Under Nolan Bushnell (1976–1978) Before entering the home console market, Atari recognized they needed additional capital to support this market; the company had acquired smaller investments through 1975, but needed a larger infusion of funds. Atari had about $40 million in annual revenue; for Warner, the deal represented an opportunity to buoy its underperforming film and music divisions. Along with Warner's purchase, Atari had established its new headquarters in the Moffett Park area in
Sunnyvale, California. , the first commercial
music visualizer During Atari's negotiations with Warner,
Fairchild Camera and Instrument announced the
Fairchild Channel F, the first programmable home console that used cartridges to play different games. Following the acquisition, Warner provided Atari with for Stella's development, making it possible to complete the console by early 1977. In addition to the VCS, Atari continued to manufacture dedicated home console units through 1977; however, these were discontinued by 1978, with unsold stock destroyed soon after.
Breakout was successful and sold around 11,000 units, but Atari still struggled to meet demand. Atari exported a limited number of units to Namco via its prior Atari Japan venture, which led Namco to create its own clone of the game to meet demand in Japan, helping establish it as a major company in the Japanese video game industry. Subsequently, Atari moved to microprocessors for its arcade games such as ''Cops 'N Robbers
, Sprint 2, Tank 8
, and Night Driver''. Around 1976, Atari was concerned that arcade operators had become nervous on the prospects of future arcade games, and thus launched their own pinball machines to accompany their arcade games. Atari's pinball machines were built upon the technology principles that they had learned from arcade and home console games, using
solid-state electronics over electro-mechanical components to make them easier to design and repair. The division released about ten different pinball units between 1977 and 1979. Many of the machines were considered to be innovative for their time, but were difficult to produce and meet distributors' demand.
Under Ray Kassar (1979–1982) After Bushnell's departure, Kassar implemented significant changes in the workplace culture in early 1979 to make Atari appear more professional, and cancelled several of the engineering programs that Bushnell had established. Kassar also had expressed some frustration with the programmers at Atari, and was known to have called them "spoiled brats" and "prima donnas" at times.
Asteroids, along with
Space Invaders, helped usher in the
golden age of arcade video games, which lasted until around 1983; Atari contributed several more games that were considered part of this golden age, including
Missile Command,
Centipede, and
Tempest. was released in 1979. Work on a successor to the Atari VCS began shortly after the system was introduced in mid-1977. The original development team, which included Meyer, Miner and Decuir, estimated that the VCS had a lifespan of about three years, and decided to build the most powerful machine they could when given that time frame. They set a goal to be able to support concurrent arcade games, as well as features of
personal computers such as the
Apple II. Moving into 1980, the VCS still lacked a system-selling game. After
Space Invaders had hit arcades in 1979, Warner instructed Kassar to try to get the rights to a
home conversion for the game from Taito; around this time, Rick Maurer had already begun prototype work for a possible game on his own. Once Kassar has secured the rights, Maurer was able to transfer his work to a form for the VCS, and
Space Invaders for the VCS was released in March 1980. The game became the VCS's
"killer app", helping sell the console alongside the game, and made Atari an estimated . It also set a roadmap for future game releases on the VCS under Kassar, with more scheduled release plans throughout the year and Atari looking for more licensed arcade conversions and tie-in media. In 1980, Namco produced the arcade game
Pac-Man, which reached the United States market by the end of the year.
Pac-Man soon became a nationwide success, surpassing the popularity of
Asteroids and creating a wave of "Pac-Mania". Atari was able to secure an exclusive deal with Namco to convert
Pac-Man to home systems, starting with the Atari VCS version. Atari management believed that the game would be a surefire hit in the same manner as
Space Invaders, In 1981, Atari discovered that
General Computer Corporation (GCC) had developed hardware that could be installed onto arcade games to give operators additional options to modify the game, such as their
Super Missile Attack board, which modified Atari's
Missile Command. Atari initially filed suit to stop GCC's products, but as they learned more about their products, they recognized that GCC had talented engineers, as one of their other products, a modification board for
Pac-Man, was sold back to Midway and eventually became the basis of
Ms. Pac-Man. Atari settled with GCC out of court and brought the company on in a consulting position. GCC developed arcade and VCS games for Atari, and also programmed most of the games for the upcoming
Atari 5200 system. The Atari 5200 did not do well on the market, as it lacked
backward compatibility with Atari VCS/2600 cartridges, a feature offered by the
ColecoVision. The Atari 5200 only sold about a million units before it was discontinued in 1984.
The video game crash of 1983 In October 1981, in an attempt to remain competitive against Mattel's Intellivision, Atari requested all of its distributors to commit to orders for home console games in 1982, so as to allow the company to anticipate production numbers and meet expected demand. Distributors expected Atari's games to do well and ordered in large volumes, placing more orders than expected given Atari's past failures to meet demand. By the middle of 1982, a new home console marketplace had appeared, which one distributor called "a totally different business". Distributors began cancelling the Atari orders they had placed the prior year, which Gerard said they were "blind-sided" by, having never faced this type of competition before. Similarly, after the film
E.T. the Extra-Terrestrial was released in June 1982, Warner chairman Steve Ross negotiated directly with director
Steven Spielberg to secure video game rights, estimated to have cost Atari , to make
a video game based on the film. The game was programmed by
Howard Scott Warshaw over a period of five weeks in advance of the 1982 holiday season.
Raiders and
E.T. were released in November and December 1982, respectively. As distributors had already cancelled orders, these and other games began to stockpile in Atari's warehouses without any sellers. In December 1982, Warner Communications announced that it expected significant decline in investor earnings of about 40% for the fourth quarter of the year, mostly as a result of slower game sales from Atari. The
Securities and Exchange Commission (SEC) investigated Kassar's sale and, in September 1983, fined Kassar about . Kassar signed a consent agreement neither admitting nor denying the charges. Atari's financial troubles continued into the first quarter of 1983, with an operating loss of compared to an operating profit of in the same quarter in 1982. and the Atari 5200 had not been as successful as the 2600. Atari had gained a poor reputation in the industry. One dealer told
InfoWorld in early 1984 that "It has totally ruined my business ... Atari has ruined all the independents." A non-Atari executive stated, "There were so many screaming, shouting, threatening dialogues, it's unbelievable that any company in America could conduct itself the way Atari conducted itself. Atari used threats, intimidation and bullying. It's incredible that anything could be accomplished. Many people left Atari. There was incredible belittling and humiliation of people. We'll never do business with them again." In early 1984,
John J. Anderson wrote that "Atari has never made a dime in microcomputers [...] Many of the people I spoke to at Atari between 1980 and 1983 had little or no idea what the products they were selling were all about, or who if anyone would care. In one case, we were fed mis- and disinformation on a frighteningly regular basis, from a highly-placed someone supposedly in charge of all publicity concerning the computer systems. And chilling as the individual happenstance was, it seems to have been endemic at Atari at the time." Despite these losses, Atari remained the number one console maker in every market except Japan, where
Nintendo had released its first programmable video game console, the
Family Computer, on July 15, 1983. Looking to sell the console in international markets that same year, Nintendo offered a licensing deal in which Atari would build and sell the system while paying Nintendo a royalty. The deal was in the works throughout 1983, and the two companies tentatively decided to sign the agreement at the June 1983
Consumer Electronics Show. However, it was at that same show that Coleco demonstrated its new
Adam computer with Nintendo's
Donkey Kong. Kassar was furious, as Atari owned the exclusive rights to publish
Donkey Kong for computers, which he accused Nintendo of violating. Nintendo, in turn, criticized Coleco, which only owned the console rights to the game; Coleco, however, had legal grounds to challenge the claim, since Atari had only purchased the floppy disk rights to the game, while the Adam version was cartridge-based. Negotiations became protracted after Kassar's departure from Atari in mid-1983. With any deal unlikely to be realized before year-end sales, Nintendo dropped out and later worked through their Nintendo of America subsidiary to release the console, now known as the
Nintendo Entertainment System, on their own in 1985. Kassar eventually resigned as CEO of Atari in July 1983 over mounting financial losses; Warner replaced him with
James J. Morgan, a vice president from
Philip Morris Inc. Stating that "one company can't have seven presidents", Morgan stated a goal of more closely integrating the company's divisions to end "the fiefdoms and the politics and all the things that caused the problems". Morgan implemented processes to reduce operating costs at Atari, including laying off about 3,000 jobs and moving 4,000 more manufacturing positions to Asia. In September 1983, the company discreetly buried about 700,000 units of its unsold stock in
a landfill near
Alamogordo, New Mexico; this event became part of an
urban legend that millions of unsold cartridges, mostly of
E.T., were buried there. In the United States, Atari's problems reverberated across the entire game industry, as consumer confidence in video games had weakened significantly, contributing significantly to the
video game crash of 1983. Retailers became wary of selling video games, making it difficult for console and video game manufacturers to sell their products. To clear stock as to make way to new games, retailers also heavily discounted consoles and games, which also hurt these companies financially. Many of the new companies that had sprung up to take advantage of the rising growth of video games prior to 1983 shut down, liquidating their assets and further contributing to the excess unsold stock. In October 1983, Atari created its
Atarisoft division, which produced software from its own library for its rival systems, including for computers from Commodore, Apple,
Texas Instruments, and
IBM, as well as console games for ColecoVision. GCC, inspired by the Atari 2600 add-ons available for the ColecoVision and Atari 5200, began work on designing a new console that would be more advanced than the 2600 while still support direct compatibility with its games. The result of this project was the
Atari 7800 ProSystem, which was announced in early 1984. Morgan had shut down the Atari 5200 production towards Atari 7800 manufacturing for its mid-1984 release, but with Warner's sale of the company in June 1984, the launch was cancelled. The Atari 7800 was later launched under
Atari Corporation in May 1986.
Breakup and sale (1984) By the end of 1983, Warner's stock price slid from $60 to $20, and the company began searching for a buyer for Atari. When
Texas Instruments exited the home-computer market in November 1983 due to its price war with Commodore, many believed that Atari would be next. Its
Atarisoft games for rival computers sold well, and a rumor stated that Atari planned to discontinue hardware and only sell software. On July 3, 1984, in a surprise announcement, Warner announced that they had sold off the assets of the
consumer electronics and home computer divisions of Atari, which included the console and computer production, game development, and Atarisoft divisions, to former Commodore International CEO
Jack Tramiel in exchange for taking on roughly in debt held by Warner. Tramiel merged these assets into his own Tramel Technology Limited, which he renamed
Atari Corporation. In the transition, Morgan was given "a leave of several months", with Tramiel's son Sam Tramiel and his other aides already taking leadership of the company. Warner renamed Atari, Inc. to
Atari Games, which now primarily consisted of the coin-operated games, arcade operations, and Ataritel divisions. Under Tramiel, Atari Corporation initially focused heavily on home computers before it revisited game consoles, including the
Atari 2600 Jr., a redesign of the Atari 2600. However, it eventually dropped out of the hardware market by 1996, following the failure of its
Atari Jaguar console. The company re-entered home console publishing as well, but were unable to use the Atari name in the home market as the rights were held by Atari Corporation; to resolve this issue, they launched the
Tengen subsidiary for console publishing. In 1994,
Time Warner, as it had become known following its merger with
Time Inc., bought out Namco's share of Atari Games, placing it under their new
Time Warner Interactive label. After only two years, it was sold again to
WMS Industries in 1996, and made part of
Midway Games when that company was spun off as an independent company in 1998 as the Midway Games West studio. The studio was disbanded in 2003, marking the end of the last remaining part of the original Atari. The Atari Games library was retained by Midway until 2009, when Midway was sold to
Warner Bros. Interactive Entertainment amidst financial troubles. ==Products==