Console Wars
Page 6
After experiencing the nation’s unquenchable thirst for videogames firsthand, Stone and Judy believed they had caught lightning in a bottle. But despite the bottle full of lightning, their bank accounts weren’t roaring with thunder. The outrageous profits they were making from the arcade cabinets were being canceled out by the trucking company’s continuing losses. They decided that it was time to unwind the trucking company and go all in on videogames, but to do so they needed additional financing, and at the time banks were highly skeptical of this newfangled industry. This left Stone and Judy in an awkward position, not knowing where to turn next, until they got a call from a man named Minoru Arakawa and things came into focus.
From Arakawa’s perspective, Stone and Judy were a godsend: a pair of hard-nosed entrepreneurs who had already developed a network of sales contacts. He wanted them to stop working for the company that was selling Nintendo games and come work directly for him. For Stone and Judy, this was a no-brainer on a variety of levels: though their margins would be slightly reduced, this solved their financing dilemma, secured a steady stream of product, and would even get their travel expenses reimbursed. With so much upside for all involved, the only possible way this arrangement wouldn’t work out was if Nintendo’s upcoming games weren’t any good. And, unfortunately, that’s exactly what happened next.
Space Fever was followed by Space Launcher (underwhelming), which was followed by Space Firebird (disappointing), which was followed by a slew of unsuccessful non-space-themed games. After this string of mediocre misfires, Stone and Judy were ready to quit, and Arakawa couldn’t help but reconsider his new vocation. More than ever, Nintendo of America needed a megahit, like Pong or Pac-Man, to keep the dream alive. And just when it appeared time was running out, Arakawa believed that he’d found what he needed: Radarscope.
At first glance, Radarscope may have appeared to be just another shoot-’em-up space game, but it distinguished itself with incredibly sharp graphics and an innovative 3-D perspective. After receiving positive feedback from test locations around the Seattle area, Arakawa invested much of NOA’s remaining resources and ordered three thousand units. But a few weeks later, before the rest of the arcade cabinets even arrived, Arakawa felt an ominous chill upon revisiting the test locations, where he noticed that nobody was playing Radarscope. That foreboding feeling was validated after the three thousand units finally arrived and Stone and Judy found that operators had little interest in the title. Radarscope was fun at first, the consensus appeared to be, but it lacked replay value.
3. Miyamoto
With so much invested in this game, it would be too expensive to send all the bulky arcade cabinets back to Japan and then import something else. The last remaining hope was for a designer in Japan to quickly create a game that would be compatible with Radarscope’s infrastructure (and, when finished, send over processors with that new game to America, where NOA employees could swap out the motherboard and then repaint the arcade cabinets to reflect this new game). This task was given to Shigeru Miyamoto, a floppy-haired first-time game designer who idealistically believed that videogames should be treated with the same respect given to books, movies, and television shows. His efforts to elevate the art form were immediately given a boost when he was informed that Nintendo was close to finalizing a licensing deal with King Features, enabling him to develop his game around the popular cartoon series Popeye the Sailor Man. Using those characters, he began crafting a game where Popeye must rescue his beloved Olive Oyl by hopping over obstacles tossed in his way by his obese archenemy, Bluto.
Meanwhile, as Miyamoto set out to save NOA, Arakawa wanted to take precautions against something like this happening again. The major takeaway, of course, was to be more attuned to the fickle nature of arcade players, but there was another lesson here as well. Part of the problem with Radarscope could be attributed to the long shipping time (about four months) and the high cost of transporting the arcade cabinets. One way to cut back on both was to find an office closer to Japan, which prompted Arakawa to move Nintendo of America from New York to a warehouse with three small offices located at Seattle’s Segali Business Park.
Shortly after the cross-country move, shipments containing the code for Miyamoto’s new game began to arrive. Due to last-minute negotiation issues with King Features, Nintendo had lost the rights to Popeye, which forced Miyamoto to come up with something else. As a result, Arakawa, Stone, Judy, and a handful of warehouse employees didn’t know what to expect. They inserted the new processor into one of the thousands of unsold Radarscope machines and then watched the lights flicker as the words “Donkey Kong” came to life on the arcade screen. The initial impression was that this was a silly game with an even sillier name. Who would possibly want to play a game where a tiny red plumber must rescue his beloved princess by hopping over obstacles tossed in his way by an obese gorilla? Yet, with no remaining options, Stone and Judy set out across the country to sell this wacky thing called Donkey Kong.
Seemingly overnight, it turned into the hottest game of the year, and eventually it became the most popular arcade game of all time. Never before had there been a quarter magnet quite like Donkey Kong. It was so successful, in fact, that it eventually attracted the attention of a major Hollywood studio, whose high-priced legal team believed that the game violated copyrights, and they threatened to crush Nintendo. To avoid this potentially crippling blow, Arakawa turned to the only lawyer he knew in Seattle: Howard Lincoln, an elegant, imposing former naval attorney with the claim to fame of having modeled for Norman Rockwell’s painting The Scoutmaster when he was a child.
4. Lincoln
Lincoln had first crossed paths with Arakawa about one year earlier when his clients Al Stone and Ron Judy needed him to review their contract with Nintendo of America. After that, Lincoln slowly but surely took on the role of Arakawa’s consigliore, weighing in on any matter with legal ramifications, which in corporate America was just about everything. As Nintendo of America grew, Lincoln drew up new employment agreements (Stone became NOA’s VP of sales and Judy NOA’s VP of marketing), looked at various business deals (Arakawa was interested in buying the franchise rights to Chuck E. Cheese Pizza Time Theater), and handled some tough matters (like siccing the U.S. marshals on bootleggers to take down rings of Donkey Kong counterfeiters). Through it all, Lincoln and Arakawa had forged an unshakable lifelong friendship. Which is why Lincoln was the first person Arakawa contacted when, in April 1982, MCA Universal sent a telex to NCL explaining that Nintendo had forty-eight hours to hand over all profits from Donkey Kong due to the game’s copyright infringement on their 1933 classic movie King Kong.
To sort this out, Lincoln and Arakawa flew out to Los Angeles for a meeting with the movie studio. It didn’t take long for them to realize that this was a high-stakes shakedown. Though never explicit, Universal’s ultimatum was simple: Settle this, or we’ll make life at tiny Nintendo so difficult that the company will have to fold. With Nintendo’s fate once again on the line, the prudent thing to do was pay the ransom. But Lincoln believed he could win this thing—and not just win, but actually get Universal to pay damages to Nintendo. It was a risky call, but Arakawa was forever willing to gamble on Howard Lincoln. As a result, they decided to take on the movie moguls at MCA Universal and, in true Nintendo spirit, leave luck to heaven (and Howard).
As a trial neared, Universal didn’t just go after Nintendo but also went after those who had licensed the game. Unlike Nintendo, however, these licensees (Atari, Coleco, and Ruby-Spears) weren’t willing to take the same gamble, and all opted for settlement. Even with these threats plus a barrage of cease-and-desist letters from Universal, Lincoln remained confident. Part of this was personality, but a larger part was the ace tucked away up his sleeve: in all of his research, there didn’t appear to be a single document indicating that Universal had trademarked King Kong. There was no doubt, of course, that they had made the movie, but Lincoln believed that they had failed to take the necessary measure
s to own what they thought they owned, and that the famous gorilla belonged to public domain. And in early 1983, when both parties revealed their cards, Judge Robert W. Sweet sided with Nintendo. He concluded that they had not infringed and, as Lincoln had predicted earlier, he awarded Nintendo over $1 million in legal fees and damages.
The Donkey Kong fiasco-turned-feat caused many ripples, but three waves in particular were instrumental in creating the eventual tsunami that would be Nintendo. First, Lincoln became NOA’s senior vice president, officially making him the ying to Arakawa’s yang. Second these events foreshadowed an aggressive, litigious nature that many would say later defined the company. And third, the verdict kept the Donkey Kong cash flowing, which provided Nintendo with a war chest of funds at what would soon prove to be a very crucial time.
5. Borofsky and Associates
By the early 1980s, the videogame bonanza had become so lucrative that everyone wanted in on the action. This included companies that had no business entering the market (like Purina, whose Chase the Chuck Wagon was designed to help promote their Chuck Wagon brand of dog food), companies that didn’t quite understand the market (like Dunhill Electronics, whose Tax Avoiders allowed players to jockey past a maze of evil accountants and onerous IRS agents), and lowbrow companies that set out to polarize the market (like Mystique, whose flair for pornographic titles was highlighted by their 1982 anticlassic Custer’s Revenge, which follows a naked cowboy on his quest to rape Native American women). With games like these becoming more and more common, the marketplace was overrun by a glut of smut, muck, and mediocrity.
What once was hot now was cold, and just like that, the North American videogame industry ground to a halt. Hardware companies (like Atari) went bankrupt, software companies (like Sega) were sold for pennies on the dollar, and retailers (like Sears) vowed never to make the same mistake again. Meanwhile, as the gods of this golden age were thrown overboard, Nintendo quietly glided through the bloody waters on a gorilla-shaped raft. The continuing cash flow from Donkey Kong enabled Arakawa, Stone, Judy, and Lincoln to dream of a new world order, one where NOA miraculously resurrected the industry and Nintendo reigned supreme. Not now, perhaps, but one day soon.
In Japan, however, that time had already come. Yamauchi’s large investment in R&D had paid off once again, this time resulting in the Family Computer. The Famicom, as it was commonly called, was an 8-bit console that stood head and shoulders above anything that had ever come before. Since Japan’s conservative markets had avoided any sort of gaming crash, the Famicom was released in July 1983 along with three games: Donkey Kong, Donkey Kong Jr., and Popeye, which Miyamoto ended up designing after licensing negotiations got back on track. The Famicom stumbled out of the gate but was soon rescued by heavy advertising and the release that September of Super Mario Bros. (another Miyamoto brainchild). Things looked promising until it was discovered that some consoles contained a bad chip set, causing certain games to freeze. Instead of simply issuing fixes to customers with faulty systems, Nintendo issued a full product recall. Tens of millions of dollars were lost due to this approach, but Yamauchi believed it was a small price to pay to retain a peerless, quality-centric reputation. His gamble paid off, and soon Nintendo’s factory couldn’t keep up with the demand.
As sales soared to staggering heights, Yamauchi pressured his son-in-law to introduce the Famicom in America. Arakawa resisted, exercising patience. The U.S. market was still licking its wounds from the videogame crash, and releasing the right console at the wrong time would be a recipe for disaster. For this reason, he continued to rebuff the suggestion until 1984, when he was finally willing to consider the notion—but only if the console Nintendo of America sold looked nothing like a console at all.
This wolf-in-sheep’s-clothing logic led to the Advanced Video System (AVS). Though the guts of this machine were nearly identical to the Famicom’s, the AVS hardly resembled its foreign relative. Functionally, it came with a computer keyboard, a musical keyboard, and a cassette recorder; aesthetically, it was slim and sleek, with a subdued gray coloring that contrasted sharply with the Famicom’s peppy red and white palette. Nintendo’s AVS, the nonconsole console, was first introduced at the 1984 Winter Consumer Electronics Show, where it was accompanied by a brochure that proclaimed, “The evolution of a species is now complete.” Of the thousands of companies there who had rented booths to showcase upcoming products, Nintendo was the only one who wasn’t trying to sell theirs. Arakawa simply wanted to gauge the market reaction, which was as distressing as he had feared: nothing but scoffs, sighs, and sob stories. Nobody there wanted anything to do with Nintendo, except for a tanned man with piercing blue eyes who stared at the Advanced Video System as if it were the legendary sword in the stone. He then introduced himself with an understated sureness that would have made even King Arthur jealous. His name was Sam Borofsky.
Borofsky ran Sam Borofsky Associates, a marketing and sales representative firm based in Manhattan. The purpose of such a firm is, essentially, to serve as the go-between for suppliers and retailers, with the logic being that the commission they take is offset by the additional opportunities they create. And when it came to doing that for consumer electronics, Sam Borofsky Associates was one of the best in the business. Back in the late seventies, they became one of the first firms to represent videogames, and at the height of the boom they had been responsible for over 30 percent of Atari’s sales. If Nintendo of America ever wanted retailers to reopen their doors, then these were the guys who ought to do the knocking. From Borofsky’s end, the attraction was equally strong. Ever since Atari had imploded, he’d been scouring the country in search of the next big thing, and as he reviewed what Nintendo had to offer, he believed he had found it.
Arakawa, however, still needed convincing, which Borofsky was happy to provide. He spent months detailing Atari’s pitfalls (like oversaturation), coming up with solutions for those problems (always, no matter what, underdeliver on orders), and outlining plans for a proposed launch. Meanwhile, Nintendo of America put another new costume on the Famicom, this time dressing it up as an all-in-one entertainment center for kids. The result of the rebranding effort was a clunky gray lunchbox-like contraption and, along with that, a new lexicon to differentiate it from its predecessors: cartridges were now dubbed Game Paks, the hardware was dubbed the Control Deck, and the entire videogame console was rechristened the Nintendo Entertainment System (NES). And to round out the renovation, the NES came with a pair of groundbreaking peripherals: a slick light-zapper gun and an amiable interactive robot named R.O.B.
With all the pieces in place, Borofsky finally persuaded Arakawa that now was the time to strike and that he was the man to lead the charge. Upon receiving the green light, Borofsky begged, pleaded, and haggled with retailers all over New York. From Crazy Eddie and The Wiz to Macy’s and Gimbels, he reached out to them all. If and when a retailer was finally willing to consider Nintendo, Borofsky would head over there with his trusted associate Randy Peretzman, the man with the twenty-six-inch suitcase. Peretzman was Borofsky’s VP of sales, a gritty but graceful Bronx-born salesman who operated with an unwavering tell-it-how-it-is attitude. As the go-to guy for demonstrations and presentations, he was entrusted with Nintendo of America’s first prototype of the NES, which he gently packed into the soft foam cutouts of a twenty-six-inch hard-sided gray suitcase. With the suitcase in hand, he would pinball around the city visiting distrustful retailers, intent upon proving that his luggage would trump their baggage.
Eventually Peretzman, Borofsky, and his tireless associates persuaded retailers to gamble on Nintendo and to stock the NES in time for the coveted Christmas season. The orders came in dribs and drabs at first, but by late 1985 the numbers were slowly beginning to add up. Then it was time for Nintendo’s ultimate test: the product launch. If things went well, the NES would be rolled out nationwide the following year. But if things went poorly, then Nintendo of America would forget about consoles once and for all.
As the test launch approached, things did not look promising. Focus groups suggested that the NES would be a colossal flop, R.O.B. kept malfunctioning during Peretzman’s pitches, and the press showed no interest in covering Nintendo (leading one employee to suggest a publicity stunt that involved throwing a fleet of R.O.B.’s off the Brooklyn Bridge). Arakawa, however, remained undeterred. He temporarily relocated a handful of employees to the East Coast after leasing a warehouse in Hackensack, New Jersey, where Nintendo could house inventory, build in-store displays, and, most important, resemble a legitimate company to still-skeptical retailers. To keep tabs on the progress, Ron Judy made frequent visits to New York, often accompanied by Bruce Lowry, NOA’s bright and blustery VP of sales. After making a name for himself at Pioneer Electronics, Lowry had joined NOA in April 1981 to launch a new consumer division. Though arcade games were and would be Nintendo’s bread and butter, Arakawa wanted to supplement that income with Game & Watch, a line of wallet-sized handheld games that played on tiny LCD screens. Unlike the electronics Lowry had sold at Pioneer, the Game & Watch titles were targeted at children, which prompted Lowry to become familiar with the toy industry. Because of his entrée into that world and his understanding of its nuances (such as the fact that regardless of when toy buyers ordered products, they didn’t have to pay until December 10 of that year), Lowry was occasionally able to help Borofsky persuade the big toy chains. At the top of their wish list was Toys “R” Us, whose eventual decision to stock the NES provided Nintendo with much-needed momentum going into the launch.