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 (37 page)
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.
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
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 Kassar
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.”
Rubik’s Cube
went on to be an incredibly bad disaster.—Steven Race, former vice president, Marketing and Communications, International Division, Atari
The first indication of trouble came in May 1982, but no one seemed to notice. Atari manufactured 12 million copies of
Pac-Man
, even though the company’s research showed that less than 10 million people actually owned and used its 2600s. Atari manufactured over two million extra copies on the theory that millions of people would buy the hardware just to play
Pac-Man.
In an effort to get the game manufactured quickly, Atari contracted with a programmer named Todd Frye, promising him a royalty on every
Pac-Man
cartridge the company manufactured. With a deal like that, Frye made money even if the game was bad. According to industry rumors, he made over $1 million.
Whether it was bad programming or a weakness in the hardware, Frye’s version of
Pac-Man
had slow, jerky animation and the ghosts flickered so badly that they kept disappearing from the screen. Atari sold seven million copies of
Pac-Man;
many people were so disappointed with the game that they asked for a refund.
The first real chink in the armor, though, was Atari’s edition of
Pac-Man
, which was a terrible job. It was amazing that they produced such a flickery, unresponsive game. And although they sold many copies, paradoxically the more copies they sold, the more people they turned off.—Arnie Katz
A few retailers canceled their orders over the summer, but no one at Atari saw any cause for alarm. The big vendors, JC Penney, Sears, and Kmart, all stayed on track. Ray Kassar may have discussed these problems with Manny Gerard,
the Warner executive watching over Atari, but both men remained completely confident. Atari still garnered 70 percent of Warner’s operating profits.
7
Atari’s problems continued with the production of
E.T.
, a game based on Steven Spielberg’s blockbuster movie. Many analysts later blamed Kassar for the disaster, but it actually began with Steven Ross, the head of Warner Communications.
Steve Ross called me. He was very anxious to have Spielberg make movies for Warner, and he said he just made a deal with Spielberg to produce
E.T.
as a cartridge.He asked me what I thought. I said, “I think it’s a very dumb idea. We’ve never really made an action game out of a movie.”
And he said, “Well I’ve also guaranteed Spielberg a $25 million royalty regardless of what we did.”
—Ray Kassar
