Authors: Steven Kent
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 (33 page)
Atari, of course, was out there with its 2600 and Mattel was coming out with Intellivision, so we decided that we would basically become a third-party supplier of programming. We decided to program for Atari and Intellivision at the same time that we were developing ColecoVision.
There were basically two strategies at work. We would take these licenses and use them not only in the major systems, but also put them into the handheld category. That was very appealing to Nintendo at the time. That’s why we got
Donkey Kong
from Nintendo, because they saw that we could maximize their potential revenue stream by putting this product across a number of formats that existed at that point in time.—Al Kahn, former executive vice president, Coleco
When I found out that we did not take the consumer license to
Donkey Kong
, and that Coleco got it, I asked how could that happen. They said, “Well, it was two dollars a cartridge, and you don’t understand. It would have fucked up our cost structure.”I remember I looked at them and I said, “Guys, you got an 88 percent gross margin on cartridges. Don’t you understand that a year from now you will walk on shards of broken glass to get a two-dollar cartridge deal?” Now
that decision basically put Coleco in the business because without
Donkey Kong
, they couldn’t have gotten anywhere.—Manny Gerard, former vice president, Warner Communications
Arnold, to his credit, felt that the world was ready for a new game system. Atari had been out with the 2600, and that was replaced basically by Intellivision, and Arnold thought that Coleco could come out with a game system that would be better and everyone would trade up.
—Michael Katz
It took nearly two years for Greenberg’s team to develop ColecoVision, its new super game console. Greenberg began telling retailers about the system toward the end of 1981, unveiled it at the January Consumer Electronics Show in 1982, and began shipping it in July.
Though ColecoVision had only the standard eight-bit processor, 8K of RAM (random access memory) with an additional 16K of video RAM found in other game consoles, it had several other features. Five years had passed since Atari began developing the VCS. The price of technology had come down so much that Coleco could afford a chip with the memory mapping and frame buffers that Atari left out of Stella, the processing chip in the Video Computer Systems. These added features gave the ColecoVision smoother animation and more arcade-like graphics than the Intellivision and the VCS.
Coleco powered the ColecoVision with a chip set from Zilog that was so advanced, it could even handle video images. When Hasbro engineers began experimenting with interactive video in 1985, they used a modified ColecoVision game console.
The reason we chose ColecoVision to do this kind of down-and-dirty prototype was that it had been designed initially to be able to pass video through it. You could do what I call the wallpaper game, that is, a game in which you
have moving video in the background with computer graphics imposed on top of the video.—Tom Zito, former president and CEO, Digital Pictures
Even with its technological superiority, Coleco faced a tough challenge because its fledgling system had very few games. Atari had more than 100 games for the VCS by 1982, and Atari executives offered huge sums of money for exclusive licensing agreements with arcade companies. Far fewer games were on the market for the Intellivision, but Mattel had already carved out a niche with its realistic sports simulations.
Coleco did not have enough money to compete with Atari for big licenses, but Coleco’s marketers had a knack for selecting small games with strong followings. Coleco secured licenses for
Mr. Do, Lady Bug, Cosmic Avenger
, and
Venture.
And ColecoVision’s powerful processor generated games that looked like they belonged in an arcade. Coleco’s good relations with Sega resulted in a
Zaxxon
cartridge that sported excellent 3D effects.
ColecoVision was a real step forward. It was indisputably the best machine counting hardware and software … the best platform of those early consoles. Michael Katz, no relation, was a genius at finding little known coin-op games that translated beautifully to the home market.
—Arnie Katz, former editor in chief,
Electronic Games
Katz’s marketing team even invented a way to compete with Atari’s enormous software library, by creating an adapter that enabled the ColecoVision to play VCS games.
In some ways, using the adapter defeated the purpose of purchasing ColecoVision,
*
as VCS games looked just as primitive on the ColecoVision as they did on the VCS.
Coleco’s crowning achievement, however, was a six-month exclusive license with Nintendo for
Donkey Kong
, a game whose worldwide popularity was surpassed only by
Pac-Man.
*
Nintendo was still a small company in 1981, and Minoru Arakawa, president of Nintendo of America, decided that an outside company with established contacts would do a better job marketing
Donkey Kong
than he would be able to do. He decided to work with Coleco because Greenberg offered to do both game cartridges and a tabletop console.
A couple of things popped up [around Christmas of 1981]. One was the ColecoVision agreement, in which Nintendo was going to license Coleco to do the home video game…. give them the home video-game rights to
Donkey Kong.
The
Donkey Kong
success had been so great that they needed help with merchandise licensing of their properties.—Howard Lincoln, former outside legal counsel, Nintendo of America
Once they had made contact with Nintendo, Coleco’s representatives moved slowly. They preferred to work with executives at Nintendo’s Japanese headquarters. What they did not know was that Howard Lincoln, the outside legal council of Nintendo of America, wrote the contract.
This was all new territory to Lincoln. In creating the contract, he discovered that companies traditionally accepted all liabilities on their games—that
is, Nintendo would accept responsibility for any legal action against Coleco involving
Donkey Kong.
Since he could see no reason why Nintendo should accept such liabilities, Lincoln decided to write a clause that made Coleco responsible for the content of the cartridge.
I came up with a clause in our agreement that cleared Nintendo of all liability from Coleco’s product. I hadn’t drafted many of those things [manufacturing agreements], so I was looking in a form book and, typically, you would have the licenser indemnify the licensee or at least make a representation that you own the mark. I asked myself, “Why would we want to do that?”
We drafted the agreement and sent it to Yamauchi. Yamauchi confronted Eric Bromley from Coleco and said, “Sign the license agreement.”
He said, “Well, our attorneys haven’t seen it.”
I think Yamauchi basically said, “Sign the damn thing. You guys are getting ready to ship the product. If you want a license, sign now.”
So they signed it.
—Howard Lincoln
On February 1, 1982, Coleco and Nintendo signed an agreement in which Coleco paid Nintendo an undisclosed amount of money and promised royalties of $1.40 for every
Donkey Kong
cartridge and $1 for every tabletop machine sold.
Coleco created an excellent version of
Donkey Kong
that came closer to matching arcade gameplay and graphics than any earlier game cartridge, selling it exclusively as a pack-in with ColecoVision as an incentive to purchase the system, which went on sale in July 1982. After six months Coleco began selling VCS and Intellivision versions of
Donkey Kong.
We knew that we had to have a hot piece of software to launch the product because software sells hardware. We got it from a little company called Nintendo—
Donkey Kong. Donkey Kong
was exclusive to ColecoVision for the first six months, and we packed it in with the system. If you owned an Atari or Intellivision, you couldn’t get
Donkey Kong
for the first six months.It was a pretty good marketing strategy. Six months later, when enough people had bought ColecoVision, we wanted the profit from the Atari and Intellivision owners, so we sold
Donkey Kong
as third-party software.—Michael Katz
Fortune
magazine later wrote:
The uncontested smash hit of the year was Coleco, which celebrated its 50th anniversary last year (1982) by more than doubling sales to over $500 million and quintupling earnings to about $40 million. The Hartford-based toy manufacturer is headed by two brothers: Arnold C. Greenberg, 49, president and chief executive officer, and Leonard, 55, chairman. It has long specialized in plastic swimming pools, tricycles, and hand-held electronic games, but in 1982 it introduced three successful video products: tabletop games, cartridges that fit Atari and Intellivision equipment, and its own ColecoVision.
1
2
O. R. Rissman, the president of an American handheld game manufacturer named Tiger Electronic Toys, first saw
Donkey Kong
while visiting Tokyo in the summer of 1981. He liked what he saw. When he returned to the United States, he sent a letter to Universal Studios, requesting a license to make video games and handheld games based on King Kong.
Loretta Sifuentes, a Universal/MCA vice president involved in licensing properties such as King Kong, received Rissman’s request. Before entering such agreements, Universal’s licensing department typically conducted trademark searches to monitor retail activity.
At the time, Universal’s only active King Kong license was with Ben Cooper, Inc., a company that manufactured King Kong masks and costumes. Sifuentes ran a trademark search on September 25 and discovered several minor uses of King Kong.
This report revealed numerous third-party trademark registrations of the King Kong name often in conjunction with a picture of a gorilla.
Universal’s merchandising and law departments decided not to take any action against those listed in the report because there was very little activity in licensing King Kong at Universal.
3
Unaware of
Donkey Kong
and satisfied that everything was in order, Universal Studios granted Tiger the license in September 1981.
Nintendo of America began selling
Donkey Kong
in July 1981. By October, the game was selling at the rate of 4,000 arcade units per month.
Sifuentes ran another trademark search in January 1982, which revealed a pending agreement between Nintendo and Coleco for the cartridge and tabletop license of
Donkey Kong.
She took the information to Steven Adler, another Universal vice president in charge of licensing, and the two executives decided to go to an arcade and evaluate the game.
After analyzing the game play, Sifuentes and Adler concluded that no one was really interested in licensing King Kong and that Tiger probably planned to use its King Kong license merely to copy
Donkey Kong.
They discussed whether they should continue offering licenses for King Kong. No action was discussed or taken to challenge the
Donkey Kong
application.
4
In April 1982, Sid Sheinberg, president of MCA and Universal, heard about
Donkey Kong
and asked Robert Hadl, a lawyer with copyright experience working as the Universal vice president in charge of legislative matters, about the game in a memo. At Sheinberg’s request, Hadl took his children to an arcade and played
Donkey Kong.
Unlike Sifuentes, Hadl decided that
Donkey Kong
’s story of a giant gorilla breaking loose and carrying a woman to the top of a building came too close to the story of King Kong.
Around that time, Sheinberg arranged a meeting with Arnold Greenberg to discuss Universal Studios investing in Coleco. Greenberg had no reason to suspect that the meeting was about anything else. Video games were in their heyday. Warner Communications had made a great deal of money through its ownership of Atari, Gulf/Western had recently purchased Sega, and several other large companies had expressed interest in breaking into the video-game industry.
The meeting was held on April 27, 1982. It began with a splashy Hollywood luncheon and ended with Sheinberg threatening Arnold Greenberg.
Universal called me and Arnold out to California. We thought we were going out there to meet with Universal people to talk about how we could work together, you know, maybe even form some kind of venture together or something of that nature. We met with Sid Sheinberg and Lou Wasserman, and I remember they had Steven Spielberg there.
And then Sid pulled Arnold on the side and said, “You know something, we’re going to sue you if you don’t give us some kind of a royalty on
Donkey Kong
because you’re in violation of our copyrights as it relates to King Kong.”Arnold came back and was very concerned because here we were going to ship ColecoVision, which included
Donkey Kong
inside the package. He was concerned that Universal might try to get a temporary restraining order or something.—Al Kahn
