The Ultimate History of Video Games: From Pong to Pokémon and Beyond—The Story Behind the Craze That Touched Our Lives and Changed the World (42 page)

Electronic Arts shipped its first products on May 21, 1983. Of the six products launched, three quickly became bestsellers.

By 1984, the video game industry had collapsed and Commodore 64 sales plateaued. Toward the middle of the year, Commodore started reporting Atari-sized
losses, and Apple, for all of its market strength, was not proliferating the way Commodore or Atari had. Shortly after Electronic Arts made its splashy debut, the computer-game industry looked as soft as the video game industry.

During this period, Hawkins abandoned his strategy of promoting game designers. He still treated them with respect and gave them credit for the work they did, but the emphasis at Electronic Arts clearly shifted from popularizing designers to promoting games.

In 1984, that new emphasis led Electronic Arts to place new names on its labels, the names of famous sports figures. Hawkins had a friend who had a friend who knew the agent handling the Philadelphia ’76ers basketball star Julius Irving—better known as “Dr. J.” Using this connection, Hawkins asked Irving’s agent if his client would be willing to let Electronic Arts use his name and likeness in a computer basketball game.

It was the first time a computer game company had licensed an athlete’s name. Though earlier games had been made based on movies such as
Tron, Krull
, and
Star Wars
, and Mattel had acquired licenses from the NFL and the NBA, no one had ever approached an individual sports star. Electronic Arts paid Irving a $25,000 fee for his name and image.

The game was called
Dr. J and Larry Bird Go One-on-One.
Though the game had cutting-edge graphics for the time, the limited processing power of the Commodore 64 and Apple II could only support characters that looked like bad doodles and moved like cardboard cutouts. The people designing the game, however, got several pointers from Irving (Bird was less involved and less interested), which helped them add some finer points to the game.

Dr. J and Larry Bird Go One-on-One
was a huge bestseller for its time, leading Electronic Arts to begin work on a game based on another sports legend—John Madden. Though no one knew it at the time,
John Madden Football
would become the most enduring sports series in computer and video game history. It would also play a decisive role in determining the leaders of two future generations of video game consoles.

The 1965 collapse of Atlantic Acceptance left Commodore with substantial financial problems. Short on capital and tainted by scandal, Tramiel turned to Canadian investor Irving Gould for help. Gould purchased a controlling share of Commodore stock for $500,000.
³
Though he later sold 8 percent of his stock back to Tramiel, Gould remained the power behind the scene at Commodore.

According to a few reports, Gould scrutinized Tramiel’s every move. Tramiel could not borrow money without Gould’s signature, and Gould kept Commodore on a strict leash. The relationship was rumored to be turbulent.
Fortune
magazine once reported that the volatile Tramiel often threatened to quit the company.
⁴

At a Commodore board meeting on January 10, 1984, Tramiel made the threat one final time.

The board had met to discuss the company’s future. Tramiel went to the meeting planning to unveil his dream of bringing his sons together to run Commodore. He wanted to name his oldest son, Sam, as president. He wanted his next oldest, Gary, to run the company’s finances, and his youngest son, Leonard, who had just earned his Ph.D. from Columbia, to work in Commodore’s software division.
⁵

Gould had other ideas. He wanted Marshall Smith, a 54-year-old finance specialist from the steel industry, to take over the company. According to one report, Tramiel threatened to quit the company, and Gould said, “Fine.”

On Friday, January 13, 1984, Jack Tramiel officially resigned as the CEO of Commodore International. On February 21, Marshall Smith moved into Tramiel’s office.

When James Morgan took over Atari in September, 1983, he found a company in complete disarray. Atari was now composed of dozens of departments that seldom communicated with one another, housed in nearly fifty buildings spread throughout Silicon Valley. The departments’ animosity and political infighting were crippling the company. Alan Kay, the head of Atari’s research center, described the venomous brinkmanship to a
Time
reporter in terms that made the company’s executives sound like spoiled children playing on a small boat. “For a while the company was playing ‘Ha, ha, your end of the boat is sinking.’”
⁶
In the article, the reporter concluded with the statement that “it turned out that everybody was on the same boat.”

Morgan’s first move was to cut the domestic payroll down from 9,800 employees to 3,500. Next he turned to foreign labor for manufacturing, sending 3,000 jobs to Hong Kong and Taiwan. He also sold off Atari’s excess buildings, condensing the company’s sprawling operations down from forty-nine buildings to four.

A few months into his new job, however, Morgan discovered that he could not turn to Warner Communications for help. When he submitted his 1984 budget in March, Warner executives vetoed it. According to Ross, Atari would have to find its own funding.

Morgan revised his budget, trimming his operating expenses from $600 million to a mere $150 million. He cut an additional 550 jobs, and dumped 20 million old cartridges into the marketplace at $2 each to clear out old inventory.

Realizing that simply cutting expenses would not save Atari, Morgan pushed for new products. On May 21, Atari announced the development of a powerful new game console, the 7800 ProSystem, and a deal to create games with LucasFilm, the company that made the
Star Wars
and
Indiana Jones
movies.

The 7800 had actually been developed by General Computer, the same Boston company that had designed
Ms. Pac-Man
and made nearly half of the cartridges for the 5200.

In the summer of 1984, Atari announced plans to release a new game controller called the Mindlink. Mindlink was a bizarre product—a game controller that supposedly directed game play by reading electrical impulses in players’ heads. It would come packaged with a
Breakout
-style title,
Bionic Breakthrough.

Companies frequently incur losses while downsizing and cutting inventory, but Warner Communications was completely unprepared for the $425 million second-quarter losses Atari reported in 1984. When Morgan returned to New York, claiming he needed more money to run the company, Ross decided to rid himself of Atari once and for all.

In June, rumors started floating around Atari that Warner planned to sell or close the company. Morgan held a meeting in which he promised his employees that Ross still had confidence in Atari and that he had no plans to sell out. Morgan was wrong.

In early July 1984, Warner Communications announced an agreement to sell Atari Corporation to a new owner—Jack Tramiel.

Tramiel did not acquire all of Atari. Warner retained the coin-operated games division and renamed it Atari Games.
*

The final agreement was extremely convoluted. On the surface, Tramiel paid $240 million dollars for the home computer division of the failing video game giant. This, however, was only part of the story.

Tramiel and his company, Tramiel Technologies Limited, paid Warner Communications $240 million in promissory notes, based on Atari’s future performance. In effect, Warner had loaned him the money to buy the company.

The deal also involved exchanging stocks. Tramiel Technologies, Jack Tramiel’s company, received warrants for Warner stock and a promise from Warner to cover certain debts and expenses. (That promise proved to be significant. Tramiel contacted Warner on at least one occasion and received a multimillion dollar
cash infusion.) In exchange for Atari and warrants for stock, Warner received warrants for 14.3 million shares of Tramiel Technologies’ stock.

Although Warner certainly offered Tramiel good terms for purchasing Atari, the interesting question was why did Tramiel want the company? Atari had good facilities and tremendous name recognition, but within the industry, the company’s name carried negative connotations.

Several analysts believe that Tramiel wanted to use Atari as a vehicle for wreaking revenge on Commodore. While later developments showed that he had no qualms about using Atari to jab at his former company, some of Tramiel’s friends believed that he reentered the computer business for the sake of his sons.

In his book
The Home Computer Wars
, former Commodore employee and Tramiel confidant Michael Tomczyk suggests that Tramiel purchased Atari to bring his sons and his Commodore family together. Bernie Stolar, another friend of the Tramiels, believed he made the move to ensure his family’s financial security.

In the beginning, Atari Corporation and Atari Games were headquartered in adjoining buildings, and the people working in the newly independent coin-op company silently watched as their former associates were demolished.

The Tramiels cared little about soothing nervous employees’ feelings. Jack and Sam Tramiel set up offices, interviewed workers, and decided how to re-align the company. The people who witnessed their takeover described them as tireless, energetic, and merciless. Within a short time, the number of employees on Atari’s worldwide payroll was reduced to 1,500.

Everywhere he looked, Tramiel saw excesses. He had inherited a 300-person marketing division. In contrast, during its heyday Commodore had 25
employees in marketing. Tramiel wanted to reduce the number of secretaries, engineers, and administrators.

In typical fashion, Tramiel did not care whom he offended. According to one story, he once stopped a demonstration of existing Atari products by shoving them onto the floor. When a programmer Tramiel supposedly wanted to keep mentioned that his wife had a job, Tramiel told him that his wife should stay home. Offended by Tramiel’s chauvinistic attitude, the programmer began looking for another job later that evening.