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The Monumental Failure of Atari: How The Pioneers of Gaming Crumbled

From Pinball Machines to Pioneering Home Consoles

When Nolan Bushnell first conceived of Atari in the early 1970s, video games as an industry scarcely existed. Amusement parks, pinball machines and jukeboxes represented the modest state of electronic entertainment. Yet over just half a decade, Atari would explode from Bushnell‘s pioneering vision into an iconic brand at the vanguard of popularizing video games globally.

Atari commenced operations in 1972 on a shoestring budget of just $250, founded by Bushnell and partner Ted Dabney. By 1974 they had already established their first smash hit arcade game, Pong, which pit two players against each other in virtual table tennis. Pong far surpassed any pinball or jukebox machine success, earning over $40 million across 35,000 units sold.

Buoyed by their triumph, Atari actively began developing home consoles that could bring a similar experience to households across America and beyond. This audacious push culminated in the 1977 launch of the Atari 2600 Video Computer System (later rebranded as Atari 2600).

At $199, the 2600 featured interchangeable cartridges with slot-in controllers, allowing families to enjoy arcade classics like Space Invaders from the comfort of their living rooms against friends or AI opponents. It proved a pivotal moment which ushered gaming into the mainstream consciousness.

Surging Sales Establish Atari as Industry Leader

The Atari 2600 turned out to be a runaway success beyond Bushnell‘s wildest dreams. By 1982 Atari had sold over 10 million units as they utterly dominated the nascent home console market with over 80 percent market share.

Iconic titles like Asteroids, Missile Command, Breakout and Pitfall drove sales ever higher through the late 70s and early 80s. Gross sales figures reflect their astronomical success story, surging from just $75 million in 1977 when the 2600 debuted to over $2 billion merely 5 years later in 1982.

Their meteoric rise was further fueled through Atari‘s 1976 acquisition by Warner Communications for $28 million. The buyout earned Bushnell a handsome payday while providing Atari ample capital to invest in R&D for pioneering new hardware and software innovations.

Clashing Ambitions Led to A Bitter Breakup

Amidst their extraordinary success, internal tensions reached breaking point between 1978 and 1979 at Atari. Hard disagreements surfaced between founding engineer Bushnell and Warner Communications‘ new executive management team.

At the heart of this power struggle was the fate of their cash cow – the Atari 2600 console. Bushnell staunchly defended the 2600 which still had miles left, given its installed base and healthy ongoing sales. However clamors grew within Atari leadership to discontinue the 2600, perceived as outdated, instead shifting focus to more advanced successors in the pipeline.

Ultimately the board ruled in favor of accelerating R&D on the next-generation Atari 5200 console, sealing Bushnell‘s exit as CEO in November 1978. The very founder who spearheaded Atari‘s inception and meteoric rise had lost control over its future direction by end of the decade.

Flooded Market Led to Tarnished Reputation

While the 2600 console wars raged internally, an equally concerning challenge was unfolding externally in Atari‘s licensed software ecosystem.

Atari cultivated an open platform policy where any programmer could build and sell games for 2600 on negotiated royalty terms. This liberal approach made perfect business sense in Atari‘s early days. It allowed them to profit without bearing software development costs, while scores of innovative independent studios kept the Atari 2600 thriving with exciting new game releases.

However this strategy backfired as the late 70s wore on. Beyond bonafide studios like Activision designing hits, a deluge of amateur developers chased quick paydays by flooding store shelves with rushed, low budget software of awful quality.

Lack of oversight allowed fly-by-night studios to jam Atari branding onto shoddy games they had barely play-tested, severely undermining consumer trust. By 1982 industry experts estimated just 10% of game releases would drive 75% of Atari 2600 revenues. Gamers could barely sift through piles of garbage to find occasional gems worth purchasing.

Costly Blunders That Killed Consumer Confidence

Atari faced its most daunting demon not in the form of competitors, but through incompetence from two of its own blockbuster games gone bust. Their failures kicked off a chain reaction where already eroding consumer confidence sunk into outright dismissal of Atari and distrust in the wider games industry.

First arrived the eagerly awaited home release of arcade sensation Pac-Man for the 2600 in March 1982. Given Pac-Man‘s immense popularity, expectations were sky high. Yet the shipped version was an unmitigated disaster often described as ‘flickering pizza‘. Shoddy graphics, visual glitches and grating sounds made it a laughing stock.

Hopes turned to despair despite a decent initial uptake where 7 million copies of Pac-Man sold. Vast numbers were swiftly returned or liquidated at clearance prices following scathing reviews. The unsold run summed up gamers‘ despair – Atari took the surprise yet dissatisfying step of burying millions of leftover Pac-Man cartridges in a New Mexico landfill rather than pay for warehousing costs.

Worse still lay in wait as Atari doubled down on failure later that year by rushing out another high-profile dud. With Steven Spielberg‘s E.T. film breaking box office records in 1982, Atari envisioned tie-in video game riches and negotiated expensive licensing rights.

Their development window was a mere 5 weeks to cash grab in time for Christmas shoppers. As expected, the resultant E.T. game released in December 1982 was an unplayable nightmare riddled with bugs. Of an optimistic 5 million cartridges manufactured, a paltry fraction sold as scathing reviews destroyed any hype.

Atari tried in vain to recoup losses by rebranding and discounting millions of unsold E.T. cartridges before ultimately dumping hundreds of thousands in the same New Mexico landfill as Pac-Man‘s remains. But the damage was already done on an unrecoverable scale through these back-to-back disasters.

Gamer trust in Atari leadership was decimated alongside stock valuation crashes over next 12 months. Meanwhile wider industry confidence plunged in face of market saturation from mostly terrible games and consoles using Atari‘s open platform blueprint.

How The Video Game Industry Crash Killed Atari

Compounding Atari‘s self-inflicted software failures, the backdrop of America‘s wider video game landscape turned severely bleak by 1983 amidst a full-blown industry crash. This market meltdown delivered the killing blow that Atari couldn‘t hope to withstand given their wounded status.

The warning signs were evident as early as 1982. Beyond consumer frustration around low-quality Atari products, market saturation also loomed thanks to cheap plug n play third party clones flooding shelves alongside Atari‘s wares and undercutting their sales.

With no killer hardware upgrades to reverse course, no contingency against market saturation, and alienated consumers no longer trusting the Atari brand, revenues bled out alarmingly fast. From the 1983 peak where video game industry profits hit $3.2 billion, Atari endured gut-wrenching slides as customers abandoned console gaming.

By the depths of 1985, total gaming revenues crashed by a staggering 97% to just $100 million annually in Western markets – destroying pioneering publishers like Atari under piles of unsold hardware and unprofitable game development.

Nintendo Entertains A Market Rebirth

The implosion of Atari left an barren wasteland where once America gorged on gaming content. Yet Japanese upstart Nintendo sensed opportunity amidst the chaos. Learning from Atari‘s strategic missteps, they reinvigorated dormant demand in Western markets with 1985‘s debut of Nintendo Entertainment System (NES).

Boasting a novel game-changing business model against failed open platforms, Nintendo instituted strict licensing deals with approved game studios instead of open development. This ensured consistency in game quality and effectively curbed market flooding – restoring consumer confidence that extended to Sega Genesis too. Between mortal foes Mario and Sonic, the industry soared again by early 1990s albeit without Atari at the helm this time.

Atari‘s Legacy As Gaming‘s Fallen Hero

Today Atari persists as a vastly diminished shadow of their visionary peak. Far removed from the annual billions in profits they commanded for a brief, giddy period, their main income now trickles in from capitalizing on nostalgia – plug and play joysticks or mobile remakes that recall genres they pioneered decades ago against 21st century backdrops.

Yet for all their current woes and mismanaged implosion cut short a fairytale run, their contributions as originators of console gaming warrants respect and remembrance. Through daring to dream big and deliver RIY home experiences, Atari opened our eyes to possibilities once confined within arcade halls. In doing so they set the template of multiplayer excitement, creative game design and immersive stories that titan studios like Nintendo, PlayStation, Xbox and beyond now look to build upon or transcend for modern audiences.

That they crashed harder or faster than Icarus himself matters less than having soared so high in the first place when no one else dared envision video games as our new reality. For a beautiful yet fleeting era between the late 70s to early 80s, Atari symbolized gaming‘s big bang moment. Their fall from grace embodied industry hazards of prioritizing short term profits over quality and sustainability – dangers Nintendo took to heart when resurrecting console gaming simply because visionaries like Atari charted courses no one originally knew how to navigate.