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Atari – How the Oldest Name in Video Games Went Bankrupt

Atari, one of the oldest names in video games, announced its intention to file for bankruptcy on Monday.

Atari’s financial woes have been no secret for the past decade, although the US branch of the company has seen profits the last two years.  Due to the company’s refocus on digital and mobile platforms, rather than major retail game releases, the company saw profits of $11 million in 2011 and $4 million in the last fiscal year.

Atari celebrated its 40th anniversary last November. A pioneer in home and arcade video games, Atari’s Pong is considered the first great video game industry success story since it hit bars and bowling alleys as a coin-operated cabinet over 40 years ago.

In 1970 Nolan Bushnell and Ted Dabney founded an engineering firm called Syzygy Engineering. Some of Syzygy’s earliest work included creating a computer game called Computer Space for client Bill Nutting Associates. Most of Bushnell’s work was done from his “office” located in his daughter’s bedroom on his computer.

In 1972 Syzygy changed its name to Atari. The name came from the Japanese board game Go, a favourite of the two founders.  “If I’m about to take a group of your stones I say ‘atari’, which is sort of like a polite warning that you’re going to be engulfed. So I thought that was going to be a great, aggressive name for a company,” says Bushnell in an interview included on the Atari Anniversary Edition Redux released on the PlayStation in 2001.

The Magnavox Odyssey was one of the first home video game consoles released to feature interchangeable cartridges. The Odyssey featured a basic tennis game called Ping-Pong. When Atari hired its first employee, Al Alcorn, Bushnell tasked him with creating their own coin-operated game similar to the Odyssey’s Ping-Pong. The result was simply called Pong and was a huge success.

In 1975 Pong proved so popular that Atari produced a home version, sold though Sears under the Sears Tele-Games brand. While the Magnavox Odyssey predates the home Pong game by three years, Pong introduced the mainstream market to home video games, and established Atari as a household brand.

In 1976 Atari hired Cyan Engineering, a firm in Grass Valley California, to produce a home console that, unlike the home version of Pong, would allow interchangeable game cartridges. The project was given the codename Stella. In an effort to finance the project, Bushnell sold Atari to Warner Communications for an estimated $28-32 million. Stella was released in 1977 as the Atari 2600.

After disagreements between Bushnell and Warner management in regards to the direction the company was going, Bushnell was allegedly fired. “[W]e started fighting like cats and dogs. And then the wheels came off that fall. Warner claims they fired me. I say I quit. It was a mutual separation,” said Bushnell in an interview in Gamer at Work: Stories Behind the Games People Play by Morgan Ramsay.

Under Warner’s leadership, Atari saw great success. Atari accounted for a third of Warner’s annual income at its peak and was the fastest-growing company in American history up to that point. But the early 1980’s would be trouble for Atari. 1983 marked the video game crash, largely caused by a slide in overall software quality, and an increase in popularity of personal computer. As a result, Warner’s stock price plummeted from $60 to $20.

In 1983 the Nintendo entertainment company released its first console featuring interchangeable cartridges, dubbed the Famicom, short for Family Computer, to the Japanese market. Although in North America the industry was crippled by the video game crash, the Asian market was separate and unaffected. In late 1983 Nintendo approached Atari about issuing the rights to North American distribution of its console, since at the time Atari was the biggest name in video games. However the deal fell through, partly due to the video game crash. In 1985 Nintendo went ahead with distributing the Nintendo Entertainment System themselves.

In 1984 the now struggling Atari changed hands again when Warner sold the home computing and game console division to Tramel Technology for $50 cash and $240 million in promissory notes and stocks. Warner still retained a 20% stake in Atari. Warner kept the arcade division of Atari and renamed it Atari Games, but sold it to Namco the following year.

In 1986 Atari rebounded with the release of the Atari 7800, earning a profit of $25 million that year. In the following years the Lynx handheld system and the Jaguar console suffered from poor sales thanks to stiff competition from Nintendo and Sega. Going into the 1990’s Atari was kept afloat from the revenue of a number of successful lawsuits, but with no new products to sell, the brand all but disappeared from the market.

In 2008 the French company Infogrames Entertainment purchased Atari. They changed their name to Atari S.A. the following year to avoid confusion on the company branding. Atari S.A. is the current parent company of the Atari company, but the US branch’s filing for bankruptcy is an attempt to separate from the parent company. Allegedly, while the US branch of Atari has seen some success with its new market strategy the French parent company has not been profitable for decades, according to an article on the LA Times.

Atari filed for Chapter 11 reorganization in the US Bankruptcy Court last weekend. The LA Times reports that the Atari US branch is hoping to find a company to purchase them so they can privatize the company.

Atari has survived hardships and thrived under success. It has changed hands and remained iconic long after their last successful home console or arcade cabinet. Filing for bankruptcy will be just one more chapter in the long and interesting history of gaming’s longest running brands.

Sources:

The LA Times – Atari U.S. operation files for bankruptcy

IGN.com – Atari Files for Bankruptcy in the US

www.ralphbaer.comVideo Game History

1up.com – Atari Sheds Infograms Branding

Book: “Gamers At Work: Stories Behind the Games People Play” by Morgan Ramsay

Time – A History of Video Game Consoles

Yahoo News – Infograms Entertainment S.A. and Atari, Inc. Announce Agreement to Merge

Atari Museum.com – Atari Coin-Op/Arcade Systems , Atari – Nintendo 1983 Deal

Video: The Nolan Bushnell interviews featured on Atari Anniversary Edition Redux for PlayStation

The New York Times – Warner Sells Atari to Tramiel

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Word Of The Nerd

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