[game_preservation] U.S. Crash was Re: Generations standards?

[Henry Lowood]

Devin,

One point I wanted to address: From what several Atari veterans have 
told me (some pretty high up), Warner was running the company.  Some of 
the key people (Bushnell, Alcorn) left or were pushed out, and the 
Warner brass were making the key decisions about product development by 
the early 1980s.   I'm not sure that "dual management" is the right term 
to use by this time, it was Warner management. 

Some of this is in my oral history with Al Alcorn.

Henry

Martin Goldberg wrote:

> Splitting this from the original thread for clarity.

>

>

> Devin Monnens said:

>   

>> Regarding the crash, the April issue of Game Developer has an excellent

>> overview of this courtesy of David Crane.

>>     

>

> While I'm sure David would like to feel somewhat responsible for

> causing his old employer to implode, it was only a small part of the

> actual causes of Atari Inc.'s demise.  A cog in the machine.

> Likewise, remember it was an industry crash, not just limited to Atari

> Inc.  Activision and Imagic's earnings did not act detrimental to the

> plethora of other consoles out there - which was actually the major

> challenge in Atari's market share.  For example, in 1982 when Atari's

> internal problems were in full swing, it had a good 2.5 billion in

> revenue compared to Activision's $75 million.  Atari Inc. was about

> 80% of the industry at that height.  Interestingly (timing wise), this

> subject (with emphasis on Atari Inc.) is one that I've put a lot of

> research (interviews, internal documents, financial coverings, etc.)

> in to the past year.

>

>   

>> He doesn't say it out right, but

>> the crash is an indirect result of the success of Activision and Imagic,

>> which made millions of dollars as third party companies. This inspired in a

>> six-month period, no fewer than 30 companies to pop up, none of which had

>> any idea how to make a game, but who had contracts with their investors to

>> make games. As a result, dozens of crap games flooded the market. The unsold

>> games were sent to warehouses where investors bought them up for say $3 a

>> cartridge and sold them to retailers for $4, saying they could sell them for

>> $5. The math of 8 $5 cartridges for one $40 cartridge meant that none of the

>> good games would ever sell until that glut emptied the market. The only guy

>> who probably made any money off this whole fiasco was the entrepreneur who

>> bought out the warehouses - everybody else just seems to have been blinded

>> with the idea that the stuff would sell just because it was a videogame.

>>     

>

> The crap games theory has been floating around for a while, mainly due

> to Nintendo's post crash PR.  In truth, Atari Inc.'s own fall had more

> to do with their own mismanagement and continued interference by

> Warner (forming a dual management), and an overcrowded market in

> general.  Regarding the market, remember, for the consumer in the

> early 80's you had the 2600 (Atari's own plus Sears OEM versions),

> 5200, Channel F, Bally Astrocade, Colecovision, Vectrex, Coleco

> Gemini, Odyssey2, Intellivision, Emerson Arcadia 2001, and low end

> gaming computers like the Atari 400/800/XL series, Vic 20, Commodore

> 64, TI99/4a, and more.  All with their own in-house games/software and

> a plethora of 3rd party as well.  That combined with the management

> problems and a ridiculous unsustainable growth rate (i.e. a bubble)

> mixed to form what would be called the U.S. Crash.

>

> With Atari Inc. (and keep in mind this entire explanation is a

> summary), they had evidence of the coming problem as far back as '81

> (long before Activision was earning even over a million), when their

> own financial firm that backed the put together the buyout of Atari

> Inc. in the first place back in '76 was warning about the overinflated

> value of the stock (they had just reached a billion in revenue) and

> changing market place. Nobody listened, and that investment firm

> actually started selling off their stock. Then in June '82 Jac Holzman

> (former owner of Elektra records and a director of then consultant to

> Atari via Warner) personally wrote a letter to Warner's Steve Ross

> mentioning the problems of excess inventory and that they should

> consider selling Atari because he thought the business was going to

> fall apart. And the inventory report that August also reflected that,

> $65 million worth and almost all cartridges. The cause of which (and

> the recommended fix of) was poor inventory and distribution controls.

> This caused a revised budget report, and earnings losses that they

> tried to hide. They added an extra week, inflated the fourth quarter

> projection, and then you have the mess of that December where the

> truth started coming out and Kassar and the bunch had done their stock

> shenanigans. That actually caused a ripple effect in the industry as

> other company's stock prices fell as a result, foreshadowing what was

> to come.   You have the issues of the dual management I was mentioning

> as well, which also added to inventory problems - such as with Pac-Man

> or the issue with Spielberg's very one sided deal for E.T., Gremlins,

> and Raiders, which was negotiated by Warner themselves and saddled on

> Atari Inc.  They were constantly killing Atari Inc.'s projects as well

> - ones that were already done and ready for production, wasting

> millions upon of dollars in resources and time.  The coin-op division

> as well had also suffered greatly in 1982 when the coin-op industry

> suffered it's own crash, separate from the console crash (as Gary

> Sterne explained it to me once, Coin was always on it's own cycle from

> consumer, while one is going up the other has usually gone down). That

> lead to the layoffs of 1,700 workers that February '83 and the

> manufacturing movement to Taiwan, but no real changes in any of the

> practices, the issues of dual management, etc. The downward spiral

> continued until January of '84 when Warner hired a company to evaluate

> all it's assets, and they promptly recommended selling Atari as well.

> Which they actively began looking to do throughout the Spring,

> ironically all without the knowledge of the person they hired to bring

> controls and reformation on board - Morgan.  He was actually in the

> process of doing what the company should have been doing in '81

> instead of trying to keep the pace of the ridiculous growth for

> Warner's stock holders like they did.  That included completely

> streamlining the company by splitting it in two - one half would be a

> temporary company called Delta that would take on all of Atari Inc.'s

> debt, undesirable projects, and 2/3 of the employees.  The other

> company would be called NATCO and was to be focused on core revenue

> streams, employee incentive by bonus pools and employment commitments,

> and a goal of a much more manageable $500 million in sales and 20%

> profits.  He never got the chance, providing one final example of dual

> management interference, Warner decided to split up the company and

> sell the Consumer assets to Tramiel.  Morgan literally didn't find out

> until walking in the board room to find everyone that and directed to

> sign the papers for the sale.

>

>

> Marty

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>   


-- 
Henry Lowood, Ph.D.
Curator for History of Science & Technology Collections;
 Film & Media Collections
HRG, Green Library, 557 Escondido Mall
Stanford University Libraries
Stanford CA 94305-6004
650-723-4602; lowood at stanford.edu; http://www.stanford.edu/~lowood 
<http://www.stanford.edu/%7Elowood>
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