Atari, Inc. was founded by
Nolan Bushnell and
Ted Dabney in 1972. Its first major product was
Pong, released in 1972, the first successful
coin-operated video game. While Atari continued to develop new arcade games in following years,
Pong gave rise to a number of competitors to the growing arcade game market. The competition along with other missteps by Atari led to financial problems in 1974 before the company recovered by the end of the year. The increasing competition increased the risk, as Atari had found with past arcade games and again with dedicated home consoles. Both platforms are built from integrating discrete electro-mechanical components into circuits instead of being programmed as on a
mainframe computer. Thus, development of a console had cost at least plus time to complete, but the final product only had about a three-month shelf life before becoming outdated by competition. By 1974, Atari had acquired
Cyan Engineering, a
Grass Valley electronics company founded by Steve Mayer and Larry Emmons, both former colleagues of Bushnell and Dabney from
Ampex, who helped to develop new ideas for Atari's arcade games. Even before the release of the home version of
Pong, Cyan's engineers, led by Mayer and Ron Milner, had envisioned a home console powered by new programmable
microprocessors capable of playing Atari's arcade offerings of the time. The programmable microprocessors would make a console's design significantly simpler and more powerful than any dedicated single-game unit. However, the cost of such chips was far outside the range that their market would tolerate.
MOS Technology 6502/6507 In September 1975,
MOS Technology debuted the
6502 microprocessor for at the Wescon trade show in San Francisco. Financial models showed that even at , the 6502 would be too expensive, and Peddle offered them a planned
6507 microprocessor, a cost-reduced version of the 6502, and MOS's
RIOT chip for
input/output. Cyan and MOS negotiated the 6507 and RIOT chips at a pair. MOS also introduced Cyan to
Microcomputer Associates, who had separately developed debugging software and hardware for MOS, and had developed the JOLT Computer for testing the 6502, which Peddle suggested would be useful for Atari and Cyan to use while developing their system. The second prototype included a TIA, a 6507, and a
ROM cartridge slot and adapter. Alongside the electronics development, Bushnell brought in Gene Landrum, a consultant who had already consulted for
Fairchild Camera and Instrument for its upcoming
Channel F, to determine the consumer requirements for the console. In his final report, Landrum suggested a living room aesthetic, with a
wood grain finish, and for the cartridges to be "idiot proof, child proof and effective in resisting potential static [electricity] problems in a living room environment". Landrum recommended it include four to five dedicated games in addition to the cartridges, but this was dropped in the final designs. By October 1976, Warner and Atari agreed to the purchase of Atari for . By 1977, development had advanced enough to brand it the
Atari Video Computer System (VCS) and start developing games. The console launched at , with two joysticks and a
Combat cartridge; eight additional games were sold separately. Most of the
launch games were based on arcade games developed by Atari or its subsidiary
Kee Games: for example,
Combat was based on Kee's
Tank (1974) and Atari's
Jet Fighter (1975). Bushnell pushed the Warner Board of Directors to start working on "Stella 2", as he grew concerned that rising competition and aging tech specs of the VCS would render the console obsolete. However, the board stayed committed to the VCS and ignored Bushnell's advice, leading to his departure from Atari in 1979. Atari sold about 600,000 VCS systems in 1979, bringing the installed base to a little over 1.3 million. Atari obtained a license from
Taito to develop a VCS conversion of its 1978 arcade hit
Space Invaders, which made it the first officially licensed arcade conversion for a home console. Atari sold 1.25 million
Space Invaders cartridges and more than a million VCS systems in 1980, nearly doubling the install base to over 2 million, and then an estimated 3.1 million VCS systems in 1981. of which over copies had been sold by 1990.
Pac-Man propelled worldwide Atari VCS sales to units during 1982, according to a November 1983 article in
InfoWorld magazine. A subsequent
InfoWorld article from August 1984 stated that more than Atari 2600 machines had been sold by 1982. A March 1983 article in
IEEE Spectrum magazine estimated about 3 million VCS sales in 1981, about 5.5 million in 1982, as well as a total of over 12 million VCS systems and an estimated 120 million cartridges sold. In Europe, the Atari VCS sold 125,000 units in the United Kingdom during 1980, and 450,000 in
West Germany by 1984. In France, where the VCS released in 1982, the system sold 600,000 units by 1989. The console was distributed by
Epoch Co. in Japan in 1979 under the name "Cassette TV Game", but did not sell as well as Epoch's own
Cassette Vision system in 1981. In English-speaking countries, the console was distributed in the United Kingdom (first from 1979 by Ingersoll Electronics Ltd., later by Railway Terrace), Australia (by Futuretronics), Canada (first from 1977 by Paragon Entertainment and from 1980 by Irwin Toys), Ireland (from 1979 by Quintin Flynn and from 1982 by Omnitek), New Zealand (by Monaco), Singapore (by Hin Seng Ltd), South Africa (by Frank & Hirsch), Hong Kong (by Wong's Kong King Ltd) and Malaysia (by Perangsang International Sdn Bhd). In 1982, Atari launched its second programmable console, the
Atari 5200. To standardize naming, the VCS was renamed the
Atari 2600 Video Computer System, or
Atari 2600, with the number derived from the manufacture part number CX2600. By 1982, the 2600 cost Atari about to manufacture, and was sold for an average of . The company spent .50 to to manufacture each cartridge, plus to for advertising, wholesaling for . In 1980, Atari attempted to block the sale of the Activision cartridges, accusing the four of intellectual property infringement. The two companies settled out of court, with Activision agreeing to pay Atari a licensing fee for their games. This made Activision the first third-party video game developer, and established the licensing model that continues to be used by console manufacturers for game development. Activision's success led to the establishment of other third-party VCS game developers following its model in the early 1980s, including
U.S. Games,
Telesys,
Games by Apollo,
Data Age,
Zimag,
Mystique, and
CommaVid. The founding of
Imagic included ex-Atari programmers.
Mattel and
Coleco, each already producing its own more advanced console, created simplified versions of their existing games for the 2600. Mattel used the
M Network brand name for its cartridges. Third-party games accounted for half of VCS game sales by 1982.
Decline and redesign In addition to third-party game development, Atari also received the first major threat to its hardware dominance from the
ColecoVision. Coleco had a license from
Nintendo to develop a home version of Nintendo's 1981 arcade hit
Donkey Kong, which was bundled with every ColecoVision console. Coleco gained about 17% of the hardware market in 1982 compared to Atari's 58%. With third parties competing for market share, Atari worked to maintain dominance in the market by acquiring licenses for popular arcade games and other properties to make games from. The 2600 conversion of
Pac-Man had numerous technical and aesthetic flaws, but still sold upwards of 7 million copies. Heading into the 1982 holiday shopping season, Atari had placed high sales expectations on
E.T. the Extra-Terrestrial, a game based on the
film of the same name that was programmed in about six weeks. Atari produced an estimated four million cartridges of
E.T., but the game was poorly reviewed, and only about 1.5 million copies were sold. In December 1982, Warner Communications issued revised earnings guidance to its shareholders, having expected a 50% year-to-year growth but now only expecting 10–15% due to declining sales at Atari. Coupled with the oversaturated home game market, Atari's weakened position led investors to start pulling funds out of video games, beginning a cascade of disastrous effects that would come to be known as the
video game crash of 1983. In September 1983, Atari
sent 14 truckloads of unsold Atari 2600 cartridges and other equipment to a landfill in the New Mexico desert. The event was long considered an
urban legend that claimed the burial contained millions of unsold cartridges. However, when the site was excavated in 2014, only 700,000 cartridges were revealed to have been buried, confirming reports from former Atari executives. Atari reported a loss for 1983 as a whole, and continued to lose money into 1984, with a loss reported in the second quarter. Warner, wary of supporting its failing Atari division, started looking for buyers. In July 1984, it sold most of the assets of Atari's consumer electronics and home computer divisions to
Jack Tramiel, the founder of
Commodore International, in a deal valued at ; Warner would retain Atari's arcade business, which would be rechristened as
Atari Games. Tramiel, a proponent of
personal computers, halted all game development for the 2600 soon after the sale. The North American video game market did not recover until about 1986, after
Nintendo's
1985 launch of the
Nintendo Entertainment System in North America. In 1986,
Atari Corporation released a redesigned version of the 2600, supported by an ad campaign touting a price of "under 50 bucks". With a large library of cartridges and a low price point, the 2600 continued to sell into the late 1980s. Atari released the last batch of games in 1989–90, including
Secret Quest and
Fatal Run. By 1986, over Atari VCS units had been sold worldwide. The final Atari-licensed release was the PAL-only version of the arcade game
Klax in 1990. After more than 14 years on the market, production on the 2600, along with the
Atari 7800 and
Atari 8-bit computers, ended in 1992. Despite this, sales of the 2600 continued in Europe for years to come. It cost less than £39.99 and was mainly distributed through mail order chains. In 1991, 200,000 units were sold on the continent, and it was a bestseller at
Littlewoods stores in the UK. After the fall of communism, Atari attempted to legally introduce the Atari 2600 and 7800 to former Eastern Bloc countries, with the small price being main advantage of the system. However, Atari was defeated by even cheaper and easily available clones called "Rambo TV Game 2600" (advertised with the 1982 movie character
Rambo), which contained up to several hundred built-in games. In Western Europe, the last stocks of the 2600 and 7800 were sold until the summer/fall of 1995. ==Hardware==