Atari, Inc.

Atari, Inc. was a video game and home computer company founded in 1972 by Nolan Bushnell and Ted Dabney. Primarily responsible for the formation of the video arcade and modern video game industries, the company was closed and its assets split in 1984 as a direct result of the North American video game crash of 1983.

Origins
In 1966, Nolan Bushnell saw Spacewar! for the first time at the University of Utah. Deciding there was commercial potential in a coin-op version, several years later he and Ted Dabney worked on a hand-wired custom computer capable of playing it on a black and white television in a single-player mode where the player shot at two orbiting UFOs. The resulting game, Computer Space, was released by an existing coin-op game company, Nutting Associates.

Computer Space did not fare well commercially when it was placed in Nutting's customary market, bars. Feeling that the game was simply too complex for the average customer, Bushnell started looking for new ideas.

Bushnell and Ted Dabney left Nutting to form their own engineering firm, Syzygy Engineering, and soon hired Al Alcorn as their first design engineer. Initially wanting to start Syzygy off with a driving game, Bushnell had concerns that it might be too complicated for the young Alcorn's first game. In May 1972, Bushnell had seen a demonstration of the Magnavox Odyssey, which included a tennis game. According to Alcorn, Bushnell decided to have him produce an arcade version of the Odyssey's Tennis game,  which would go on to be named Pong. Atari later had to pay Magnavox a licensing fee after the latter sued Atari because of this.

When they went to incorporate their firm that June, they soon found that Syzygy (an astronomical term) already existed in California. Bushnell wrote down several words from the game Go, eventually choosing atari, a term that in the context of the game means a state where a stone or group of stones is imminently in danger of being taken by one's opponent. Atari was incorporated in the state of California on June 27, 1972.

By November 1972, the first Pong was completed. It consisted of a black and white television from Walgreens, the special game hardware, and a coin mechanism from a laundromat on the side which featured a milk carton inside to catch coins. Placed in a Sunnyvale tavern by the name of Andy Capp's to test its viability, it took only one day to realize they had a hit:

"Seven quarters later they were having extended volleys, and the constant pong noise was attracting the curiosity of others at the bar. Before closing, everybody in the bar had played the game. The next day people were lined up outside Andy Capp's at 10 A.M. to play Pong. Around ten o'clock that night, the game suddenly died."

When they arrived the next morning to fix the machine, they were met by a lineup of people waiting for the bar to open so they could play the game. On examination, the problem turned out to be mundane; the coin collector was filled to overflowing with quarters, and when customers tried to jam them in anyway, the mechanism shorted out.

After talks to release Pong through Nutting and several other companies broke down, Bushnell and his partner Ted Dabney decided to release Pong on their own, and Atari, Inc. was established as a coin-op design and production company.

In 1973, Atari secretly spawned a "competitor" called Kee Games, headed by Bushnell's next door neighbor Joe Keenan, to circumvent pinball distributors' insistence on exclusive distribution deals; both Atari and Kee could market (virtually) the same game to different distributors, with each getting an "exclusive" deal. Though Kee's relationship to Atari was discovered in 1974, Joe Keenan did such a good job managing the subsidiary that he was promoted to president of Atari that same year.

In 1975, Bushnell started an effort to produce a flexible video game console that was capable of playing all four of Atari's then-current games. Development took place at an offshoot engineering lab, which initially had serious difficulties trying to produce such a machine. However, in early 1976 the now-famous MOS Technology 6502 was released, and for the first time the team had a CPU with both the high-performance and low-cost needed to meet their needs. The result was the Atari 2600, one of the most successful consoles in history.

As a subsidiary of Warner Communications
Bushnell knew he had another potential hit on his hands, but bringing the machine to market would be extremely expensive. In 1976 Bushnell sold Atari to Warner Communications for an estimated $28 – $32 million, using part of the money to buy the Folgers Mansion. He departed from the division in 1979.

A project to design a successor to the 2600 started as soon as the system shipped. The original development team estimated the 2600 had a lifespan of about three years, and decided to build the most powerful machine they could given that time frame. By the middle of the effort's time-frame the home computer revolution was taking off, so the new machines were adapted with the addition of a keyboard and various inputs to produce the Atari 800, and its smaller cousin, the 400. Although a variety of issues made them less attractive than the Apple II for some users, the new machines had some level of success when they finally became available in quantity in 1980.

While part of Warner, Atari achieved its greatest success, selling millions of 2600s and computers. At its peak, Atari accounted for a third of Warner's annual income and was the fastest-growing company in the history of the United States at the time.

Although the 2600 had garnered the lion's share of the home video game market, it experienced its first stiff competition in 1980 from Mattel's Intellivision, which featured ads touting its superior graphics capabilities relative to the 2600. Still, the 2600 remained the industry standard-bearer, because of its market superiority, and because of Atari featuring (by far) the greatest variety of game titles available.

However, Atari ran into problems in the early 1980s. Its home computer, video game console, and arcade divisions operated independently of one another and rarely cooperated. Faced with fierce competition and price wars in the game console and home computer markets, Atari was never able to duplicate the success of the 2600.


 * In 1982, Atari released disappointing versions of two highly publicized games, Pac-Man and E.T. the Extra-Terrestrial, causing a pileup of unsold inventory and depressing prices. (In 1983, in response to a massive number of returned orders from distributors, Atari buried millions of unsold game cartridges (the bulk of them consisting of those same two titles, Pac-Man and E.T.) in a New Mexico desert landfill.)
 * In December 1982, Atari executives Ray Kassar and Dennis Groth were investigated for allegations of insider trading (later found to be false).
 * Larry Emmons, employee No.3, retired in 1982. He was head of research and development of the small group of talented engineers in Grass Valley, California, who had designed the 2600 and home computers.
 * The Atari 5200 game console, released as a next-generation follow up to the 2600, was based on the Atari 800 computer (but was incompatible with Atari 800 game cartridges), and its sales never met the company's expectations.

These problems were followed by the infamous video game crash of 1983, which caused losses that totaled more than $500 million. Warner's stock price slid from $60 to $20, and the company began searching for a buyer for its troubled division.

Still, Atari held a formidable position in the world video game market, and was the number one console maker in every market except Japan. A Japanese video game company by the name of Nintendo was going to be releasing their first programmable video game console, the Famicom (later known to the rest of the world as the NES), in 1983. Looking to also sell the console in international markets, a partnership with Atari seemed a good match and Nintendo approached Atari to offer a licensing deal whereby Atari would build and sell the system, paying Nintendo a royalty. The deal was in the works throughout 1983, and the two companies tentatively decided to sign the agreement at the June, 1983 CES. Unfortunately, Coleco was showcasing their new Adam computer, and the display unit was running Nintendo's Donkey Kong. Atari CEO Ray Kassar was furious, as Atari owned the rights to publish Donkey Kong for computers, and he accused Nintendo of double dealing with the Donkey Kong license. Nintendo, in turn, tore into Coleco, who only owned the console rights to the game. Coleco had legal grounds to challenge the claim though since Atari had only purchased the floppy disk rights to the game, while the Adam version was cartridge-based. In the coming month, Ray Kassar was forced to leave Atari, and executives involved in the Famicom deal were forced to start over again from scratch and the deal eventually languished. With Atari's further financial problems and the Famicom's runaway Japanese success after its July 16, 1983 release date, Nintendo decided to go at it alone.

Splitting of properties
Financial problems continued to grow and Kassar's replacement, James J. Morgan, had less than a year to try and tackle his predecessor's problems before he too was gone. In July 1984, Warner sold the home computing and game console divisions of Atari to Jack Tramiel, the recently ousted founder of Atari competitor Commodore International, under the name Atari Corporation for $240 million in stocks under the new company. Warner retained the arcade division, continuing it under the name Atari Games and eventually selling it to Namco in 1985. Warner also sold the fledgling Ataritel to Mitsubishi.

Major products

 * Pong (several versions)
 * Atari 2600
 * Atari Video Music
 * Atari 5200
 * Atari 8-bit family