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

by Steven Kent

  They trained all their energy on Custer’s Revenge and they succeeded in helping it sell twice as many copies as the other adult games. Mystique sold approximately 80,000 copies of Custer’s Revenge at a time when games were starting to sell half a million or more.

  —Arnie Katz, former editor in chief, Electronic Games

  Another sign of the video-game industry’s growing strength was its continuing expansion. In 1982, Activision replaced Atari as the fastest-growing company in the history of the United States. Riding high with such hits as Pitfall and River Raid, Activision had $150 million in sales in 1982.

  Activision was extremely successful. At one time, before Compaq came along, it was considered the fastest-growing American company in history. We grew from zero to $160 million in annual sales in three years.

  —Alan Miller, cofounder, Activision

  In April 1982, Atari released one of the most anticipated video-game cartridges of all time—the VCS version of Pac-Man. Demand for the game was so immense that Atari executives believed that many consumers would purchase VCSs just to play Pac-Man. Atari manufactured 12 million Pac-Man cartridges.

  In 1982 we shipped 12 million Pac-Man cartridges. It was a record. I mean, to ship 12 million of one product at a retail price of $25.75 was extraordinary.

  —Ray Kassar, former president and CEO, Atari

  We were the first retailer ever to go and do national network television advertising behind a software title. That was April 6, 1982, the launch of that little guy called Pac-Man. We sold over a million Pac-Man cartridges.

  —Al Nilsen, former toy buyer, JC Penney

  The video-game industry became frenzied with excitement with the release of Pac-Man. Drugstores opened video-game counters, toy stores fought for the latest cartridges, and Kmart and JC Penney challenged Sears’s claim as the largest video-game vendor. In the end, JC Penney, led by a savvy toy buyer named Al Nilsen, narrowly inched out Sears to become Atari’s number-one retail partner.

  General Computer and Atari

  Kevin [Curran] and I, as we found out later, were naïve students. We kind of misunderstood what they meant and thought they really were paying us money to develop video games since that’s what the contract stated.

  Later, years later over beers, we were all laughing at the fact that the intent was to pay us $50,000 a month for two years to go away.

  —Doug Macrae, cofounder, General Computer

  In August of 1981, Atari took General Computer to court to stop it from making enhancement boards. The case was settled out of court. General Computer agreed to make video games for Atari and stop making enhancement boards, and Atari dropped the suit and paid General Computer $50,000 per month for the next two years in exchange for first refusal rights on all games they might make.

  Doug Macrae and Kevin Curran, founders of General Computer, immediately set up a larger shop and hired programmers to help design and build new games. What they did not understand was that Atari did not expect to receive games; the $50,000 per month was Atari’s way of buying them out of the industry.

  Within 90 days, they called Atari, asking how they could submit their first game—an arcade game called Food Fight.

  Atari did not hear from us for about 90 days, and we called them up and said, “We’ve got our first video game we’d like you to take a look at.” They sounded kind of shocked, saying, “We did not really expect it…. sure.” And we brought out to them the game Food Fight.

  —Doug Macrae

  Food Fight was a fast-paced chase game, in which Charley Chuck, a blonde-haired boy, picked up pies, bananas, and other foods and threw them at chefs as they tried to corner him. It was a simple game in which the goal was to eat the ice cream cone on the other side of the board. The boy throwing the food was designed to look like Jonathan Hurd, the lead programmer on the project. Atari bought the game and published it.

  Though Food Fight was not a particularly successful game, the speed with which General Computer created the game impressed Atari executives. Asked if they could also make games for the VCS, Curran and Macrae said they could and began making what turned out to be some of the most popular cartridges Atari ever offered.

  Between 1982 and 1984, General Computer hired a pool of seventy engineers, making it much larger than Atari’s internal VCS research and development team. Curran and Macrae produced seventy-two games during that time, including the VCS versions of Ms. Pac-Man, Centipede, and Pole Position.

  The Atari 5200

  Toward the end of 1982, Atari finally made the hardware upgrade that Nolan Bushnell had suggested in 1978: a new and improved game console called the Atari 5200. Shaped like a large, rectangular wedge, the 5200 had the same processor as the Atari 400 home computer and retailed for $250.

  Atari’s engineering team was particularly unhappy with the 5200. In the months before its launch, team members passed a petition around the research and development department to try and get the system dropped unless new controllers were added. When they gave the petition to Ray Kassar, however, he decided to ignore it and pushed the system through manufacturing.

  At its launch, Atari released translations of Super Breakout, Pac-Man, Centipede, Space Invaders, Defender, Missile Command, and Galaxian to support the new system. (More than half of the games for the 5200 were developed by General Computer.) In all, twelve cartridges were ready at the time of the launch.

  Most reviewers and analysts were impressed. Newsweek called the 5200 “a quantum improvement over the standard 2600 (with the release of the 5200, Atari began referring to the VCS as the 2600).”4 Video Games magazine called the 5200 “a classy act” and complimented the unit for its special effects, its high-resolution color graphics, its ability to handle several moving objects at one time, and its sophisticated sound synthesizer.5

  Despite its strengths, the 5200 had a few strikes against it. It cost more than ColecoVision, yet its graphics were not as attractive. It had a fairly small library of games, and Atari’s programming team could not devote its full attention to the 5200 because it was still making games for the huge 2600 user base. According to Arnie Katz, editor in chief of Electronic Games, the 5200 was “a buggy, unpleasant system with basically the same old games turned up a notch in terms of audiovisual quality.”

  The 5200’s biggest problem, according to Electronic Games executive editor Bill Kunkel, was its controller. The joysticks on the 5200 did not center themselves, making it harder to control the action. Other joysticks had self-centering springs, but the joysticks on the 5200 simply fell over.

  The 2600 was fading. ColecoVision had already passed it, so they moved to their next-generation system, which was the 5200.

  The 5200 had several strong titles. They ported over all the best 400/800 computer games on to 5200 cartridges.

  But the 5200 was a doomed system because of one simple thing: it had the worst controllers in the history of the business—this non-centering joystick. Dead fish floppo joysticks. Just try playing Dig Dug or Pac-Man with a floppo joystick.

  —Bill Kunkel, former executive editor, Electronic Games

  Vectrex

  In 1982, General Consumer Electronics (GCE) released a product that bridged the gap between tabletop electronics and video game consoles—the Vectrex. Standing approximately 14 inches tall, the Vectrex had a 9-inch black-and-white vector-graphics monitor built into its cabinet, a slot for game cartridges, and an extremely bulky built-in game pad.

  Rumor had it that GCE president Ed Krakauer was traveling in the Orient when he was approached by an Asian businessman. The businessman had a warehouse full of monitors that had been built for use in cardiogram machines. According to the rumor, the businessman offered to sell Krakauer the monitors for less than it cost to build them (the company that originally ordered having refused delivery). Krakauer bought the monitors and had an engineering team design a game console around them. The system name: Vectrex.

  Retailing for $199, the Vectrex was a great success, and
GCE sold its entire inventory. Unfortunately, once Krakauer’s supply of monitors ran out, so did his business. When Krakauer returned to Asia, hoping to secure a good price on another shipment of monitors, he discovered that ordering vector monitors from a manufacturer was far more expensive than purchasing them from a distressed supplier, so he pulled the plug on his business.

  According to Hope Neiman, one of the first GCE employees, this legend about the warehouse of unwanted monitors is completely inaccurate.

  The story about the monitors was not true. In fact, it was a real problem for us to get 9-inch monitors made because nobody really was doing them anymore. Everything was going bigger and bigger in those days.

  We made the monitors in Hong Kong.

  —Hope Neiman, former marketing director, General Consumer Electronics

  Ed Krakauer, Lee Chaden, and Shelly Morrick, the founders of GCE, envisioned making a game console with a built-in screen from the day they started their company. There was no chance encounter in Hong Kong and no warehouse filled with cut-rate monitors.

  Developing the console required capital. Like Coleco, GCE used revenues from the lucrative handheld-games market of the late 1970s to develop a video-game console.

  Development was very costly. In order to create some additional cash flow, we created these three game watches—GameTime, ArcadeTime, and SportsTime. The latter two both featured little joysticks on the watch, in addition to a single button.

  Each of them had a feature that allowed you to turn the sound off. This totally endeared us to parents. You could play them in school without your teacher knowing that you were really playing. I think they sold for $39.95.

  —Hope Neiman

  Like many small companies, GCE had a small staff and a small budget. Many of the company’s games were developed by outside programmers since only three people were on GCE’s research and development team. When Toys “R” Us refused to carry GameTime on the grounds that GCE was too small to advertise, GCE created demand for its products by sending thousands of free samples to subscribers of Boy’s Life, along with notes that instructed the kids to request GameTime at local toy stores. So many kids went into Toys “R” Us stores asking for the product that the company began carrying GCE products.

  Before GCE could market the Vectrex, the company ran into funding problems. Looking for a partner, Hope Neiman flew to Massachusetts and presented the system to executives of Milton Bradley, a company that had raked in huge profits from such early portable games as Simon.

  We were going to have to get the cost of the unit down and probably lose money, which is what happens today, in order to get the hardware into people’s hands. That was going to take a major investor. The industry was hot and the public markets were bad.

  In the mid-1980s, you couldn’t go public and expect to achieve anything as far as a reasonable return on your investment. The industry was very hot and Ed was very well connected, so we got a lot of interest. I presented before every major studio. I presented to all the major toy companies, venture capitalists, you name it. We probably did fifty presentations in the span of a month.

  [The executives at] Milton Bradley felt they had really missed the boat on the business; after all, Mattel had become a major player with Intellivision. Their management was somewhat stodgy and they sort of knew that this would be sort of a cool thing to do, but they weren’t sure that they really wanted to do it.

  They decided to buy the company. They initially bought the company, saying they were going to leave us alone because we had shown them that we were a success.

  —Hope Neiman

  The Vectrex’s vector-graphics screen proved to be both a bane and a blessing. Hardcore video-game enthusiasts liked its high-resolution images. Vector-based games like Tempest and Star Trek were still big in the arcades at the time, so many arcade fans knew about the advantages of vector graphics. Many parents also liked having a game system with its own monitor because that made it possible for them to watch television while their children played games.* A Newsweek author praised the Vectrex’s graphics in a holiday article about the video-game phenomenon.

  The general public, however, considered vector graphics boring when compared to the colorful arcade translations available for the Video Computer System (VCS), the Intellivision, and particularly the ColecoVision.

  In an effort to add color to its games, GCE borrowed a page from the Magnavox Odyssey and created plastic overlays for players to place over their screens. This scheme might have come across as completely ridiculous had Cinematronics not used a similar scheme to add color to the arcade version of Star Castle a few years earlier.**

  Milton Bradley demonstrated the Vectrex at the Winter Consumer Electronics Show in 1982 and began shipping it in October of that year. The system retailed for $199 and had an Asteroids-like game called Mine Storm burned into its circuits. Additional game cartridges sold for $30 to $40. The entire shipment sold out, grossing approximately $80 million.

  The Field

  Atari, Coleco, and Milton Bradley weren’t the only companies hoping to cash in on the video-game craze in 1982. Mattel released a voice module that enabled certain Intellivision games to speak. Magnavox, still trying to reenter the market with Odyssey 2, also released a voice module. In May 1982, Astrovision released the Astrocade, a system originally launched as the Bally Astrocade by Bally in 1978.

  The most improbable product of 1982, however, came from Zircon International, which relaunched the Fairchild Channel F, with some enhancements, as the Channel F II.

  In a Newsweek article on October 24, 1982, reporters William D. Marbach and Peter McAlevey summarized the industry and its best prospects for Christmas.

  Here they come. Zaxxon, Smurf, E.T., Donkey Kong and more; a new generation of video games—and game machines—is gobbling its way onto toy-store shelves like so many Pac-Men. By and large, the entries are a startling leap forward. Manufacturers have taken maximum advantage of recent advances in semiconductor technology to create state-of-the-art fun. For the first time, the graphics and play action of home games are beginning to approach the quality of video-arcade games. In some cases, home-video makers have even vaulted ahead with games that “talk.”

  The new products will all be out just in time for Christmas. Manufacturers are gunning for each other like starship pilots facing an onslaught of alien ships. The stakes are huge: the booming video-game industry has become almost as big as the movie business and a single top-selling home video-game cartridge may soon be able to outsell all but Hollywood’s biggest blockbusters.6

  The Big Surprise

  On December 7, 1982, Atari announced that it expected a 10 to 15 percent increase in sales in the fourth quarter. Until that announcement, Atari executives had been talking about an increase of 50 percent. Analysts were shocked. Atari had never given any indication that sales were not on target. The news set off a panic.

  By the time the New York Stock Exchange closed on December 8, Warner stock had fallen 16¾ points to 35⅛ and the video-game industry had begun to collapse.

  Warner Communications was further embarrassed a few days later when it was discovered that Atari president and CEO Ray Kassar had sold 5,000 shares of Warner stock 23 minutes before announcing the company’s sales figures. He said that the announcement had nothing to do with his transaction and eventually returned the money, but the damage was done.

  I sold 5,000 shares of Warner Communications, which represented 1 percent of my total holdings.

  The timing was unfortunate, but the reason I sold those shares was that I had been working with my investment counselor on a new investment opportunity that developed and they needed that amount of money. I think it was about $82,000. So I sold the stock, and I reported the sale to the company.

  There was an SEC investigation. It was resolved, and there was no action. If I was really bailing out, I would have sold hundreds of thousands of shares of Warner Communication, not 5,000 shares.

  —Ray Kassa
r

  Atari had deeply rooted problems that eventually infected the entire video-game industry. During its heyday, Atari became top-heavy with marketers and other executives. As several ex-Atari people later described the situation, the company had entirely abandoned its carefree youth and become a home for MBAs.

  With the continuing growth of video games, some executives began to believe that they could sell anything as long as it came packaged as a video game. Purina created a game titled Chase the Chuck Wagon, a video-game version of a television commercial for Chuck Wagon dog food. Atari even released a video-game version of the Rubik’s Cube.

  We had 24- and 26-year-old MBAs running around making multimillion-dollar decisions. I remember shortly after I first joined Atari, I guess I had been there for less then a month, and they had just signed up to do a video rendition of Rubik’s Cube.

  There was a woman who was running the marketing for the North American side of the business, and she came up to me and asked me if International [the International division of Atari] would be interested in marketing it internationally. And I said, “No. Absolutely not.”

  She was quite surprised that I could make a decision that quickly, and she said, “Well, why wouldn’t you be interested in it?”

  I said, “Well, you’re going to have to help me understand why a $40 electronic rendition of this product is better than the $3.98 [original] rendition that is more portable and that I can take anywhere I want. When you can convince me of that, I’ll be happy to consider this for International.”