8 “It was also cheap enough to compete with video game consoles on price, a fact emphasised with adverts asking “Why buy just a video game?”” Donovan, Tristan, (2010). Replay: The History of Video Games. Yellow Ant Media Ltd (ISBN: 0956507204), pp. 102. 9 “Demand for the game was so immense that Atari executives believed people would purchase VCSs just to play Pac-‐Man. Atari manufactured 12 million Pac-‐Man cartridges.” Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 227. 10 “7 million, with 12 million cartridges produced…” Buchanan, Levi, (August 27th 2008). Top 10 Best-‐Selling Atari 2600 Games. IGN. http://uk.retro.ign.com/articles/903/903024p1.html, accessed November 5th 2011. 11 Arnie Katz (founder of Electronic Games Magazine): “Pac-‐Man...was a terrible job. It was amazing that they produced such a flickery, unresponsive game. And although they sold many copies, paradoxically the more copies they sold, the more people they turned off.” Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 236 12 “The VCS Pac-‐Man cartridge had only 4K, a quarter of the ROM [of the original]…The company pressured him to use this incomplete version…so that the game could be released for [Christmas 1981].” Montfort, Nick and Bogost, Ian, (2009). Racing the Beam. Cambridge, Mass.: MIT Press, (ISBN: 026201257X), pp. 67, 76 13 Ray Kassar (former head of Atari): “He called me and said I’ve guaranteed Spielberg $25 million to work on this project.” Donovan, Tristan, (2010). Replay: The History of Video Games. Yellow Ant Media Ltd (ISBN: 0956507204), pp. 109 14 “I get a call saying, "Hey, can you do E.T. in, like, five weeks?" No one had ever done a game in less than six months or so.” Phipps, Keith, (2005). Howard Scott Warshaw. The A.V. Club. http://www.avclub.com/articles/howard-‐scott-‐warshaw,13912/, accessed November 5th 2011. 15 “No one had ever done a game in less than six months or so.” Ibid. 16 “E.T. has been ranked, more than once, as the worst video game of all time.” Montfort, Nick and Bogost, Ian, (2009). Racing the Beam. Cambridge, Mass.: MIT Press, (ISBN: 026201257X), pp. 127 17 Ray Kassar: "Then [Steve Ross, Warner CEO] ordered us to produce almost 5 million of these games. I told him "Steve, that's crazy. We never make five million of a product unless we have some market testing." He said, "Well, it's going to be a big hit because of Spielberg and E.T." So we made five million and practically all of them came back." Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 238. 18 “The company has dumped 14 truckloads of discarded game cartridges and other computer equipment at the city landfill in Alamogordo, N.M.” (September 28th 1983). Atari Parts Are Dumped. New York Times, pp.D4


Niall Rutherford

The 2600 was then further undermined by Coleco, who released the Colecovision in 1982 packaged with a version of the popular arcade game Donkey Kong. Their license exclusivity and the high technical specifications of the

console helped them sell over a million systems by Easter 1983.19 The Atari 5200 (released in 1982 as a technical successor to the 2600) was as a commercial failure20 due to competition not only with Mattel's Intellivision and

Coleco but also with the 2600 itself. In an attempt to salvage the situation Atari bought licenses for arcade games, but Coleco's aggressive bidding tactics cost Atari millions.21

Throughout 1982 many companies followed in the footsteps of successful third-‐party publisher Activision, founded by four disgruntled ex-‐Atari employees. These publishers had free rein to produce whatever games they wanted

for the 2600 since Atari had no power to control the quality of these games.22 23 The flood of poorly produced games24 left consumers dissatisfied with the console whilst Activision's successes25 undermined Atari's power as a

brand, especially concerning the poor quality of their two biggest 1982 releases.

Crash In December 1982, Atari announced a 10-‐15% growth projection, short of the 50% growth that executives were indicating beforehand.26 Investors were shocked, and the bubble burst. Warner stock prices plummeted 30%.

Confidence in Atari, and the video game industry as a whole, began to collapse, and game sales dwindled.27 Atari lost $536 million by the end of 1983. These losses, coupled with the $425 million downsizing losses during a

company overhaul in 1984, led to the sale of the home console and computer division of the company to Commodore's Jack Tramiel for $240 million,28 a sum far short of what would be expected for a company that was pulling in peak revenues of $2 billion in 198229 and operating profits of over $100 million in the first half of 1982.30

591 words.

19 “By Easter 1983, more than a million Colecovisions had been sold off the back of Donkey Kong.” Donovan, Tristan, (2010). Replay: The History of Video Games. Yellow Ant Media Ltd (ISBN: 0956507204), pp. 100. 20 “The company has stopped producing its 5200…1 million of which were sold [this is 16 times less than what the 2600 sold].” Schrage, Michael, (May 22nd 1984). Atari Introduces Game in Attempt for Survival. Washington Post, pp. C3 21 Al Kahn (former Executive Vice-‐President of Coleco): "Basically, we'd zap them. They had last right of refusal, so we'd just come up with a bid that was wild; then, of course, Atari would be forced to beat it...You know, the bidding on these software titles was just mind blowing." Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 239. 22 David Crane (Activision co-‐founder): "Activision was the main cause of the crash, though indirectly...In one six month period 30 new companies sprang up trying to duplicate our success." Donovan, Tristan, (2010). Replay: The History of Video Games. Yellow Ant Media Ltd (ISBN: 0956507204), pp. 98. 23 Manny Gerard (former Vice President of Warner): "There was way too much product, some of it inappropriate...we couldn't control the software for our system." Ibid, pp. 98. 24 Custer's Revenge was particularly infamous example with obscene subject matter and broken gameplay. 25 Pitfall!, a game developed and published by Activision “sold over four million copies…and it deserved each and every ring at the cash register.” Buchanan, Levi, (August 27th 2008). Top 10 Best-‐Selling Atari 2600 Games. IGN. http://uk.retro.ign.com/articles/903/903024p1.html, accessed November 5th 2011. 26 “Atari announced that it expected a 10 to 15 percent increase in sales in the fourth quarter. Until that announcement, Atari executives had been talking about an increase of 50 percent.” Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 234 27 “By the time the New York Stock Exchange closed on December 8, Warner stock had fallen 16¾ points…and the [industry] had begun to collapse.” Ibid, pp. 234. 28 “The computer and console divisions…were sold off in July 1984 for $240 million to Tramiel…” Donovan, Tristan, (2010). Replay: The History of Video Games. Yellow Ant Media Ltd (ISBN: 0956507204), pp. 108. 29 “1982:…Atari sales peak at $2 billion.” Mace, Scott, (August 6th 1984). A New Atari Corp. InfoWorld, pp. 52. 30 “…operating profit nearly tripled, to $111.8 million.” Kanner, Bernice, (August 16th 1982). Can Atari Stay Ahead of the Game? New York Magazine, pp. 15.


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Evaluation of Sources Source 1: Ray Kassar's testimonies

Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 235-‐238 – (see Appendix A)

The value of the source in relation to its origin would be that since we are hearing the story from Atari’s CEO at the time, he knew the most about Atari's situation and would be able to give a relatively accurate account. However,

this goes hand in hand with the limitation of bias: Kassar was preoccupied with Atari's business and would have underestimated the effects of external factors outside of his influence,31 evident also in his eschewal of any

mention of Atari’s competition in his testimonies.32

The value of this source in terms of its purpose would be that it clearly shows us how some of the Atari executives, who were arguably some of the most important people involved in the crash, would have perceived the situation.

On the other hand, we must acknowledge the limitation of Kassar's purpose judging by his situation after the crash: he was fired by Warner after allegations of insider trading and felt that Steve Ross (the CEO of Warner

Communications) was partly responsible for the failures that then led to the crash33 (which is the point at which Kassar was fired). His reports would therefore be tinged with anti-‐Warner bias.34

196 words.

31 Manny Gerard (former Vice-‐President of Warner) recalled when he suggested an Atari 2600 version of Space Invaders to Kassar: “I looked at it and went back to Kassar’s office and said “Ray, take this goddamned Space Invaders and move it up to consumer. Make a consumer cartridge and license the goddamned name.” He just looked at me, and the only thing he said was, “Of course. Why didn’t I think of that?” I said, “’Cause you’re very busy running the company.” [emphasis mine]”. Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 179. 32 See Appendix A. 33 Ray Kassar: “Steve Ross called me. He was very anxious to have Spielberg make movies for Warner, and he said he just made a deal with Spielberg to produce E.T. as a cartridge. He asked me what I thought. I said, “I think it’s a very dumb idea. We’ve never really made an action game out of a movie.” And he said, “Well, I’ve also guaranteed Spielberg a $25 million royalty regardless of what we did.”…”I said, “Steve…it’s impossible…that’s crazy…”” Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 235-‐238. 34 He has made it clear that he was fired, and not asked to leave, in an interview held with Tristan Donovan (author of Replay): “I was fired. Of course, the papers said that I resigned, but I was fired. [Manny Gerard] called me to come to New York. He was the one who fired me, not [Steve Ross], because Steve could never confront anyone for firing.” Donovan, Tristan (April 29th 2011). The Replay Interviews: Ray Kassar. Gamasutra. http://www.gamasutra.com/view/feature/the_replay_interviews_ray_kassar.php, accessed November 5th 2011.


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Source 2: An interview with Howard Scott Warshaw in 2005.

Phipps, Keith, (2005). Howard Scott Warshaw. The A.V. Club. http://www.avclub.com/articles/howard-‐scott-‐warshaw,13912/, accessed November 5th 2011 – (see Appendix B)

The value of this source in relation to its origin would be that Warshaw worked with Atari for years and was responsible for E.T.'s development, so he would be in a good position to give his opinion about the state of the

company and their influence on the market. In addition, the interview was held in 2005, so he has the benefit of hindsight and the knowledge of how the crash played out. However, we must bear in mind the limitation of the

source in this respect: his understanding of Atari's business practices is not as thorough as an executive's or Kassar's, since he was only a game programmer (albeit a highly regarded one).

The value of this source in terms of its purpose is related to the fact that the interview was held 22 years after the

crash; Warshaw had nothing to gain anymore from either glorifying or demonising Atari. On the other hand, it is important to acknowledge the limitations of the source's purpose; primarily that Warshaw felt that given the time

restrictions, E.T. was “one hell of a game”35 and as its creator is prepared to defend it36 instead of blame it as Kassar has done, who was infamous for his disrespect of Atari’s programmers.37

208 words.

35 “HSW: …But for a five-‐week effort, which is what it was–about 35 days that I had to work on it, including the design–it's a hell of a game.” Phipps, Keith, (2005). Howard Scott Warshaw. The A.V. Club. http://www.avclub.com/articles/howard-‐scott-‐warshaw,13912/, accessed November 5th 2011. 36 “O: It can't all be the E.T. cartridge, right? [referring to the cause of the crash] HSW: Oh, no, no, it's not the E.T. cartridge.” Ibid. 37 He was vilified for describing Atari programmers as “high-‐strung prima donnas”. In the same interview mentioned in the footnotes of the previous analysis, he described them as “a bunch of kids playing games.” Donovan, Tristan (April 29th 2011). The Replay Interviews: Ray Kassar. Gamasutra. http://www.gamasutra.com/view/feature/the_replay_interviews_ray_kassar.php, accessed November 5th 2011.


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Analysis Different interpretations

One interpretation of the evidence is that the blame for the crash can be placed almost entirely on Atari and Warner. Kassar's testimonies support this notion, since he went to great lengths to stress the enormity of E.T.'s

failure.38 Howard Scott Warshaw argued that it was most likely Atari's cutthroat business tactics that forced the industry into a crash.39 Pac-‐Man’s commercial failure (which damaged the industry greatly40) can also be attributed

to the mistakes of Atari and Warner,41 as can the failure of E.T.42 and (to a certain extent) the failure of the 5200,43 which was not released early enough to avoid competition with Coleco and Mattel.44 Finally, if Atari had not

claimed that they were expecting growth of around 50 percent before they announced their predictions in 1983, the exodus of investors would not have been as severe.45

On the other hand, it could be argued that factors outside of Atari's control were more to blame. Manny Gerard believed that despite Atari's mistakes, neither Warner nor Atari could be held accountable for the disappearance

of the market.46 The evidence for Coleco's bidding tactics on licenses would also support this interpretation,47 as Coleco was an outside factor. David Crane was also convinced that the flood of third party publishers spurred by

Activision’s success sealed the market's fate,48 and Commodore’s swallowing of the video game market contributed as well.49

229 words.

38 -‐ Ray Kassar: "It was a disaster...we made five million and practically all of them came back." Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 237-‐238 – (see Appendix A) 39 Howard Scott Warshaw: "When they had a hot game, they would force distributors to buy copies of the old games that weren't selling anymore, just to get copies of the new game...So when things started to turn on them, everyone in the industry was waiting to jump on them with both feet. That's what killed Atari, was the ill will that they had generated through their cutthroat business practices on their way up." Phipps, Keith, (2005). Howard Scott Warshaw. The A.V. Club. http://www.avclub.com/articles/howard-‐scott-‐warshaw,13912/, accessed November 5th 2011 – (see Appendix B) 40 Arnie Katz (founder of Electronic Games Magazine): “Pac-‐Man...was a terrible job. It was amazing that they produced such a flickery, unresponsive game. And although they sold many copies, paradoxically the more copies they sold, the more people they turned off.” Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 236 41 “The VCS Pac-‐Man cartridge had only 4K, a quarter of the ROM [of the original]…The company pressured him to use this incomplete version…so that the game could be released for [Christmas 1981].” (consider that it was Atari’s decision to manufacture on a 4K cartridge and to release for Christmas) Montfort, Nick and Bogost, Ian, (2009). Racing the Beam. Cambridge, Mass.: MIT Press, (ISBN: 026201257X), pp. 67, 76 42 “E.T. has been ranked, more than once, as the worst video game of all time.” Ibid, pp. 127 43 “The company has stopped producing its 5200…1 million of which were sold [this is 16 times less than what the 2600 sold].” Schrage, Michael, (May 22nd 1984). Atari Introduces Game in Attempt for Survival. Washington Post, pp. C3 44 “By Easter 1983, more than a million Colecovisions had been sold off the back of Donkey Kong.” Donovan, Tristan, (2010). Replay: The History of Video Games. Yellow Ant Media Ltd (ISBN: 0956507204), pp. 100. 45 “By the time the New York Stock Exchange closed on December 8, Warner stock had fallen 16¾ points…and the [industry] had begun to collapse.” Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 234. 46 Manny Gerard: "Neither one of is responsible for the fact that a market just went away in an eye-‐blink." Ibid, pp. 239. 47 Al Kahn: "They had last right of refusal, so we'd just come up with a bid that was wild; then…Atari would be forced to beat it." Ibid, pp. 239 48 David Crane: "Activision was the main cause of the crash, though indirectly...In one six month period 30 new companies sprang up trying to duplicate our success." Donovan, Tristan, (2010). Replay: The History of Video Games. Yellow Ant Media Ltd (ISBN: 0956507204), pp. 98. 49 “It was also cheap enough to compete with video game consoles on price, a fact emphasised with adverts asking “Why buy just a video game?”” Ibid, pp. 102.


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Critical analysis of sources

With respect to Kassar’s interpretation, we must bear in mind that his purpose would have been to emphasise E.T.’s failure and exaggerate the role of Ross and others in Atari and Warner, since he felt that he was unjustly

made "the fall guy"50 and was fired after it released. However, as I mentioned in the previous section, Kassar’s opinion is still valuable due to his contemporary position as head of Atari. Warshaw is speaking as a former

programmer, not a former Atari salesman, so his knowledge of their business practices would be limited compared to Kassar. Despite this, it is impossible to escape the fact that Atari’s mistakes were responsible for Pac-‐Man and

E.T.’s commercial failures. The failure of the 5200 might not be considered completely due to Atari’s late release; Coleco relied on the popularity of Donkey Kong to support their console’s sales,51 the licensing of which was not

under Atari’s control. It is also impossible to tell from the evidence whether Atari deliberately misled investors or whether Atari itself was fooled.

Concerning the other interpretation, we must consider that Crane would not have been fully aware of the

problems plaguing Atari as clearly as Atari executives were; in fact, few were aware of any problems at all, as evidenced by the surprise at the NYSE in December when Atari announced their growth predictions.52 Gerard

would have been desperate to free himself from the accountability due to the tremendous losses that Warner suffered as a result of the crash.53 Furthermore, Gerard doesn't offer an explanation for why he believed the

market disappeared, perhaps indicating that he didn't know much about the industry outside of Atari's influence at the time. Despite this, we can assert that Gerard’s view implicitly supports Crane’s interpretation, since the flood

of poor games quelled interest in the medium and saturated the market. In addition, we do not know exactly how much Atari lost from the bidding wars with Coleco or from Commodore’s competition, so this is not very useful as

hard evidence; however, it does show that Atari were under a lot of market pressure.

It would seem that main reason for the disagreement between the interpretations is the position of the person providing the interpretation; those in Atari believed it was Atari’s influence that cause the crash (e.g. Warshaw,

Kassar) and those outside Atari felt it was more to do with the market at the consumer level (e.g. Crane, Coleco). Gerard stands out, as he was involved with Atari, but Kassar may have been economical with the truth or he may

be trying to absolve himself of any blame.54

435 words.

50 Ibid, pp. 109. 51 “…sold off the back of Donkey Kong.” [emphasis mine] Ibid, pp. 100. 52 “Analysts were shocked. Atari had never given any indication that sales were not on target. The news set off a panic.” Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 234. 53 “By the time the New York Stock Exchange closed on December 8, Warner stock had fallen 16¾ points…and the [industry] had begun to collapse.” Ibid, pp. 234. 54 Gerard said himself that “…you can certainly pin some of the blame for the Atari problems on me and I in turn will tell you that you have to blame Kassar for some good chunk [emphasis mine]. He was running the show.” Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 240.


Niall Rutherford

Conclusion In conclusion, Atari’s mistakes may not have been the only factor that caused the crash, but they would have stood

a far better chance of surviving if they had not made them. Furthermore, although the flood of poor third party games can be arguably considered the most important factor, without Atari's collapse the crash may not have sunk

the whole industry and the mass flight of investors may not have been as serious.

These mistakes have taught the industry some of its most valued lessons: in particular, the need to regulate third-‐party games, to give developers enough time and resources to finish games before release and to credit

developers.55 Some of these lessons were learned almost immediately by Nintendo, who went on to greater success than Atari with their Nintendo Entertainment System (NES) in 1985. Without those lessons, Nintendo

would not have been able to bring the games industry back from the dead; as it stands, the video game industry has evolved into a cultural juggernaut on par with film, music and television.

173 words.

55 All four co-‐founders of Activision left Atari dissatisfied with the credit they were given and the royalties they received. In this sense it may be acceptable to trace the influence of Atari's mistakes to here and extend their responsibility for the crash; however, Atari cannot be blamed for their success.


Niall Rutherford

List of Sources Books

Donovan, Tristan, (2010). Replay: The History of Video Games. Yellow Ant Media Ltd (ISBN: 0956507204).

Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN:

0761536434).

Montfort, Nick and Bogost, Ian, (2009). Racing the Beam. Cambridge, Mass.: MIT Press, (ISBN: 026201257X).

Articles

Kanner, Bernice, (August 16th 1982). Can Atari Stay Ahead of the Game? New York Magazine, pp. 15-‐17.

Mace, Scott, (February 27th 1984). Can Atari Bounce Back? InfoWorld, pp. 100-‐106.

Mace, Scott, (August 6th 1984). A New Atari Corp. InfoWorld, pp. 52.

Schrage, Michael, (May 22nd 1984). Atari Introduces Game in Attempt for Survival. Washington Post, pp. C3

Author unknown (September 28th 1983). Atari Parts Are Dumped. New York Times, pp.D4

Websites

Buchanan, Levi, (August 27th 2008). Top 10 Best-‐Selling Atari 2600 Games. IGN. http://uk.retro.ign.com/articles/903/903024p1.html, accessed November 5th 2011.

Donovan, Tristan, (April 29th 2011). The Replay Interviews: Ray Kassar. Gamasutra. http://www.gamasutra.com/view/feature/the_replay_interviews_ray_kassar.php, accessed November 5th 2011.

Phipps, Keith, (2005). Howard Scott Warshaw. The A.V. Club. http://www.avclub.com/articles/howard-‐scott-‐warshaw,13912/, accessed November 5th 2011.

Reiner, Jeremy, (2005). Total Share: 30 years of personal computer market share figures. Ars Technica. http://arstechnica.com/old/content/2005/12/total-‐share.ars, accessed November 5th 2011.

Word count (total): 1,999


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Appendix A

Quotes from Ray Kassar (used as Source A in the “Evaluation of Sources section”)

“I sold 5,000 shares of Warner Communications, which represented 1 percent of my total holdings.

The timing was unfortunate, but the reason I sold those shares was that I had been working with my investment

counsellor on a new investment opportunity that developed and they needed that amount of money. I think it was about $82,000. So I sold the stock, and I reported the sale to the company.

There was an SEC investigation. It was resolved, and there was no action. If I was really bailing out, I would have

sold hundreds of thousands of share of Warner Communications, not 5,000 shares.”

“Steve Ross called me. He was very anxious to have Spielberg make movies for Warner, and he said he just made a

deal with Spielberg to produce E.T. as a cartridge. He asked me what I thought.

I said, “I think it’s a very dumb idea. We’ve never really made an action game out of a movie.”

And he said, “Well, I’ve also guaranteed Spielberg a $25 million royalty regardless of what we did.””

“I asked Steve, “When do we have to produce this?”

He said for Christmas of 1982. This was in July when he called me, the end of July.

I said “Steve, the lead time to produce a game is at least 6 months between semiconductor deliveries and programming and all that. It’s impossible.”

He said “Well, you have to do it because I promised Spielberg we’d have it on retail shelves for Christmas.

We had literally six weeks to produce a brand new game, manufacture it, package it, and market it. It was a

disaster. I mean, the programmers hated it. Nobody liked the game.

Then he ordered us to produce almost five million of these games. I told him, “Steve, that’s crazy. We never make

five million of a product until we have some market testing.”

He said, “Well, it’s going to be a big hit because of Spielberg and E.T.” So we made five million and practically all of them came back.”

Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 235-‐238.


Niall Rutherford

Appendix B

Interview with Howard Scott Warshaw (used as Source A in the “Evaluation of Sources section”) Relevant sections are highlighted like so.

A true pioneer in the field of home video games, Howard Scott Warshaw left the straitlaced world of Hewlett-‐Packard in the early '80s to join up with Atari, where he created some of the company's most famous titles–as well as its most infamous one.

Warshaw's 1981 creation Yars' Revenge remains a challenging game that only looks like a straightforward outer-‐space shoot-‐'em-‐up. He followed it in 1982 with Raiders Of The Lost Ark, an adventure game that pushed the technological limits of the Atari system. Warshaw was riding high when he received his next assignment: the video-‐game adaptation of E.T. But a tight deadline cut into his programming time, leading to a game that disappointed fans and helped compound Atari's financial woes. According to urban folklore, millions of unsold E.T. cartridges now reside in a landfill in New Mexico.

Warshaw stayed at Atari long enough to develop Saboteur, a game that only saw release last year, as part of the Atari Flashback system. Since his days at Atari, Warshaw has written two books: the card-‐game guide The Complete Book Of PAN, and Conquering College. He also returned briefly to the gaming industry, but now he mainly concentrates on documentary filmmaking. His most recent release was the multi-‐part Atari retrospective Once Upon Atari, which is available at onceuponatari.com, where Warshaw maintains a web presence. Warshaw recently spoke to The Onion A.V. Club about the ups and downs of video gaming's formative years.

O: Not to be too disparaging of Atari, but Yars' Revenge is one of the few Atari 2600 games that's as enjoyable now as it was then.

HSW: Well, thank you very much. The goal of Yars' Revenge was for me to make a game that I would want to play, that I would find fun. I felt that I was a gamer, and I thought that if I do a game that I enjoy, that I really like playing, then a lot of gamers would enjoy it. I used a lot of techniques and sound effects. I had a lot more formal training than a lot of the people who were there. There were a lot of hackers there, and I had a master's in computer engineering. But we were all pretty wacky. It was just a really fun and interesting and diverse crew. Everybody there had other hobbies and other interests. There were people there who were boatmakers, people who had been professional gamblers for a while, people who had been academics and gotten bored with that and come over into microcomputing. There was one guy who literally, a year or two before he got to Atari, had been a bum in the streets of Berkeley. He'd taught himself to program, and wrangled his way in, and ended up doing real well at Atari, for a while, before he self-‐destructed later. But it was a very interesting crew, a lot of very creative, very neurotic people.

O: How did you approach the assignment for Raiders Of The Lost Ark?

HSW: With Raiders Of The Lost Ark, it was a whole different thing. My favorite genre is action games. I like twitch games. Yars' Revenge is exactly my kind of game. Now, I wasn't a big adventure-‐game fan, but I respect the genre. When it came to me to do Raiders Of The Lost Ark, and go meet Steven Spielberg, and do some sort of pseudo-‐interview with him, I showed him Yars' and we talked a little. He said, "Okay, I definitely want Howard to do Raiders Of The Lost Ark," and then he later requested me for E.T., which I'm sure we'll get to. But with Raiders, the goal for me was... You know the game Adventure, by Warren Robinett? That game established a genre. It had a huge following, so it was a little intimidating doing an adventure game after Adventure was out. My feeling was that I needed to make what I would consider to be the best adventure game on the system, and it had to be a big step up from the game Adventure. I like to innovate. To me, if it's worth doing something, it's worth doing it well. Do something that's going to demand attention and notice. Sure, I bet that goes back to my childhood. [Laughs.] I actually made a video of the game and went and showed that to Spielberg. I narrated and played through the whole game. It was one of the


Niall Rutherford

few times in my life that I played the whole game perfectly. It was right on time. I showed this tape to Spielberg, and he goes, "It's just like a movie!" He was really impressed with the demo tape of the game, and I thought, "All right, Steven Spielberg is telling me he likes this thing, he thinks it's like a movie." That was a great moment in my life.

O: There's a clip on your site of him calling you a "certifiable genius." Is it based on that?

HSW: No, no, that was during an interview where he was actually discussing some stuff about E.T. Spielberg and I got to spend a few afternoons here and there together. We would meet whenever he came up to Sunnyvale, and sometimes I went down to visit him at his office. There was some time that we spent together, sort of goofing around. I explained why he was an alien. I had this theory that in the early '80s, we were very close to contact from aliens and other planets and stuff like that. I felt that if the aliens were going to come down, if people were smart enough to visit Earth, then they were smart enough not to come down and say "Hi!" They would send a recon team, a sort of advance team to culturalize the planet, and prepare it to meet the aliens; not like in The Day The Earth Stood Still. Spielberg had done a couple of movies like E.T. and Close Encounters, some of the first movies that had portrayed aliens as non-‐threatening people to us. Those movies became hugely successful. They were seen all over the planet, literally. So my theory was that Spielberg was the engineer of the advance team. His job was to make movies that showed aliens in a positive light.

O: Now he's making War Of The Worlds. What does that do to your theory?

HSW: Maybe they didn't follow through with their bonus check.

O: So that brings us to E.T., which, for better or for worse, is probably what you're best known for.

HSW: Yars' Revenge is consistently rated one of the best games of all time. And E.T. is consistently rated one of the worst games of all time. That means I have the greatest range of any game designer in history.

O: So assuming E.T. really is the worst game, how did that happen?

HSW: Atari was negotiating the rights with Spielberg. They waited a long time to do that. It was 1982, and they were negotiating well into July. Toward the end of July, they finished the negotiations, and they paid an inordinate amount of money for the rights to E.T., more than they could probably realistically hope to make from the game.

O: Wasn't it something like $20 million?

HSW: It was over that, it was like $22 million. So at the end of July, around July 27 or 28, I get a call saying, "Hey, can you do E.T. in, like, five weeks?" No one had ever done a game in less than six months or so. They needed someone who could do the game really fast, and Spielberg wanted me to do the game, because he liked me, and he thought Raiders was cool, and he liked Yars' Revenge. The people, the managers, thought that nobody else could really pull it off. They came to me, and I sort of held them up, said, "Yeah, I can do a game in six weeks, if we make the right agreement." But, to me, it was a great challenge. I liked the idea of this huge technical challenge, to try and produce a full game in six weeks. Actually, it was five weeks. It was the end of July, and it had to be ready on September 1. Because to make the Christmas season, it would have to go into production by September 1, and they did not want to miss that Christmas season. So I did what I could. I tried to design a game that could be done in five or six weeks. It wasn't like I borrowed a lot of stuff or rehashed a lot of other things; it was all original code and graphics that I put together. I just worked my ass off for five weeks and made a game. I got a bunch of signatures in it, and a whole bunch of things. Yeah, it's got some problems. If I'd had another week or two to work on it, it may well have been a much better game. But for a five-‐week effort, which is what it was–about 35 days that I had to work on it, including the design–it's a hell of a game.

O: Is the landfill story true or false?

HSW: I say false.

O: You don't know definitively, though?


Niall Rutherford

HSW: I don't know if anybody knows definitively, because I doubt that it happened, so nobody can really know. I have a reasoning for it. At the time this was going on, Atari was in huge financial trouble. Atari's a company that goes from the most explosive and successful company in American history to the fastest-‐falling company in American history. They went from, like, nothing, to $2 billion in sales, in just a couple years, and then the next year, they lost money.

O: It can't all be the E.T. cartridge, right?

HSW: Oh, no, no, it's not the E.T. cartridge. Atari, for years, was using the leverage that they had to just screw distributors everywhere. When they had a hot game, they would force distributors to buy copies of the old games that weren't selling anymore, just to get copies of the new game. This is the kind of stuff they were doing. So when things started to turn on them, everyone in the industry was waiting to jump on them with both feet. That's what killed Atari, was the ill will that they had generated through their cutthroat business practices on their way up.

O: In general, what was it like to work there?

HSW: It was intense. It was a lot of fun, usually, but sometimes it was very scary. There were times when you didn't know what was going to happen from day to day: if everyone was going to get fired, if the industry was going to fall apart, if huge money was going to be handed out. Literally, you come to work, and it's like, "There's a chance I could get a five-‐figure check today as a bonus. There's a chance I could get fired today, because something didn't go very well." And what would you do? Where would you go? Everyone was getting totally spoiled and wrecked, in terms of going and working at a regular company after working at Atari. It's insane. It's a crazy idea. The really weird thing is that I came there from HP, so I had a better sense of what life was like outside of Atari than a lot of other people there did. For a lot of the people, this was their first corporate job. You have to imagine people smoking dope in their offices whenever they want to, where the security team has orders to keep the police away, because they don't want to take a chance on anyone getting arrested, because it would keep them from putting games out. You gotta imagine showing up out of college, making huge amounts of money–two or three times what your peers are making–imagine going in there and thinking that's what professional life is supposed to be. That falls apart, now you have to go get a job at another company.

O: What was your next step?

HSW: After Atari, I was fortunate, because I had made some decent money. I took some time off, because I needed to digest my experience. It was the most intense thing that had ever happened to me in my life. Atari was just an amazing experience. You saw people self-‐destructing, you saw people realizing their potential, learning their limits and capabilities. There were a lot of amazing things to see, human-‐wise, and I wanted to tell that story in some way. It took me a while to get my head around it. Then I started Once Upon Atari, over the course of many years. First, I waited for the statute of limitations to run out. Then I went and started working on it, because I realized that I needed closure on this whole thing myself. I need to get this story out, and to see it for myself, and to share it with a lot of people. People were interested in what was going on at Atari, but no one was telling anywhere near the truth about it. People were making up these ridiculous stories, and there were these images of the older, wacky professors in lab coats running around making these cute games for kids. That's not what it was like at all. If parents knew what was happening with us behind the scenes making the games, I don't know if they'd have been as enthusiastic about their kids getting the games.

Phipps, Keith, (2005). Howard Scott Warshaw. The A.V. Club. http://www.avclub.com/articles/howard-‐scott-‐warshaw,13912/, accessed November 5th 2011.

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