Speaker 1: Pushkin too quick. No, it's perfect push kid stop. You
Speaker 1: got it.
Speaker 2: Robert Smith, here is the big question for today's show. Yes,
Speaker 2: how did Atari essentially invent the video game industry, win
Speaker 2: the hearts of millions of young people in the nineteen
Speaker 2: seventies and then blow up entirely in the early nineteen
Speaker 2: eighties basically never to be heard from again.
Speaker 3: It's a great question.
Speaker 2: We are both of the age where we remember this personally.
Speaker 3: Yeah, I remember my dad coming home with one of
Speaker 3: the first Atari sets. It was like magic.
Speaker 2: What was it?
Speaker 3: It was Pong, which was a ping pong game, if
Speaker 3: you know what. Little paddles and you'd send a little
Speaker 3: electronic ball across the screen. And it was transformative because
Speaker 3: it was the first time you could actually interact with
Speaker 3: a television set which was sitting there in the center
Speaker 3: of your home. And to be clear, I was not
Speaker 3: an early adopter. I was not cool. Everybody had the
Speaker 3: Atari set.
Speaker 2: I'm a little younger than you, not to throw it
Speaker 2: in your face, but so for me, I don't remember Pong,
Speaker 2: but I remember the Atari twenty six hundred came to
Speaker 2: be called the twenty six hundred, which was like the
Speaker 2: first video game system like we know it today where
Speaker 2: you buy it and there's different cartridges. And this was,
Speaker 2: you know, the dominant video game in the early eighties.
Speaker 2: I loved it. I had Defender, had Journey, the game
Speaker 2: Journey like the band played it for hours, and so
Speaker 2: the big question is what happened. I'm Jacob Goldstein and
Speaker 2: I'm Robert Smith, and this is business history. What's it about?
Speaker 2: Jacob esterday Business Today?
Speaker 3: On the show, how a company can invent something that
Speaker 3: changes the future, changes all of culture and wind up
Speaker 3: in utter failure, like literally wind up having to bury
Speaker 3: hundreds of thousands of its own products, unsold video game
Speaker 3: cartridges in a landfill.
Speaker 2: In New Mexico.
Speaker 3: I feel like today's show is like walking through my childhood.
Speaker 3: We started with Atari, and our next step.
Speaker 2: Is an amusement park that I initially called the Lagoon
Speaker 2: in Utah, and you pointed out it is called Lagoon
Speaker 2: And you know this because.
Speaker 3: I grew up in Utah and went there once a
Speaker 3: year and it was the best day of the year.
Speaker 3: It's an amusement park, right, You play games, the rides,
Speaker 3: you eat a lot of fried salty foods. It was amazing, Robert.
Speaker 2: I guess you would have been going to Lagoon in
Speaker 2: the seventies. A few years earlier. It was this college
Speaker 2: kid named Nolan Bushnell who worked summers there on the Midway,
Speaker 2: like where there was games like whatever, guess the way
Speaker 2: to the guy and knock down the milk cans or whatever.
Speaker 3: And just in case you have an image of someone
Speaker 3: who's a carneye working the milk jug games, this was
Speaker 3: not Nolan Bushnell, but.
Speaker 2: He was a carneie genius. He became King of the Midway,
Speaker 2: was running running all the games when he was like
Speaker 2: twenty years old, because he was really good at getting
Speaker 2: people to spend their money on the games. Like one
Speaker 2: example he gave later that is dear to my heart
Speaker 2: is this. So there is that game where there's these
Speaker 2: like metal milk jugs. I guess it's like metal bottles,
Speaker 2: and there's whatever four of them or six of them,
Speaker 2: and they're stacked up and you have a like a
Speaker 2: softball or something. You throw it at it and try and.
Speaker 3: You're trying to win a stuffed animal.
Speaker 2: Yeah, maybe a giant stuffed animal or something if you
Speaker 2: knock down all the milk bottles, right, and it turns
Speaker 2: out He talked about this later that like half of
Speaker 2: the bottles are heavy and half of the bottles are light,
Speaker 2: and so if you put the light bodels on the bottom,
Speaker 2: it's really easy to knock them down, right, If you
Speaker 2: put the heavy bottles on the bottom, it's really hard
Speaker 2: to knock them down. Physics, And so he had this
Speaker 2: movie he would make when like a bunch of high
Speaker 2: school students would come. There'd be like, you know, the
Speaker 2: captain of the football team, and then like the water
Speaker 2: boy kind of trailing along behind.
Speaker 3: Okay, I was more of the water play.
Speaker 2: Obviously, he'd get the water boy to play, and he'd
Speaker 2: set it up the easy way so that it's really
Speaker 2: easy to knock him down. The water boy knocks him
Speaker 2: down and gets the big prize, and then the captain
Speaker 2: of the football team's like, oh, I'm definitely gonna just
Speaker 2: kill at this. But then Nolan Bush nowould set it
Speaker 2: up the hard way so that the you know, football
Speaker 2: player throws and they don't fall down. He's like, Okay,
Speaker 2: I'll try again. I'll try again, and he'd basically take
Speaker 2: all of the football player's money because he couldn't knock
Speaker 2: him down.
Speaker 3: He realized that games are psychology yeah, you know, it's
Speaker 3: storytelling in psychology, and this would of course come in useful.
Speaker 2: Yeah, and he had a real sense of fun, right,
Speaker 2: like this was fun for the water boy, not fun
Speaker 2: for the football player. But like he he loved a party,
Speaker 2: took a lot of drugs. He was studying electrical engineering
Speaker 2: in school, but it took him like seven years to graduate.
Speaker 2: Eventually he moves to Silicon Valley, not called Silicon Valley yet,
Speaker 2: but it's becoming that. Right, this is right where we
Speaker 2: were at the end of last week's show, and he's
Speaker 2: going to invent the video game industry, but he doesn't
Speaker 2: know it yet.
Speaker 3: So at the time, he works for a company called Ampex,
Speaker 3: famous for those of us in the radio business as
Speaker 3: the makers of magnetic tape.
Speaker 2: Did you use Ampex tape?
Speaker 3: Of course, my clauset's filled with its stillcitually it is
Speaker 3: actually can't get rid of them. But Ampex was notable,
Speaker 3: not just because it was an electronics company in the
Speaker 3: Bay Area, but because it had this policy that allowed
Speaker 3: their employees to basically take stuff home and tinker with it,
Speaker 3: you know, to come up with new ideas based on
Speaker 3: the equipment. And so Bushnell starts taking stuff home thinking
Speaker 3: about games.
Speaker 2: And in particular he's thinking about video games, or really
Speaker 2: video game because at this part in history, there's essentially
Speaker 2: one video game and it was created by these guys
Speaker 2: at MIT, of course MIT in the early sixties, to
Speaker 2: be run on, you know, a computer, which at that
Speaker 2: time was a big machine that you had at a
Speaker 2: university that costs hundreds of thousands of dollars. The game
Speaker 2: was called Space War exclamation mark. Great name for a game,
Speaker 2: and it was fun if you understood like Newtonian gravity, right,
Speaker 2: you like have a spaceship and there's a star and
Speaker 2: it's like I go around the Sun to get just
Speaker 2: the gravity goes into the square of the distance. Whatever.
Speaker 2: So he's thinking about Space War exclamation mark. And you
Speaker 2: know when he first played it in college, he played
Speaker 2: it at the university on this extremely expensive computer where
Speaker 2: it obviously wouldn't work anywhere else. It wouldn't work as
Speaker 2: a business because the computer was too expensive, and you
Speaker 2: just did it at night for fun. But by the
Speaker 2: time he's in Silicon Valley in the early seventies, you know,
Speaker 2: Moore's law, like we talked about last time, is cranking along.
Speaker 2: Computers are getting cheaper and cheaper and cheaper and faster
Speaker 2: and faster and faster. And he's like, oh, maybe now
Speaker 2: that technology has got to a place where I could
Speaker 2: make Space War on a machine that I could build
Speaker 2: cheaply enough to put it in a bar next to
Speaker 2: a pinball machine and get people to put corners in it.
Speaker 3: That's Bushnell's law, which is basically, if people have coins
Speaker 3: in a place of amusement, they will spend all the
Speaker 3: coins they have on something that's new and fun.
Speaker 2: Yes, And so he starts working with this other guy
Speaker 2: from Ampex, and you know, he buys a black and
Speaker 2: white TV at Goodwill and he actually, interestingly, he builds
Speaker 2: essentially a computer from the ground up, right, because he
Speaker 2: is optimizing for cheapness, right, he wants to build the
Speaker 2: cheapest functional machine he can. And he gets like a
Speaker 2: little coin slot like they have in pinball machines, has
Speaker 2: like a paint thinner can for the coins to go into,
Speaker 2: and they build a functional prototype of a game that
Speaker 2: is a lot like Space War and it looks like
Speaker 2: an arcade game, although there's not really any such thing
Speaker 2: as our kid gets at this point, but it's a.
Speaker 3: Box in the corner. It's next to the juke box.
Speaker 3: It stands up and it has yeah, and it has
Speaker 3: computer space on it, and you're like, oh, computers space.
Speaker 2: There's a screen, and there's controls, and there's a place
Speaker 2: to put coins. It right, the three things you need.
Speaker 2: They get this company to make fifteen hundred of the machines. Right,
Speaker 2: it's going to be a thing in the world. Now
Speaker 2: it gets out into the world, and and nobody really
Speaker 2: wants to play it, basically because it's not that fun.
Speaker 2: It seems it's it's violating one of the tenets you
Speaker 2: laid out in your made up Bushnell's law.
Speaker 3: Right, you had to have a lot of instructions to
Speaker 3: play it is the way I understand, Yeah, or at
Speaker 3: least like it helps if you understood physics.
Speaker 2: You know what I think about physics when.
Speaker 3: You're playing a video game, but not in a bar now.
Speaker 2: Yeah, And so you know what do you do in
Speaker 2: Silicon Valley if you make something and it's a failure,
Speaker 2: you start your own company, exactly right, and they call it,
Speaker 2: of course sissy g s y z y g.
Speaker 3: Y really going in on the astronomical theme, which you
Speaker 3: know SIGs win like the planet's lineup something.
Speaker 2: Yeah, so I think so clearly a bad name, hard
Speaker 2: to say, hard to spell, and kind of a lucky
Speaker 2: break for Nolan Bushnell. It's already taken by a candle
Speaker 2: maker up in Mendocino. So they go with another name Atari.
Speaker 3: And for those of you who have played the game Go,
Speaker 3: it's like check in chess. You say Atari when you
Speaker 3: I've almost surrounded someone's stone.
Speaker 2: You're saying this, like you play Go? Have you played?
Speaker 2: I have played? God? You never talked about this?
Speaker 3: Oh yeah, yeahah Taro, And I mean so much so that.
Speaker 2: It also has your Go game. It's okay, really yeah,
Speaker 2: it's okay. So now they have a company and a name.
Speaker 2: One key thing they're missing a game that people want
Speaker 2: to play.
Speaker 3: Yeah, minor thing.
Speaker 2: It's nineteen seventy two, and one day Bushnell hears about
Speaker 2: a thing happening at a hotel in I think Sunny Vale,
Speaker 2: somewhere in in Silicon Valley. Magnavox, the TV company, they're
Speaker 2: working on their own video game. This is actually going
Speaker 2: to be one not to put in a bar, but
Speaker 2: to play at home. Right. Their idea is they're going
Speaker 2: to have this machine that will help them sell more televisions.
Speaker 3: Yea.
Speaker 2: And so they have a prototype of this machine, and
Speaker 2: you know, there's like a special preview for insiders, and
Speaker 2: so Bushnell's like, I got to see this thing, and
Speaker 2: so he drives over there and he does not say
Speaker 2: I'm a competitor or no. He says, oh, yeah, I
Speaker 2: work at the Magnavox store whatever over down El Camino
Speaker 2: or whatever.
Speaker 3: It is. Corporate intrigue.
Speaker 2: It's easier to get away with a lie. I guess
Speaker 2: the nineteen seventy two, right, They're not gonna look him
Speaker 2: up on the internet. And he gets to go in
Speaker 2: and and see what this product is and it kind
Speaker 2: of sucks, so he's relieved, right It to him is
Speaker 2: clearly made by somebody who doesn't understand games. And one
Speaker 2: thing about bushnells he really understands games because they're just
Speaker 2: not that fun to play. But there is one game
Speaker 2: that has some spark of promise to him, and it's
Speaker 2: essentially like a simple tennis or ping pong game where
Speaker 2: there's like two rectangular sort of paddles or rackets and
Speaker 2: then like a square ball and it goes back and
Speaker 2: forth and there's two players, but there's no score in
Speaker 2: the game. There's no music like it's it's it's just
Speaker 2: a weak version, but that shows some promise to him,
Speaker 2: and for those of you who have played pong what
Speaker 2: he is about to develop. It does have this amazing
Speaker 2: sound doink, which is just so.
Speaker 3: Like I can hear it in my brain right now.
Speaker 2: Right. So Pushnell goes back to the office and there's
Speaker 2: this engineer who's just started that day, and he's like,
Speaker 2: you know, make this, make this kind of pingpong game,
Speaker 2: but make it fun, make it do all these fun things.
Speaker 2: And the engineer does a great job, and you know,
Speaker 2: a few weeks later, they have this prototype of an
Speaker 2: arcade style game that they call pong. They just want
Speaker 2: to see how it does, right, it's a prototype. So
Speaker 2: there's this bar nearby. It's called Andy Capps Tavern.
Speaker 3: Named after a cartoon character from the newspapers of the
Speaker 3: nineteen seventies. Too hard to explore.
Speaker 2: Its basically what we would call today an alcoholic a problem. Yes,
Speaker 2: and they say, can we just put this machine in
Speaker 2: the corner here at Andy Caps Tavern, like you know,
Speaker 2: like a pimball machine, And the guy at the bar
Speaker 2: says sure, and so they put the machine there and
Speaker 2: it's you know, it's really simple. It's called pong. It
Speaker 2: has two knobs, one for each player, and unlike computer space,
Speaker 2: it has beautiful simple instructions. Avoid missing ball for high score.
Speaker 2: That's it. Love it, just a few words, yeah, yeah,
Speaker 2: three plays for one quarter. They plug it in and
Speaker 2: they go back to the office, and a few days later,
Speaker 2: like three days later, they get a call from the bar,
Speaker 2: and the guy at the bar is calling him says, yeah,
Speaker 2: the machine's broken. I don't know what's going on. It's
Speaker 2: not working. I like whatever. It's a prototype, you know,
Speaker 2: it's a new kind of computer. Of course it's gonna break.
Speaker 2: Somebody from Atari goes down there to check it out,
Speaker 2: and it turns out it is broken because the coin
Speaker 2: box is full. It's broken because people have put too
Speaker 2: much money into the machine. It's too good. It's too good. Yeah,
Speaker 2: you know, Nolan Bush and out of his colleagues have
Speaker 2: built a machine that people just cannot help themselves put
Speaker 2: money into. We're gonna need a bigger coin You're gonna
Speaker 2: need a bigger box. People love to put quarters into
Speaker 2: a new thing.
Speaker 3: Well, to see the new technology and then tell everyone
Speaker 3: about it, right, That is the That's one of the
Speaker 3: first insights of the technology, and then it's gotta be
Speaker 3: worth playing a second time, which is what he also had.
Speaker 2: He had the two pieces. It's super fun. It's a
Speaker 2: new thing and it's super fun. Now he's got a scale,
Speaker 2: very classic startup problem. You have a thing, people want it.
Speaker 2: But remember he essentially stole the idea from Magnavox. By
Speaker 2: the way lawsuit, they said out of court whatever. Lots
Speaker 2: of people now you know it's Silicon Valley. People are
Speaker 2: coming by Andy Kapps Tavern, who are engineers who are like,
Speaker 2: we can do this. And so he's got to get
Speaker 2: video games out into the world fast.
Speaker 3: Gonna need money.
Speaker 2: He's gonna need money. Nobody's gonna give him money yet, Right,
Speaker 2: he's just some stoner with one video game in a bar.
Speaker 2: So he makes a move that has already come up
Speaker 2: a few times.
Speaker 3: On our young show, your favorite negative cash conversion cycle.
Speaker 2: The negative cash conversion cycle. He's able to sell games
Speaker 2: before he has to pay for the parts. So the
Speaker 2: parts to make a game cost atari like three hundred dollars.
Speaker 2: But crucially they don't have to pay for those parts
Speaker 2: unto right, they have like a month. So the parts
Speaker 2: come in Attaria doesn't have to pay anything. They put
Speaker 2: them together and sell the machine for nine hundred dollars,
Speaker 2: and then a few months later they have to pay
Speaker 2: three hundred but meanwhile they got the money from that machine.
Speaker 2: They're growing. They're often running now other problem, classic scale
Speaker 2: problem hiring. And then one day this like nineteen year
Speaker 2: old hippie kid walks in and he says he won't
Speaker 2: leave until they give him a job, and the receptionist
Speaker 2: calls the head engineer and she goes, yeah, we got
Speaker 2: a hippie kid in the lobby. Says he won't leave
Speaker 2: until we hire him. Should we call the cops or
Speaker 2: let him in? And the engineer says, bring him on in.
Speaker 3: It's nineteen seventies, a Silicon valley, and this guy wanders
Speaker 3: in and he is when if you tell a story
Speaker 3: like this, you know who it is.
Speaker 2: It's Steve Jobs. It's Steve Job. So fun, it's so
Speaker 2: delightful and perfectly. Steve Jobs is very good at his job, yes,
Speaker 2: and very unpleasant to wrqu with class unsurprising. He tells
Speaker 2: Bushnell that like everybody's soldering wrong, right, they're actually putting
Speaker 2: together the hardware, soldering the hardware He's probably right, and
Speaker 2: Bushnell was like, yeah, he was right. He keeps calling
Speaker 2: his manager a dumb shit.
Speaker 3: Probably was not.
Speaker 2: Kind, but not necessary. Bushnell winds up putting Jobs on
Speaker 2: the night shift, partly so he won't bother so many people,
Speaker 2: and partly because he knew that Jobs like to hang
Speaker 2: out at night with his buddy Steve Wozniak, who was
Speaker 2: a great engineer, would be great to have hanging around Atari,
Speaker 2: And in fact, Jobs and Wozniak helped to make Breakout
Speaker 2: a great a target. Remember Breakout, of course.
Speaker 3: You're trying to knock down the bricks in a wall.
Speaker 2: Still, games like that, when you got a little paddle
Speaker 2: at the bottom.
Speaker 3: End, there's a moment when it goes through the wall
Speaker 3: and then.
Speaker 2: Goes so good. So Jobs worked at Atari for a
Speaker 2: little while and then decided he wanted to go off
Speaker 2: to India to find his guru perfect and asked Atari
Speaker 2: to pay for the trip. Nobody, ever, said he lacked moxie,
Speaker 2: and wound up making a deal with Atari where they
Speaker 2: pay him to go part of the way there. There
Speaker 2: they had exported some games to Germany and there was
Speaker 2: some kind of problem with the games in Germany, and
Speaker 2: they're like, we'll send you to Germany to fix the
Speaker 2: games and then you can get the rest of the
Speaker 2: way to India from there. And that's what happened. And
Speaker 2: you know, the Germans said Jobs was terrible to work with,
Speaker 2: but he fixed the games.
Speaker 3: You know, there's an alternative history where we're carrying around
Speaker 3: Atari devices in our pocket.
Speaker 2: It's true. And you know, there is something, right, I
Speaker 2: was thinking about, like the link between Atarian Jobs and
Speaker 2: what did he learn there, and it felt like maybe
Speaker 2: a little overdetermined, but I do think you know, clearly
Speaker 2: he had this profound sense of aesthetics and of delight, right,
Speaker 2: Like think of the Macintosh, right, this breakthrough Apple machine
Speaker 2: in the eighties. It was round and instead of squares,
Speaker 2: it was rounded, and it costs them more money, but
Speaker 2: it was beautiful and it was fun and you were
Speaker 2: engaged with it like a game.
Speaker 3: It almost looked a little bit like an arcade game
Speaker 3: with the curves. Yeah, but more than that, I think
Speaker 3: that especially at Silicon Valley at the time when they
Speaker 3: were dealing in actual silicon right with him making chips
Speaker 3: for somebody, you're thinking about the future and the computers.
Speaker 3: You're not thinking about the psychology of the customer, because
Speaker 3: the customer was another electronics company, right, And so Atari
Speaker 3: and the strength of it was really the first time
Speaker 3: where they're just like, how will a regular human being
Speaker 3: who has no training whatsoever interact with technology?
Speaker 2: Yeah? Yeah, with a computer? Right, Like what they are
Speaker 2: making is going to become essentially the first widely adopted
Speaker 2: home computer, the first computer that ordinary people literally children
Speaker 2: can just plug in and turn on and interact with.
Speaker 3: But the inside Bushnel had is that it wasn't labeled
Speaker 3: a computer. Yeah, it was a fun game.
Speaker 2: Yeah Yeah. So Atari Now mid seventies, they're selling all
Speaker 2: the machines they can make. They're growing, they need more space,
Speaker 2: and so they rent an abandoned roller rink. They stencil
Speaker 2: Atari on the window, and they turn it into this
Speaker 2: office slash video game factory.
Speaker 3: I've been ten years older. I would have loved to
Speaker 3: have worked in a roller rink video game factor.
Speaker 2: Yes, everybody smoked weed. Yeah, there was a hot tub.
Speaker 2: There was a pool party where everybody ended up naked
Speaker 2: in the pool at Bushnell himself looked back on it
Speaker 2: later and said, if that isn't a horror show for
Speaker 2: any hr person today, I don't know what is, but
Speaker 2: it was the seventies. It was a weirdo startup. I'm
Speaker 2: guessing they didn't have an HR department. I don't know.
Speaker 2: This is a company that's making games, right, and so
Speaker 2: you need engineering brains, but you also need a sense
Speaker 2: of play, of fun, of freedom, right, and clearly Bushnell
Speaker 2: was deliberately trying to create that.
Speaker 3: You know, he had this culture that was free and creative.
Speaker 2: His office door was always open, and right next to
Speaker 2: that open door was a keg of beer. So Atari's
Speaker 2: doing well. You know, Pong is a huge hit, but
Speaker 2: Bushnell knows the big opportunity the hockey stick will be
Speaker 2: if they can make a home video game, you know,
Speaker 2: like Magnavox was trying to do, but that nobody has
Speaker 2: cracked yet.
Speaker 3: All they have to do is get rich people into
Speaker 3: a roller rink with a hot tub and some beer
Speaker 3: and it's all going to work out. Yeah, they need money,
Speaker 3: and in order to get money, he's going to have
Speaker 3: to convince people that this is going to be a
Speaker 3: global phenomenon.
Speaker 4: After the break, Okay, that's the end of the ads.
Speaker 2: We're going back to the show.
Speaker 3: Nineteen seventy four.
Speaker 2: Atari Nolan Bushnell has dreams of selling a version of
Speaker 2: pong that people can play at home. We know it's
Speaker 2: going to work because you played it young Robert Smith's waiting,
Speaker 2: how are they going to get the money to do
Speaker 2: it well?
Speaker 3: At this point, as we learned in the last show,
Speaker 3: like venture capital is just starting to be a thing.
Speaker 3: Rich people on the East Coast are starting to realize
Speaker 3: that there's a bunch of geniuses who can make money
Speaker 3: on the West Coast and are starting to at least
Speaker 3: shop around that money.
Speaker 2: But there's not a whole system for it. There's not
Speaker 2: a whole system for it. The culture hasn't caught up
Speaker 2: that much. You talked about the culture shift last time.
Speaker 2: And so you know, a few vcs do go by
Speaker 2: Atari and they see that it's a roller rink full
Speaker 2: of weed smokers, and they're like, this is not the
Speaker 2: business we're in. But one day a venture capitalist named
Speaker 2: Don Valentine walked in. Valentine had worked at Fairchild Semiconductor,
Speaker 2: that a company that was at the heart of the
Speaker 2: birth of Silicon Valley that we talked about last time.
Speaker 2: Valentine was the sales manager there and Fairchild was like
Speaker 2: this fountain of startups. They called them the Fair Children.
Speaker 2: Somebody from there started AMD, still one of the biggest
Speaker 2: chip makers in the world. And Valentine, because he had
Speaker 2: worked with these guys, knew them, had invested out of
Speaker 2: his own pocket in some of the companies, understood what
Speaker 2: was happening in technology, and he started in the early
Speaker 2: seventies a venture capital firm called Sequoia a.
Speaker 3: Little bit famous, right, They invested in Apple, Google and
Speaker 3: video Instagram, WhatsApp.
Speaker 2: Yeah, like one of the you know, maybe two or
Speaker 2: three biggest most important VC firms. But at this time
Speaker 2: it was Valentine and he went to visit Atari. He
Speaker 2: smelled the weed smoke. He said it was enough to
Speaker 2: knock you to your knees. At some point he took
Speaker 2: a meeting in the hot tub, and so he's like, yes,
Speaker 2: this is obviously super sketchy, but also he was like, oh,
Speaker 2: these guys are onto something. This could be a way
Speaker 2: to get the computer into the house, this giant, transformative thing.
Speaker 2: And so he offers Bushnel this interesting deal. He says,
Speaker 2: I'm not going to give you money to start with,
Speaker 2: but I will help you. I will help you, you know,
Speaker 2: find a partner essentially, so that you can get to
Speaker 2: the next level, and if you don't screw it up,
Speaker 2: then I'll give you money. Yes, And you know, the
Speaker 2: key thing Valentine wants to help Atari with at this
Speaker 2: point is how do you get this little stoner video
Speaker 2: game company connected with a big national retailer to distribute
Speaker 2: their first consumer product across the country. So they're working
Speaker 2: on this together and toys Rus turns them down, Radio
Speaker 2: Shack turns them down.
Speaker 3: Oh, they're waiting for the big Tandy computer they were
Speaker 3: going to sell years later.
Speaker 2: At out the Tierrasady. They go to the New York
Speaker 2: Toy Fair. Nobody is interested, and this is partly because
Speaker 2: the Magnavox Odyssey, it was called the game that Bushnell
Speaker 2: saw under development from Magnavox, had come out. There was
Speaker 2: a you know, somebody tried a home video game and
Speaker 2: it had done badly. But it turns out that's because
Speaker 2: it was a bad game, and Magnavox just thought of
Speaker 2: it as a way to sell TVs. Classic incumbent mistake, right,
Speaker 2: They're just thinking about their old product. Eventually, Valentine does
Speaker 2: get Atari a key break. He sets up a meeting
Speaker 2: with Sears, which of course was the biggest retailer in
Speaker 2: the country at this point, as we talked about a
Speaker 2: few weeks ago, gets in this meeting to pitch home
Speaker 2: Pong right Pong for the home. Valentine's sent Bushnell to
Speaker 2: Sears headquarters in Chicago for a meeting, told him to
Speaker 2: wear a suit, or at least that's Valentine's version of
Speaker 2: the story. Interestingly, Bushnell has a different version. According to Bushnell,
Speaker 2: Atari Cold called Sears got put through to a buyer
Speaker 2: who was immediately interested and came out to California right away.
Speaker 2: And I actually love these two different stories. I think
Speaker 2: there's like a little in stop looking at your computer.
Speaker 2: I'm sorry, Plan Pung.
Speaker 3: Yes, it's addictive, yes God.
Speaker 2: And I actually think there's something interesting in the fact
Speaker 2: that these two guys remember this so differently, because it
Speaker 2: speaks to this divide between venture capitalists and founders that
Speaker 2: persist today, right, and the question is what is venture
Speaker 2: capital really doing. A lot of founders will say, oh,
Speaker 2: they're just putting up the money, and most of the
Speaker 2: venture capitals will be like, no, No, these are guys who
Speaker 2: don't know what they're doing. We're putting up the money.
Speaker 3: We make introductions, right, we help guide your decisions.
Speaker 2: Yeah, yeah, and so I don't know what happened in
Speaker 2: this case, but whatever was the case. A buyer from
Speaker 2: Sears did come out to Atari one day in April
Speaker 2: of nineteen seventy five, showed up at eight am, and
Speaker 2: of course nobody from Atari is in the office yet,
Speaker 2: but eventually Bushnell and the others show up. They let
Speaker 2: the Sears buy or play with their pong prototype. It's fun,
Speaker 2: you know. Bushnell gives him a sales pitch. Bushnell's a
Speaker 2: great salesman, and the Seers guy wants in and he
Speaker 2: asks Atari, how many of these, you know, home video
Speaker 2: game devices can you make for this year's Christmas shopping season.
Speaker 2: It's April right at this point, Atari has made zero
Speaker 2: of these home machines. Yes, not even really this prototype,
Speaker 2: because it's a fake prototype box painted to look like
Speaker 2: it's plastic and like glued to whatever, a coffee table,
Speaker 2: and it's got a hole underneath it and there's wires
Speaker 2: running down to like a much bigger, essentially computer they've
Speaker 2: jerry rigged in like an apple crate hidden under the table.
Speaker 3: And then an eight year old moving the pixels around.
Speaker 2: Yeah right, it's a mechanical Turk home Pong. So the
Speaker 2: Seriers guy asks, you know, how many can you make
Speaker 2: for Sears, the biggest retailer in the world, I believe
Speaker 2: still at this point, and Bushnell's like, give me a
Speaker 2: minute to talk with the team. And he goes out
Speaker 2: and he talks to his head of manufacturing, and you know,
Speaker 2: they've been making at this point big arcade games where
Speaker 2: a big run is five thousand machines. The head of
Speaker 2: manufacturing is like, many can we make, you know, in
Speaker 2: a few months to get him in time, we can
Speaker 2: make twenty five thousand, twenty five thousand. So Bushnell goes
Speaker 2: back in with the Seers guy and he says, for
Speaker 2: this year, we can make you seventy five thousand.
Speaker 3: Just multiply it by three.
Speaker 2: That's good.
Speaker 3: That's a good CEO move.
Speaker 2: If they asked him how he did it, he didn't
Speaker 2: even say multiply by three. He's talking about it later
Speaker 2: in an interview he said, quote, I was just pulling
Speaker 2: it out of my butt. Also a good CEO move.
Speaker 3: Sears guy, here, seventy five thousand, and thanks, we're Seers.
Speaker 2: Come on, come on, wit seventy thousand. You think you're
Speaker 2: talking to J. C. Penny here, Montgomery Ward.
Speaker 3: Come on radio. Scheck one hundred and fifty thousand is
Speaker 3: what they.
Speaker 2: Order, and Bushnell says, okay, I have a few months
Speaker 2: to do it. Now. Bushnell really does need that capital,
Speaker 2: but he also has a huge order from the biggest
Speaker 2: retailer of the world. Much easier to get funding, and
Speaker 2: Valentine Sequoia comes through with the money. Atari becomes Sequoia's
Speaker 2: first ever investment, and Sears now does the Sears thing
Speaker 2: that we talked about on the Sears Show. Right, they
Speaker 2: help this little company figure out how to scale really quickly. Right,
Speaker 2: They get Bushnell set up with the Sears Bank, which
Speaker 2: is cool at a like nerdy finance way. They create
Speaker 2: this bonded warehouse so that now when Ataris makes this
Speaker 2: you know, one home pong game, they don't have to
Speaker 2: wait to get money for it. Then get eighty percent
Speaker 2: of the value of it right as soon as it
Speaker 2: goes into the warehouse. Clearly, a roller rink's not going
Speaker 2: to work to make one hundred and fifty thousand home
Speaker 2: video game consoles. So they get a you know, a
Speaker 2: kind of real factory with a conveyor belt where Bushnell
Speaker 2: loves to ride around in a box on the conveyor belt.
Speaker 2: The guy loved to play, right, he loved he loved
Speaker 2: to play, which is essential. Actually, one day some serious
Speaker 2: execs in suits show up and Bushnell's in fact riding
Speaker 2: on the conveyor belt in a box. They're like, okay, whatever,
Speaker 2: just keep making the games, and they do. Atari that
Speaker 2: year shipped over one hundred and fifty thousand units. They
Speaker 2: exceeded that one hundred and fifty thousand number for the
Speaker 2: nineteen seventy five Christmas season, and Sears sold all of them.
Speaker 2: Pong was the hit game of the year. Merry Christmas, Tiny,
Speaker 2: Robert Smith.
Speaker 3: Happy ending.
Speaker 2: There are no happy endings in technology. Nope, they're only
Speaker 2: happy middles. Right. You do not get to make home
Speaker 2: Pong and then coast on it forever. It is not Barbie,
Speaker 2: it is not monopoly.
Speaker 1: Right.
Speaker 2: Because of Moore's law, essentially every year people are going
Speaker 2: to make better video games. Right. This is clear to
Speaker 2: anybody in Silicon Valley. It's clear to Bushnell. And in fact,
Speaker 2: the year after Atari wins Christmas in nineteen seventy six,
Speaker 2: our old friend Fairchild, Fairchild Semiconductor. Yes, they start selling
Speaker 2: a home video game console that is not just one
Speaker 2: game like Pong, but it allows you to buy different
Speaker 2: cartridges and swap in different games. It's called Channel F
Speaker 2: like Fairchild, but also Channel Fun. Because I was reading that,
Speaker 2: I was also like, remember channels. I don't think my
Speaker 2: kids know what a channel is. I guess. And then
Speaker 2: there were six of them. They were free and they sucked.
Speaker 2: So now Atari needs to make its own cartridge based game,
Speaker 2: and they need much much more money than they needed
Speaker 2: for Home Pong, right like Sears Bank funding them isn't
Speaker 2: going to do it that the capital costs are just
Speaker 2: too high. Venture capital isn't big enough at this point
Speaker 2: to fund that. They consider going public, but it doesn't
Speaker 2: work out. So in nineteen seventy six, Bushnell and Valentine
Speaker 2: decide that they need to sell. They need to sell
Speaker 2: Atari to get the capital to take the next step,
Speaker 2: and they look around at you know, big incumbents who
Speaker 2: might buy them, and one possibility is Warner Communications based
Speaker 2: in New York.
Speaker 3: It owns movie studios, record labels, getting into cable TV
Speaker 3: at this time.
Speaker 2: Yeah, it's a media company. It's actually big media company
Speaker 2: run by a guy named Steve Ross, who coincidentally had
Speaker 2: recently taken his kids to Disneyland, where they spent a
Speaker 2: long time putting quarters into an Atari video game called
Speaker 2: Indy eight hundred, a driving game.
Speaker 3: So he had a steering wheel.
Speaker 2: Steering wheel, I'm sure, yeah, so good. Remember the one
Speaker 2: where you could sit in it and it will go
Speaker 2: around you. Yeah, it was rad. So Ross sends the
Speaker 2: Warner Jet out to California to pick up Bushnell and
Speaker 2: Valentine to discuss a possible acquisition. On the way to
Speaker 2: New York, the jet stops in Sun Valley, Idaho, to
Speaker 2: pick up Clint Eastwood, who is starring in a Warner
Speaker 2: Brothers movie at the time. And they get to New
Speaker 2: York and Ross puts him up in this beautiful suite
Speaker 2: at the Waldorf Astoria and in fights him over to
Speaker 2: his you know, penthouse on Fifth Avenue for a screening
Speaker 2: of the Clint Eastwood movie that's not out yet. This
Speaker 2: is a.
Speaker 3: Whole different league and a whole different business coming into
Speaker 3: video games.
Speaker 2: Yes, and Bushnell loves it. Here's here's what he said
Speaker 2: later looking back on this experience. Were we impressed? Yeah?
Speaker 2: Were we smitten? Yeah? Did he worm us up? And
Speaker 2: you know, ready for the kill? Yeah? Yeah. I mean,
Speaker 2: when I think about it, you just have to really
Speaker 2: hand it to somebody that's a bigger con artist than
Speaker 2: you are.
Speaker 3: I love this guy Byschanel. He's so good.
Speaker 2: Yeah, he knows, he knows what's happening, at least he
Speaker 2: knows in retrospect, and he respects it. It's like the Midway, right,
Speaker 2: It's like Steve is like the Carney, and Bushnell is
Speaker 2: the room is the Room. He's played at a much
Speaker 2: higher level respect respect, and he respects it. So the
Speaker 2: next morning, the morning after the screening, Bushnell agreed to
Speaker 2: sell Atari to Ross to Warner for twenty eight million dollars.
Speaker 2: And Bushnell stayed on. He kept running the company as
Speaker 2: he had been, and now he has the capital to
Speaker 2: work on this console that you know, we will eventually
Speaker 2: know as the Atari twenty six hundred. It had the
Speaker 2: Stick of Joy, had general stick of Joy, one joy stick,
Speaker 2: the orange button, one button that you usually you would
Speaker 2: fire or jump where the things it would do a
Speaker 2: million times so fast, not just a knob. Now there's
Speaker 2: a button comes out in nineteen seventy seven, and it
Speaker 2: does it does like okay, does pretty well, but it
Speaker 2: does not do amazingly well, it is not the success
Speaker 2: that we know it will come to be. And the
Speaker 2: executives in New York at Warner decide the hippies out
Speaker 2: in California need a grown up to help them become
Speaker 2: a real grown up company.
Speaker 3: Classic moment.
Speaker 2: Barry and Warner brings in this guy named Ray Kazar
Speaker 2: to work with Atari. Not a tech guy. I'd been
Speaker 2: an executive at a big textile firm, started his own
Speaker 2: shirt company, shirts, Kids Love Shirts, and you know, initially
Speaker 2: because Kuzar is kind of consulting whatever. But after a
Speaker 2: few months, the executives at Warner tell Bushnell that he
Speaker 2: can stay on his chairman, but Kazar is going to
Speaker 2: be the CEO of Atari, and Bushell says, no, no,
Speaker 2: this shirt guy is not going to be the CEO
Speaker 2: of Atari, and Warner says, yeah, we own the company.
Speaker 2: He is going to be the CEO and if you
Speaker 2: don't like it, you're fired. And Bushnell says, no, I'm not.
Speaker 2: You can't fire me.
Speaker 3: I quit Ah expect something a little more creative from Bushnell,
Speaker 3: But maybe he made it. Maybe he was the first
Speaker 3: guy to say this.
Speaker 2: It's definitely on Bushnell's kind of cowboy brand, right, he
Speaker 2: doesn't need the money made a bunch of money selling Atari,
Speaker 2: And interestingly, he has this little side hustle at this
Speaker 2: point a place he started in order to collect all
Speaker 2: the quarters that people were putting into the Atari arcade games.
Speaker 2: A place called Chuck E. Cheese's Pizza Time Theater. Oh yeah,
Speaker 2: he had started as part of Atari, and then when
Speaker 2: Warner bought Atari, they're like, we don't want to own
Speaker 2: a pizza place, so he bought it from them for
Speaker 2: five hundred thousand dollars. So Bushnell is, you know, riding
Speaker 2: off into the sunset on an animatronic singing rat. Yeah, yeah,
Speaker 2: he's done an Atari.
Speaker 3: But luckily the geniuses at a giant media company know
Speaker 3: how to run a video game company.
Speaker 2: Right. That's after the break. We're back from the ad break.
Speaker 2: Bushnell is out and Kazar the shirt guy is in
Speaker 2: at Atari. And the next thing that happens is really surprising.
Speaker 2: This East Coast businessman who doesn't know anything about video
Speaker 2: games or engineering turns the Atari twenty six hundred into
Speaker 2: a smash hit. Turns out he's a really good marketer
Speaker 2: as a sense of what's going on, and he has
Speaker 2: the good sense to license a hit arcade game that
Speaker 2: was not made by Atari, a game called Space Invaders.
Speaker 2: I'm sure you remember, well, of course, beautiful game. He
Speaker 2: licenses it for Atari to develop for the twenty six hundred,
Speaker 2: and it is a huge hit.
Speaker 3: And this is a smart thing a big media company
Speaker 3: can do. Recognize basically franchises, right that are popular at
Speaker 3: the pizza place, which is where I played it, Red
Speaker 3: Banjo Pizza in Parks of Utah, and then get that
Speaker 3: into a home game, right, make money off of the name,
Speaker 3: and that's great.
Speaker 2: Yes, And remember they're in the console business, right, console
Speaker 2: business is not doing great. The console business needs its
Speaker 2: killer app. Space Invaders becomes the killer app, and the
Speaker 2: popularity of this piece of software drives the sales of
Speaker 2: the hardware. Right, Everybody goes out and buys a twenty
Speaker 2: six hundred so they can play Space Invaders. So revenue
Speaker 2: at Atari, before Kazar got there it was less than
Speaker 2: one hundred million, and after he'd been running Atari for
Speaker 2: a few years, revenues are over a billion. Right, he
Speaker 2: has ten ext it more. Now it's the early eighties
Speaker 2: and America is going bananas for video Pacman Feva, I
Speaker 2: don't know the name is an actual It was an
Speaker 2: actual hit song. I got a pocket full of quarters
Speaker 2: and I'm headed for the arcade. I don't make a
Speaker 2: lot of money, but I'm spending everything I make. I
Speaker 2: didn't look it up. I remember it, and if I'm
Speaker 2: misremembering it, you can tell me business history at pushkin FM.
Speaker 2: Everybody's getting into the video games business now. Toy companies
Speaker 2: in particular are looking at this and being like, oh,
Speaker 2: this is a toy so Mattel Barbie. You know, they
Speaker 2: make the intelevision Kaliko, which around this time is making
Speaker 2: Cabbage Patch Kids, another eighties shout out a Kalico makes
Speaker 2: Calliko Vision. But Atari is winning. They are dominant. They
Speaker 2: have something like eighty percent market share. Incredible, and this
Speaker 2: is the peak. This is the moment. You have finished
Speaker 2: the rise, and now we begin the fall. The fall
Speaker 2: starts with pac Man. Interestingly, this huge hit game, this
Speaker 2: huge hit arcade game, Atari doesn't make it, so they
Speaker 2: license it. Figure like work for Space Invaders, it'll work
Speaker 2: for pac Man. They make twelve million cartridges of pac Man,
Speaker 2: despite the fact that only ten million people own Atari
Speaker 2: twenty six hundred. They think this game is going to
Speaker 2: be so popular that everyone with an Atari will buy it,
Speaker 2: and two million more people will buy Atari consoles to play.
Speaker 2: It doesn't happen. The game kind of sucks, just technically
Speaker 2: doesn't play as well.
Speaker 3: Because part of the pac Man appeal was that it
Speaker 3: was a very fast movie game, like you had to
Speaker 3: turn on a dime. You have, like like you had
Speaker 3: these whole systems you had when you played in the arcades,
Speaker 3: and you wanted to use those systems at home, And
Speaker 3: if there's a little bit of a lag, it doesn't
Speaker 3: really quite works.
Speaker 2: YEA, Well, it's not fun enough, right, There is this
Speaker 2: thing where a videogram has to be really fun to
Speaker 2: be a big hit, and pac Man for the twenty
Speaker 2: six hundred is not fun enough. So it's starting to
Speaker 2: get bad, and it's gonna get worse. And the reason
Speaker 2: it gets worse, which I love, is Et the Extraterrestrial.
Speaker 3: Wait Et never made anything worse. He was so adorable.
Speaker 2: It's not his fault. Ou so Et comes out in
Speaker 2: the summer of eighty two. So giant hit holds up,
Speaker 2: by the way, at least I held up my budget.
Speaker 2: I don't know, eight years ago with my children made
Speaker 2: Reesi's Pieces a big hit. Twotiful movie was not distributed
Speaker 2: by Warner Brothers. It's not distributed by Warner the company
Speaker 2: that owns Atari, right and a Ross. The guy running
Speaker 2: Warner Brothers really wants to work with Spielberg. Of course,
Speaker 2: you want to work with Spielberg. You're runing a movie studio.
Speaker 2: You want to work with Spielberg. And so he thinks
Speaker 2: that turning ET into a hit game would help entice
Speaker 2: Spielberg to come work at Warner Brothers. So he makes
Speaker 2: this deal with Spielberg in the summer of eighty two.
Speaker 2: First of all, he pays a ton of money to
Speaker 2: license the game, and he tells Spielberg, we will have
Speaker 2: a great version of ET for the Atari twenty six
Speaker 2: hundred out in time for the Christmas season. A problem
Speaker 2: with this is it takes like five, five or six
Speaker 2: months to make a new video game, but to have
Speaker 2: the game in stores in time to sell it for
Speaker 2: the Christmas season. This is the summer already. Yeah, yeah,
Speaker 2: and they have to you know, produce the games. They're
Speaker 2: gonna have to write this game in like five or
Speaker 2: six weeks instead of five or six months, and people
Speaker 2: are tired, like, no, we can't do it. You can't
Speaker 2: make a good game that fast. It's just not the
Speaker 2: way it works. Kazar, who's running Atari, is like, no, whatever,
Speaker 2: it's Spielberg. What are you gonna say no to Spielberg?
Speaker 2: You say no to the CEO.
Speaker 3: No, we can make a s We can make a
Speaker 3: shirt in like three hours.
Speaker 2: Not many shirts. We could make my Christmas. You just
Speaker 2: gotta make one game. So they eventually find an engineer
Speaker 2: to make the game. A good engineer, guy who made
Speaker 2: Yars Revenge. I don't know if you remember that when
Speaker 2: it was a hit game at Atari. He gets it
Speaker 2: done in a matter of weeks. Atari makes five million copies,
Speaker 2: gets them on the shelves in time for the Christmas season.
Speaker 2: And the game is bad. The game is not fun.
Speaker 3: You just like you move them along, and he like
Speaker 3: falls into hole and he makes it like er Like yeah,
Speaker 3: I'm going I'm.
Speaker 2: Gonna read you. A couple of reviews from the time,
Speaker 2: one from a publication called Joystick. No c Et has
Speaker 2: nothing to phone home about? What another review from Electronic Games.
Speaker 2: If Et does call home, please don't tell him about this.
Speaker 2: I see a theme. So a there are millions of
Speaker 2: unsold copies. The engineer who made the game ends up
Speaker 2: leaving Atari, leaving the business, eventually becomes a therapist. It
Speaker 2: goes a lot for him to deal with, and Atari sucks.
Speaker 2: Now right now, the thing is like, oh, I went,
Speaker 2: I paid a lot of money for this game and
Speaker 2: it sucks.
Speaker 3: It's interesting, right, Like the thrill of a new invention
Speaker 3: only lasts so long. Right, you know the very first
Speaker 3: movie of you know, people moving around a garden, everybody's like,
Speaker 3: oh my god, it's amazing. You know, three weeks later
Speaker 3: they're like, the plot kind of sucks. Maybe an explosion
Speaker 3: or something, right, Yeah, probably the same thing with Gutenberg, right, yeah, yeah,
Speaker 3: that's amazing.
Speaker 2: Yeah, I read the Bible. You got to go anything else?
Speaker 2: What's what's the honess? Was it your horness? I think
Speaker 2: it's your honest, but don't know. Business history of push
Speaker 2: him out of him. End of the eighty two Actually,
Speaker 2: Warner announces earnings. Right, they're a public company, They're way
Speaker 2: worse than expected. The stock crashes and as we go
Speaker 2: into eighty three, now it's not just Atari, the whole
Speaker 2: video game industry collapses. There is this incredible glut of consoles.
Speaker 2: All these different companies are selling consoles of games there's
Speaker 2: a lot of really bad games. There's like third party
Speaker 2: companies are selling games, apparently chuck Wagon dog Food. There's
Speaker 2: like a chuck Wagon dog Food video game. And on
Speaker 2: top of all that, now you have home computers, real
Speaker 2: computers like we would think of as computers with keyboards.
Speaker 2: You know. There's the Commodore sixty four is coming out.
Speaker 2: At this time. At my house, we had the lesser
Speaker 2: known Texas Instruments t I ninety nine four A, which
Speaker 2: I remember for its cassette deck instead of a disk drive.
Speaker 2: So Atari is now losing hundreds of millions of dollars. Kazar,
Speaker 2: the CEO, he gets accused by the sec of insider
Speaker 2: trading of selling shares just before that bad earnings announcement
Speaker 2: at the end of eighty two. He leaves the company
Speaker 2: in the summer, says he didn't do anything wrong, but
Speaker 2: he's out. Word of replaces him with a marketing guy
Speaker 2: from Philip Morris, who helped come up with the Marlborough Man,
Speaker 2: and a few months later in the second half of
Speaker 2: eighty three, Atari actually has so much unsold merchandise, so
Speaker 2: many video games that nobody wants to buy, that they
Speaker 2: actually go and supposedly dump hundreds of thousands of unsold
Speaker 2: cartridges in a landfill and a pit in Alamo Gordo,
Speaker 2: New Mexico and cover it up. It's heartbreaking, it's heartbreaking,
Speaker 2: and is it even true? Delightfully, I don't know. Ten
Speaker 2: years ago or so they made a documentary they actually
Speaker 2: went and dug up the landfill in Alamogordo, and in
Speaker 2: fact they found et cartridges there and other video games.
Speaker 2: This is really the end for Atari, and it's perfect
Speaker 2: obviously metaphorically right, Like it's a burial. They are burying
Speaker 2: video games, and you know Atari is going to have
Speaker 2: this sort of shambalic afterlife. As brands do, as companies do,
Speaker 2: they get acquired and acquired and whatever. So let's go
Speaker 2: back to the question we asked at the beginning and
Speaker 2: try and answer it right. Like, Atari practically speaking, invented
Speaker 2: video games. They changed culture, they changed business, They brought
Speaker 2: the computer to the home. Video games continued to be
Speaker 2: this giant thing. Atari disappeared. Why, Like why did that happen?
Speaker 2: And I think there are a few answers that it's
Speaker 2: worth going through right on. One is just timing. One
Speaker 2: is just kind of bad luck, right, like the Crash
Speaker 2: of eighty three. The video game crash of eighty three
Speaker 2: was brutal, and it took out everybody, right, It took
Speaker 2: out Atari, but it also took out Callco, which was
Speaker 2: making Calleco Vision. It also took out you know, Mattel
Speaker 2: gave up on intelevision.
Speaker 3: And so as the incumbent Atari had more money invested
Speaker 3: they had, they were further out over their skis when
Speaker 3: the crash came. Yes, yes, and huge warehouses, employees, engineers, the.
Speaker 2: Whole thing, hundreds of thousands of cartridges.
Speaker 3: Yeah, and they have to keep, you know, putting out
Speaker 3: these things to support their legacy systems. Right. It's a
Speaker 3: classic classic incumbent proplem. Yeah.
Speaker 2: And the glut goes on for a few years through
Speaker 2: the mid eighties, and and you know, retailers themselves don't
Speaker 2: want to stock video games anymore. They were left with them.
Speaker 2: And in fact, when the next video game revival comes,
Speaker 2: it's driven notably by a game that doesn't call itself
Speaker 2: a video game, calls itself an entertainment system, the Nintendo
Speaker 2: Entertainment System Classic. So you know, maybe anybody would have
Speaker 2: got wiped out. Maybe there was nothing Tari could have done.
Speaker 2: But I do wonder. You have to wonder, right, what
Speaker 2: would have happened if Bushnell had managed to hold onto
Speaker 2: the company, if he'd managed to say go public, to
Speaker 2: not have to sell to Warner, Because clearly Bushnell was
Speaker 2: the perfect guy to run a video game company, right.
Speaker 2: He was the amusement park carnee genius, who knew what
Speaker 2: fun was, who knew what games were, who was also
Speaker 2: an engineer, who also created this culture where engineers could
Speaker 2: come and play and be creative. And when he sold,
Speaker 2: he sold to an entertainment company. It's not about the
Speaker 2: engineering for them, which is why they sent a shirt
Speaker 2: guy to run Atari.
Speaker 3: Right. He knew logistics, he knew selling, he knew how
Speaker 3: to get things into stores.
Speaker 2: Sure, but it does seem like he thought the engineers
Speaker 2: were just employees on an assembly line. And that was
Speaker 2: a key mistake. And there's one story that I want
Speaker 2: to end with and I think really reveals this what
Speaker 2: a mistake that was. And that's this. Not long after
Speaker 2: Kazar took over a few of the engineers, the game designers,
Speaker 2: the guys actually creating these games, realized that they had
Speaker 2: created games that were making the company millions of dollars
Speaker 2: and they were, you know, staff employees making like twenty
Speaker 2: thousand dollars a year or something. And so they went
Speaker 2: to Gazar to ask for a better deal. They're like, look,
Speaker 2: we're making these games, they're making all this money, give
Speaker 2: us a better deal. And because I said no, he's like,
Speaker 2: anybody can do that, you know, you guys are just
Speaker 2: cranking out these things. And so these game designers left
Speaker 2: and they started their own video game company, not to
Speaker 2: make hardware, just to make games, which was not a
Speaker 2: thing yet. Right, They are inventing the standalone video game company,
Speaker 2: and they create a company called Activision, and Activision survives
Speaker 2: the crash of eighty three and goes on to become
Speaker 2: one of the biggest video game companies in the world.
Speaker 2: They create Call of Duty, this gigantic franchise. They eventually
Speaker 2: merge with another company called Blizzard, and in twenty twenty two,
Speaker 2: Activision Blizzard gets bought by Microsoft for sixty nine billion dollars. Nice. So, so,
Speaker 2: you know, when you look at the video game industry
Speaker 2: over the long arc, what you see is the companies
Speaker 2: that wind up dominating it are not media companies, right. Basically, Nintendo, Sony, Microsoft,
Speaker 2: These are all companies with very deep roots in electronics.
Speaker 2: They are all at some level technology companies, and once
Speaker 2: Bushnell left Atari, I think at a deep level it
Speaker 2: wasn't fundamentally run like a technology company anymore, and that
Speaker 2: is why Atari failed.
Speaker 3: I disagree. I think Bushnell had his moment, he changed
Speaker 3: the world, but as we often see with technology companies,
Speaker 3: the person who founded the company might not be the
Speaker 3: person to take it all the way. You know, he
Speaker 3: was using it as a game company, and it would
Speaker 3: eventually become a multi media you know, essentially movies in
Speaker 3: a box, a huge technological innovation that I'm not sure
Speaker 3: he could have done. And we see this across other industries. Right,
Speaker 3: the first mover advantage is usually not an advantage, right,
Speaker 3: because you have to spend all this money solving problems
Speaker 3: that other people can come and just take from you.
Speaker 3: But also you have a certain arrogance, right you are
Speaker 3: the successful leader. Everyone wants an Atari, Everyone has an
Speaker 3: Atari system, so you don't really have to innovate to
Speaker 3: make a better Atari system. You just have to get
Speaker 3: him to just keep buying cartridges. And yes, Atari did
Speaker 3: try and come up with a new system, and it
Speaker 3: was okay, right, it just didn't work that well because
Speaker 3: I think they were like, the world will always have Atari,
Speaker 3: Atari will always be number one. You can't conceive of
Speaker 3: a world without Atari, and then it happened.
Speaker 2: We live in a world without Aitari. If you were
Speaker 2: into video games, there's a good chance you have thoughts
Speaker 2: about the things we got wrong on today's show.
Speaker 3: And I don't take it to Reddit. Take it to
Speaker 3: the email systems.
Speaker 2: Write to us at business History at pushkin dot fm,
Speaker 2: or leave us a comment. I will read all the
Speaker 2: emails in the comments, because frankly, we don't get that
Speaker 2: many yet, and I want to get more and I
Speaker 2: want to make the show better. Tell us if you
Speaker 2: listen to the show, if you watch the show, what
Speaker 2: do you want to hear? What do you want to see?
Speaker 2: We want to make shows that you like. We're very
Speaker 2: grateful that you're listening. And tell a friend if you
Speaker 2: like it. Today's show was produced by Gabriel Hunter Chang,
Speaker 2: It was engineered by Sarah Bruguerer, and it was edited
Speaker 2: by our showrunner, Ryan Dilley, who told me that if
Speaker 2: you had told him in nineteen eighty two that he
Speaker 2: could play et at home and have a coca cola.
Speaker 2: He would have thought it was the greatest thing in
Speaker 2: the world.