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 (39 page)
ShowBiz wasn’t the only problem. More concerned about robots and video games than food, Pizza Time executives had their restaurants serving cheap pizza at premium prices. With poor quality food and the popularity of video games evaporating, people had no reason to go to Chuck E. Cheese, and the company’s revenues began falling by the end of 1982.
Pizza Time Theaters was operating in the red by the middle of 1983. The company’s repeat business fell off,
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and one-time business was not enough to
cover the costs of running the restaurants. Amazingly, Bushnell claims that he was unaware of the problems. A professional management team ran the company while he developed Catalyst industries and traveled.
I was aware that some store sales were dropping in certain parts of the country where we had built too many operations. The professional managers were the problem, not the solution.
The rap that really pisses me off is being characterized as an inept manager. I believe that the real story of Atari was one of real sound financial management because I don’t believe that there are 100 people, certainly not any of the people who are so critical of me. Not one of them could have built that company with no cash.
—Nolan Bushnell
Nolan bought a yacht. He built a special yacht and he entered that big race, but he wasn’t a great sailor. No matter what you say about Nolan, he is one colorful dude.
—Manny Gerard
As far as Nolan Bushnell was concerned, Chuck E. Cheese was doing well, his Catalyst companies were going to pay off, and the end of the noncompete agreement Warner Communications had him sign before purchasing Atari was at hand.
Behind the scenes, Bushnell had already reentered the video game industry. In January, eight months before he could officially enter the business, he closed a deal to purchase Videa Inc. for $2.2 million. Videa was a game company founded by three of Atari’s brightest alumni—Roger Hector, Howie Delman, and Ed Rotberg.
Hector, who had worked with Al Alcorn on Cosmos, was a natural leader and had experience working with holographic images. Delman, a brilliant engineer, built
Lunar Lander
, Atari’s first vector-graphics game. (Atari’s later vector-graphics games were also built around Delman’s hardware.) Rotberg,
widely considered one of Atari’s best game programmers, was the man who designed
Battlezone.
Nolan purchased Videa about 18 months after Rotberg, Dilman, and I started it, then changed the name to Sente. We had actually put together a really good group of people and were working on laser discs.
—Roger Hector
The name Sente held a special significance for Bushnell—like the name Atari, Sente came from a Japanese strategy game called Go. In chess terms,
Atari
meant “check,”
Sente
meant “checkmate.” In Bushnell’s mind, naming his new company Sente was a way of telling the world that he was going in direct competition with Atari.
Bushnell purchased Sente as a subsidiary of Pizza Time Theaters. He hoped to distribute the games he made throughout the restaurants, possibly releasing them to Chuck E. Cheese restaurants first, as a way to draw new customers.
As he waited for the moment in which he could begin working with Sente in the open, Bushnell took up yachting and entered the Transpac Yacht Race. By this time, he had amassed a fortune estimated to be over $200 million dollars; he could afford a hobby like yachting. Bushnell invested a lot of money into hiring a top crew and constructing a special yacht, which he christened
Charlie.
The Transpac is a race between California and Hawaii that takes place in July. With an excellent crew and a well-designed boat, Bushnell won the nine-day race his first time out.
According to a popular electronics industry legend, Bushnell received a telegram upon docking. The message began, “B
AD
N
EWS IN THE
S
ECOND
Q
UARTER
, S
TOP
.”
According to the story, Bushnell didn’t even wait to receive his trophy. Upon reading the message, he went straight to the airport and flew home on the next available flight.
The stories are absolutely true. I found out about the problems right after the race. I didn’t know about it until I called from Hawaii.
We had hired a guy to run the restaurants named George Hellick, who really screwed things up. He changed many of my operating ratios, and when
I got back from the Transpac was when I had the fights with the board to go back to the same ratios that had generated the profits.—Nolan Bushnell
In March 1984, Pizza Time Theaters filed for Chapter 11 bankruptcy protection. Bushnell retired from the company later that year.
In a strange twist, ShowBiz Pizza absorbed Pizza Time Theaters and maintained both chains for several years. In 1990, Show Biz adopted Chuck E. Cheese over Billy Bob Bear as its mascot.
Ironically, the keel broke loose from Nolan’s yacht as his crew sailed it back to California. Without its keel,
Charlie
drifted listlessly and had to be rescued. The same thing was about to happen to Nolan Bushnell’s career.
We wound up selling games to Atari. I think Ray’s [Kassar] final act at Atari was buying our games.
I went to his office and we struck a deal. We had created three VCS game cartridges and I brought them to him. I said, “Here, check it out. They’re done. We’re making them available to you.”
He said, “I’ll buy them,” and the deal was done. He said, “Come in next week. We’ll have a check for you.”
I came in next week and they had a check, but he was gone.
—Roger Hector, Videa Inc.
Ray Kassar resigned as CEO of Atari in July 1983. His last months with the company were tainted by the revelations that he had sold 5,000 shares of Warner Communications stock right before making the announcement that Atari’s profits were lower than expected. Steven Ross, the chairman of Warner Communications, never stopped blaming Kassar for Atari’s problems.
Ross’s problems did not stop at Atari’s doorstep. The financial roller coaster Atari put Warner through shook many investors’ confidence in Ross, and Rupert Murdoch, the Australian publisher baron, was poised to attempt a hostile takeover of Warner Communications.
Ross turned to Herbert Siegel, chairman of Chris-Craft Industries, for help in fighting off Murdoch’s takeover; but that placed 29 percent of Warner voting stock in Siegel’s hands. Ross needed to make Atari profitable or cut his losses. Against this backdrop, Ross hired James Morgan to replace Kassar.
Morgan was only forty-two years old, but he had already developed a big name in business circles. Before going to Atari, he worked in the tobacco-marketing division of cigarette giant Philip Morris, where he managed such brands as Virginia Slims and Merit. Morgan was a chain-smoker who openly criticized Atari’s past management team.
According to
Time
magazine, Morgan was promised $8.5 million over a seven-year period to move to Atari, along with performance bonuses that could raise his pay to over $25 million.
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Like Kassar, Morgan had no background in technology and knew nothing about computers. He had no idea why the average American would want a home computer and was appalled to discover that few people at Atari had any answers either. One of Morgan’s heroes was Lee Iacocca, the maverick businessman who had turned Chrysler Corporation around and made it profitable a few years earlier. Perhaps one reason Morgan accepted the job at Atari was to see if he could follow Iacocca’s example.
If Atari’s offer seemed baffling, Morgan’s acceptance was even more unexpected. By all accounts, he was on a very short list for the presidency of Philip Morris. Yet Morgan, who had previously never even listened to outside offers, resigned 48 hours after having lunch with Warner chairman Steven Ross.
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Morgan’s first order of business was to cut back Atari’s excess expenses. In his opening months as CEO of Atari, he cut Atari’s domestic workforce from 9,800 employees to 3,500 and made preparations to move manufacturing from California to Hong Kong and Taiwan.
It would take more than austerity to save Atari.
One major force changing the market was a new line of inexpensive home computers. Cheap and only marginally more powerful than the game consoles of
the time, these stripped-down processors did word processing, played games, and cost twice as much money as an Atari 5200 or a ColecoVision.
Atari had been selling inexpensive computers for years, and IBM introduced the $699 PCjr in 1983, but it was another company—Commodore International—that broke the market wide open.
Commodore International was founded by Jack Tramiel—possibly the most complex person ever to enter the computer industry. He was a Polish Jew, a survivor of the Nazi concentration camps who came to America and worked his way from poverty to fortune.
As a teenager, Tramiel was sent to Auschwitz, a particularly savage Nazi concentration camp. While the people around him died, Tramiel discovered a way to survive. The Germans were building the Autobahn and asked for volunteers to help with the roadwork. It was unpleasant work, overseen by guards who sometimes took pleasure in beating their workers. Even as a teenager, however, Tramiel understood that the Germans had to feed their volunteers to keep them working, so he volunteered and survived six years in Auschwitz.
After being liberated at the end of World War II, Tramiel moved to the United States and became a Horatio Alger story. He joined the U.S. Army and was sent to Fort Dix, in New Jersey, where he learned how to repair typewriters. He saved his money and in 1954 started a typewriter repair store in the Bronx.
In 1955, Tramiel moved to Toronto, where he founded Commodore International and won a contract to assemble typewriters for a foreign firm. In a few years, Commodore began manufacturing its own adding machines. Commodore ran into trouble several years later and Tramiel had to close his manufacturing plant. Rather than go out of business, he worked with Ricoh to get his products made.
As his business grew, Tramiel developed an eye for catching trends. Realizing that calculators would replace electromechanical adding machines, he set up a partnership with Casio in the 1960s. By 1969, Commodore owned its own calculator manufacturing plant.
In 1976, Tramiel purchased a small chip manufacturer named MOS Technologies for $800,000. This was Tramiel’s biggest break. MOS made the 6502
microprocessor, the chip that would become the heart of the Apple II and Atari 400 and 800 computers.
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Jack Tramiel, and later his sons, entered Silicon Valley with cutthroat East Coast business techniques that earned them enemies throughout the computer industry. Tramiel was well known for hardball business practices and notorious for purposely paying company debts late. Around Commodore, he referred to his business philosophy as “the religion.” Executives who were unprepared to practice Tramiel’s religion quickly found themselves unemployed.
This arrangement may seem a little like loan-sharking, but Commodore always knew how to make good use of other people’s money. The company’s accountants routinely crunched cash, cut costs to the bone, stretched out payables to vendors, and made dealers pay up fast.
A good example came in 1981 when the prime rate topped 18 percent. To take advantage of the high interest, Commodore practically stopped paying bills so it could deposit as much money as possible in interest-bearing accounts. That year, Commodore earned substantial interest income.
8Commodore struggled to stay solvent but lost $4 million on $56 million in sales in 1976. Jack refused to pay vendors. Why should he? He was losing his shirt. Lawsuits flew in all directions.
9Commodore did its usual Jack Tramiel stunt—not paying the bill.
If your guys are dumb enough to keep shipping him product, he lets them keep shipping. Pretty soon Commodore owes them so much money that they run out of cash flow and they find themselves out of business. At that point, Commodore comes in and buys the company for a song, then forgives its own debt.
—Al Alcorn, former vice president, Atari
Tramiel had an explosive temper. He was known for pounding desks as he spoke, yelling at employees, and doing mass firings.
California
magazine once listed Tramiel third on its list of “Bosses from Hell.”
The darkest accusation about Jack Tramiel, however, dates back to his early days in Canada. During that time, Commodore became associated with the Atlantic Acceptance Corporation and one of the biggest financial scandals in Canadian history.
In 1965, a financial firm named Atlantic Acceptance collapsed, leaving behind millions of dollars in unpaid loans. A four-year investigation into the collapse revealed fraud on the part of C. Powell Morgan, the president and controlling stockholder of Atlantic Acceptance, who was also the chairman of Commodore.
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The investigation also showed that Atlantic Acceptance had made large loans to Commodore.
What was wrong with that? The Canadian report said there had been heavy insider trading of Commodore stock for the apparent purpose of bolstering share prices. It also stated that Commodore issued misleading financial statements and letters to shareholders. The report said Tramiel and his partner had created two companies “with nominal capital and no assets,” borrowed from Atlantic and re-lent to Commodore at a higher interest rate, pocketing the difference. The report went on to say that Powell Morgan had paid a “notoriously fraudulent stock promoter with established links in the world of organized crime” to tout Commodore stock in Europe through a financial newsletter, with Tramiel’s knowledge and consent.
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