Atari, Inc. was an American company that created video games and home computers. It was started in 1972 by Nolan Bushnell and Ted Dabney. Atari played an important role in creating the video arcade and video game industry.
The company was founded in Sunnyvale, California, in the middle of Silicon Valley. It began by making arcade games, starting with Pong in 1972. As computer technology improved with low-cost integrated circuits, Atari entered the consumer market. It first made home versions of Pong and other arcade games around 1975. In 1977, Atari released the Atari Video Computer System (Atari VCS), later called the Atari 2600, which used game cartridges. To help bring the Atari VCS to market, Bushnell sold Atari to Warner Communications in 1976. In 1978, Warner hired Ray Kassar to help manage the company. Over the next few years, Kassar took on more leadership roles. Bushnell was fired in 1978, and Kassar became CEO in 1979.
From 1978 to 1982, Atari grew quickly and became the leading company in the video game industry. Its arcade games, such as Asteroids, helped create a golden age of arcade games from 1979 to 1983. The arcade version of Taito’s Space Invaders for the VCS became the console’s most popular game and a major seller. Atari’s success encouraged new companies, like Mattel Electronics and Coleco, to enter the market. It also helped third-party developers, such as Activision and Imagic, to create games.
In 1982, Atari leaders made decisions to try to stop new competitors. These choices led to producing too many units and games that did not sell well. Atari also entered the home computer market with its first 8-bit computers, but these products did not perform as well as those of its competitors. Atari lost more than $530 million in 1983, leading to Kassar’s resignation and the appointment of James J. Morgan as CEO. Morgan tried to improve the company by cutting costs and laying off workers, but the financial problems had already caused the 1983 crash, which severely hurt the U.S. video game market.
In July 1984, Warner Communications sold the home console and computer division of Atari to Jack Tramiel, who renamed his company Atari Corporation. The original Atari, Inc. was renamed Atari Games, Inc. after the sale. In 1985, Warner formed AT Games, Inc., a partnership with Namco, which bought the coin-operated assets of Atari Games, Inc. AT Games was later renamed Atari Games Corporation. Atari Games, Inc. was then renamed Atari Holdings, Inc. and remained a non-operating subsidiary of Warner Communications and its successor, Time Warner, until it was merged back into the parent company in 1992.
Origins
While studying at the University of Utah, Nolan Bushnell, an electrical engineering student, worked part-time at an amusement arcade. There, he learned about arcade games that use both mechanical and electrical parts. He watched customers play and helped repair the machines, gaining knowledge about how the games worked and how the game industry operated.
In 1968, Bushnell graduated from the university and began working for Ampex in San Francisco. He worked with Ted Dabney, and the two became friends because they shared similar interests. Bushnell shared his idea for a gaming-pizza parlor with Dabney and showed him games at the Stanford Artificial Intelligence Laboratory. Together, they created a plan to build a game using a computer that worked on its own, connected to a monitor and a coin slot.
In 1971, Bushnell and Dabney started a partnership called Syzygy Engineering. Each invested $250 of their own money to support the business. They asked a coworker named Larry Bryan to join, but Bryan left the project when he was asked to contribute money.
Bushnell and Dabney worked with Nutting Associates to make their game. Dabney found a way to use video parts to copy computer functions at a lower cost and in less space. Using this method, they created a version of the game Spacewar! called Computer Space, where players shot at two UFOs. Nutting built the game, and Bushnell and Dabney became engineers at Nutting. They also ensured that each Computer Space unit had a label reading "Syzygy Engineered" to show their role in the game. However, Computer Space did not sell well when placed in bars, Nutting’s usual market. Bushnell believed the game was too complicated for most customers who were unfamiliar with the technology. About 1,500 units of Computer Space were made, but they were hard to sell. Although Bushnell blamed Nutting for poor marketing, he later realized the game was too complex for players, who had to read instructions on the cabinet before playing. He said, "To be successful, I had to create a game people already knew how to play; something simple enough that anyone at a bar could use."
As a private company
Bushnell started looking for other partners besides Nutting and contacted Bally Manufacturing, a company that made pinball games. Bally said it would support Bushnell and Dabney’s future work on arcade games if Nutting was not involved. Bushnell and Dabney left Nutting and set up offices for Syzygy in Santa Clara. At first, they did not take a salary because they had no products. Bally then gave them US$4,000 a month for six months to design a new video game and a new pinball machine. Using this money, they hired Al Alcorn, a former coworker from Ampex, as their first design engineer. Bushnell wanted to create a driving game for Syzygy, but worried it might be too hard for Alcorn to make as his first project.
In May 1972, Bushnell saw a demonstration of the Magnavox Odyssey, which included a tennis game. Alcorn said Bushnell asked him to create an arcade version of the Odyssey’s tennis game, which became Pong. Bushnell had Alcorn use Dabney’s video circuit ideas to help develop the game, thinking it would be a prototype. Alcorn’s success made Bushnell and Dabney believe they had a major opportunity, and they planned to offer the game to Bally as part of their contract.
At the same time, Bushnell and Dabney tried to form their company but found that another company named Syzygy already existed in California. Bushnell liked the board game Go and chose the name “Atari” for their company. “Atari” is a Japanese term that means a situation in Go where a stone or group of stones is in danger of being captured, similar to the chess term “check.” Other names Bushnell considered were “sente” and “hane,” which are also Go terms. Atari was officially formed in California on June 27, 1972.
Bushnell and Dabney tried to license Pong to Bally and its subsidiary Midway, but both companies refused because the game required two players. Instead, they made a test unit and tested it at a local bar called Andy Capp’s in Sunnyvale. The test was very successful, so they made twelve more test units, ten of which were placed in other local bars. The machines earned about US$400 a week each. Some bar owners said the machines were broken, but Alcorn found that the coin collection system had overflowed with quarters, causing electrical problems. They shared these results with Bally, which still had not decided to take the license. Bushnell and Dabney realized they needed to improve the game and wanted to end their contract with Bally. They told Bally they could make another game for them if they rejected Pong. Bally agreed, freeing Atari from its pinball machine design obligation.
After failed talks with Nutting and other companies, Bushnell and Dabney decided to release Pong themselves. Atari became a company that designed and produced coin-operated games. Using money from a coin machine route, they rented a former concert hall and roller rink in Santa Clara to make Pong cabinets with hired workers. Bushnell arranged deals with local distributors to help sell the machines. Atari shipped its first commercial Pong unit in November 1972. Over 2,500 Pong cabinets were made in 1973, and by 1974, Atari produced more than 8,000 cabinets.
Atari could not make Pong cabinets fast enough to meet demand, so other companies started making their own versions. Ralph H. Baer, who had patented the Odyssey’s ideas, believed Pong and other games copied his work. Magnavox sued Atari and others in April 1974 for patent infringement. In 1976, Atari agreed to pay Magnavox US$1.5 million in eight payments for a license to use Baer’s patents. Atari also shared technical information and allowed Magnavox to use technology from its products.
In 1973, Bushnell moved Atari’s headquarters to Los Gatos. He hired graphic designer George Opperman to create a logo for Atari. Opperman said the logo was based on the letter “A,” shaped like two players facing each other. Some Atari employees said Opperman provided multiple designs, and this one was chosen by Bushnell. The logo first appeared on Atari’s 1973 game Space Race and became known as the “Fuji” because it looked like Mount Fuji. In 1976, Atari hired Opperman to lead its art and design team.
From late 1972 to early 1973, Bushnell and Dabney had disagreements. Dabney felt Bushnell was sidelining him, while Bushnell saw Dabney as a barrier to his plans. In March 1973, Dabney left Atari, selling his share for US$250,000. Though Dabney later worked with Bushnell on other projects, they had a falling out and Dabney eventually left the video game industry.
In mid-1973, Atari bought Cyan Engineering, a computer firm founded by Steve Mayer and Larry Emmons. Bushnell created the Grass Valley Think Tank at Cyan to develop new games and products.
In September 1973, Atari secretly started a company called Kee Games, led by Bushnell’s neighbor Joe Keenan. Kee Games was designed to avoid pinball distributors’ exclusive deals. Both Atari and Kee could sell similar games to different distributors, each claiming an exclusive deal. Early Kee games were copies of Atari’s games, but Kee later made its own titles, which attracted distributor interest.
In 1974, Atari faced financial problems and had to lay off half its staff. Competition from companies making Pong clones hurt sales. A mistake in accounting caused losses on the game Gran Trak 10. Atari also tried to open a Japanese division but faced many challenges. In 2018, Alcorn called the Japanese venture “an utter disaster beyond recognition.” Bushnell later said, “We didn’t realize that Japan was a closed market.”
As a subsidiary of Warner Communications
Before entering the home console market, Atari knew they needed more money to support this effort. The company had received small investments by 1975, but required a larger amount of funding. Bushnell tried to sell the company to MCA and Disney, but both companies refused. Instead, after at least six months of talks in 1976, Atari accepted an offer from Warner Communications to be bought for $28 million, which was completed in November 1976. Bushnell received $15 million from this deal. Bushnell remained chairman and CEO, while Keenan stayed as president. Atari had about $40 million in yearly revenue. For Warner, the deal helped support its struggling film and music businesses. Around the same time, Atari moved its headquarters to the Moffett Park area in Sunnyvale, California.
During Atari’s talks with Warner, Fairchild Camera and Instrument introduced the Fairchild Channel F, the first home console that used cartridges to play different games. After the acquisition, Warner gave Atari $120 million to develop the Stella console, allowing it to be completed by early 1977. The console was announced on June 4, 1977, possibly delayed to avoid sharing details about a patent lawsuit with Magnavox. The Atari VCS was released in September 1977. Most of the games available at launch were based on Atari’s popular arcade games, like Combat, which combined elements from Tank and Jet Fighter. About 400,000 VCS units were made for the 1977 holiday season, but the company lost around $25 million due to production delays that caused some units to arrive late to stores.
In addition to the VCS, Atari continued making dedicated home consoles in 1977, but these were no longer made by 1978, with leftover units destroyed soon after. Another product from 1977 was the Atari Video Music, a device that turned audio input into visual displays on a monitor. It did not sell well and was discontinued in 1978.
Atari continued making arcade games while growing its consumer division. Breakout, released in 1976, was one of Atari’s last games using transistor–transistor logic (TTL) design before switching to microprocessors. It was created by Steve Wozniak, based on Bushnell’s idea of a single-player version of Pong, and used as few TTL chips as possible from a challenge set by Steve Jobs. Breakout sold about 11,000 units, but demand was high. Atari sent some units to Namco in Japan, which led Namco to create its own version of the game, helping it become a major company in Japan. After Breakout, Atari transitioned to microprocessors for games like Cops 'N Robbers, Sprint 2, Tank 8, and Night Driver.
In 1977, Atari started two new ventures. The first was the Atari Pinball division, led by Steve Ritchie and Eugene Jarvis. Atari created pinball machines to support its arcade games, using solid-state electronics instead of older mechanical parts. The division released about ten pinball machines between 1977 and 1979. Many were innovative but hard to produce in large numbers. The second venture was the first Pizza Time Theatre, later known as Chuck E. Cheese, based on Bushnell’s idea of combining pizza and arcade games. The first location opened in San Jose in May 1977.
After launching the VCS, Atari hired more programmers to create new games for 1978. These games were different from the initial titles, which were based on arcade games. Some were inspired by board games and were harder to sell. Warner’s Manny Gerard brought in Ray Kassar, a former Burlington Industries executive, to help market Atari’s products. Kassar became president of the Atari consumer division in February 1978 and developed a strategy to improve sales. He also launched a marketing campaign for the VCS with celebrities and the slogan “Don’t watch TV tonight, play it.” Kassar also worked to increase VCS production and improve quality. By late 1978, Atari had made 800,000 VCS units, but sales were slow before the holiday season.
Kassar’s influence grew in 1978, causing tension between Bushnell and Warner Communications. Bushnell warned Warner that Atari needed to keep innovating and could not rely only on VCS games like a music business. In November 1978, Bushnell told Gerard that too many VCS units had been made for the season, risking a major loss. However, Kassar’s marketing plan, along with the success of the arcade game Space Invaders, led to a sales boom. Atari’s consumer division ended the year with $200 million in sales. Warner removed Bushnell as chairman and co-CEO but offered him a role as a director and creative consultant. Bushnell refused and left the company, buying the rights to Pizza Time Theatre for $500,000. Keenan became chairman, and Kassar was named president after Bushnell left. Keenan later joined Bushnell to manage Pizza Time Theatre, and Kassar became CEO and chairman of Atari.
After Bushnell left, Kassar changed Atari’s workplace culture in early 1979 to make the company seem more professional. He canceled some of the engineering programs Bushnell had started. Kassar also criticized Atari’s programmers, calling them “spoiled brats” and “prima donnas” at times.
These changes caused frustration among Atari’s developers, who had been used to creative freedom. For example, in 1979, Warner pressured programmer Warren Robinett to change his game Adventure into a Superman-themed title for a movie release. Robinett refused but helped another programmer convert the game after volunteering. Warner also refused to include programmer names in game manuals, fearing competitors might try to hire them.
Products
- Home Pong (1975)
- Stunt Cycle (1976)
- Atari Video Music (1977)
- Video Pinball (1977)
- Atari 2600 (1977)
- Atari 8-bit computers (1979)
- Atari 2700 (cancelled)
- Atari Cosmos (cancelled)
- Atari 5200 (1982)
Atari’s software is grouped by the type of device:
- List of games for the Atari 2600
- List of games for the Atari 5200
- Software for Atari 8-bit computers
- List of games published by Atarisoft