When E.T. the Extra-Terrestrial Tanked Atari

19:43Nolan Bushnell:Everybody smoked weed. Yeah. There was a hot tub. there was a pool party where everybody ended up naked in the pool. Bushnell himself looked back on it later and said, if that isn't a horror show for any HR person today, I don't know what is. But it was the 70s. It was a weirdo startup. I'm guessing they didn't have an HR department. I don't know. This is a company that's making games, right? And so you need engineering brains, but you also need a sense of play, of fun, of freedom, right? And clearly Bushnell was deliberately trying to create that. You know, he had this culture that was free and creative.

20:27Nolan Bushnell:His office door was always open. And right next to that open door was a keg of beer. So Atari's doing well. You know, Pong is a huge hit. But Bushnell knows the big opportunity, the hockey stick, will be if they can make a home video game, you know, like Magnavox was trying to do, but that nobody has cracked yet. All they have to do is get rich people into a roller rink with a hot tub and some beer, and it's all going to work out. Yeah, they need money. And in order to get money, he's going to have to convince people that this is going to be a global phenomenon. After the break.

21:38Thank you. HR, and more. No more app overload. No more juggling logins. Just one seamless system that makes work easier. And the best part? Odoo replaces multiple expensive platforms for a fraction of the cost. It's built to grow with your business, whether you are just starting out or already scaling up. Plus, it's easy to use, customizable, and designed to streamline every process, so you can focus on what really matters, running your business. Thousands of businesses have made the switch, so why not you? Try Odoo for free at odoo.com. That's O-D-O-O dot com. Life moves fast. At American Military University, they are ready to help you keep up.

22:24AMU's flexible, affordable online programs in cybersecurity, IT, space studies, and more are designed for service members, veterans, and their families. AMU provides the support you need to take the next step wherever life takes you. American Military University, built for what's next. Learn more at amu.apus.edu.

23:1020 % year over year. You can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S and P 500. Then you can invest in a few clicks. Generated assets are like ETFs with infinite possibilities, completely customizable and based on your thesis, not someone else's go to public.com slash podcast and earn an uncapped 1 % bonus. When you transfer your portfolio, that's public.com slash podcast paid for by public investing brokerage services by open to the public investing, Inc. Member FINRA and SIPC. Advisory services by Public Advisors LLC, SEC Registered Advisor.

23:43Generated Assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or advice. Complete disclosures available at public.com slash disclosures.

24:01Nolan Bushnell:Okay, that's the end of the ads. We're going back to the show. 1974. Atari, Nolan Bushnell, has dreams of selling a version of Pong that people can play at home. We know it's going to work because you played it. Young Robert Smith's waiting. How are they going to get the money to do it? Well, at this point, as we learned in the last show, like venture capital is just starting to be a thing. Rich people on the East Coast are starting to realize that there's a bunch of geniuses who can make money on the West Coast and are starting to at least shop around that money. But there's not a whole system for it.

24:33Nolan Bushnell:There's not a whole system for it. The culture hasn't caught up that much. You talked about the culture ship last time. And so, you know, a few VCs do go by Atari and they see that it's a roller rink full of weed smokers. And they're like, this is not the business we're in. But one day, a venture capitalist named Don Valentine walked in. Valentine had worked at Fairchild Semiconductor, that company that was at the heart of the birth of Silicon Valley that we talked about last time. Valentine was the sales manager there. And Fairchild was like this fountain of startup. They called them the fair children.

25:09Nolan Bushnell:Somebody from there started AMD, still one of the biggest chip makers in the world. And Valentine, because he had worked with these guys, knew them, had invested out of his own pocket in some of the companies, understood what was happening in technology. And he started in the early 70s a venture capital firm called Sequoia. A little bit famous, right? They invested in Apple, Google, NVIDIA, Instagram, WhatsApp. Yeah, like one of the, you know, maybe two or three biggest, most important VC firms. But at this time, it was Valentine, and he went to visit Atari. He smelled the weed smoke. He said it was enough to knock you to your knees.

25:50Nolan Bushnell:At some point, he took a meeting in the hot tub. And so he's like, yes, this is obviously super sketchy. But also, he was like, oh, these guys are on to something. This could be a way to get the computer into the house. This giant transformative thing. And so he offers Bushnell this interesting deal. He says, I'm not going to give you money to start with, but I will help you. I will help you, you know, find a partner, essentially, so that you can get to the next level. And if you don't screw it up, then I'll give you money. Yes. And, you know, the key thing Valentine wants to help Atari with at this point is how do you get this little stoner video game company connected with a big national retailer to distribute their first consumer product across the country?

26:38Nolan Bushnell:So they're working on this together and Toys R Us turns them down. Radio Shack turns them down. Ah, they're waiting for the big Tandy computer they're going to sell years later. Shout out the TRS-80. They go to the New York Toy Fair. Nobody's interested. And this is partly because the Magnavox Odyssey, it was called, the game that Bushnell saw under development from Magnavox, had come out. There was a, you know, somebody tried a home video game and it had done badly. But it turns out that's because it was a bad game and Magnavox just thought of it as a way to sell TVs. Classic incumbent mistake, right?

27:11Nolan Bushnell:They're just thinking about their old product. Eventually, Valentine does get Atari a key break. He sets up a meeting with Sears, which, of course, was the biggest retailer in the country at this point, as we talked about a few weeks ago. Gets him this meeting to pitch Home Pong, right? Pong for the home. Valentine sent Bushnell to Sears headquarters in Chicago for a meeting, told him to wear a suit, or at least that's Valentine's version of the story. Interestingly, Bushnell has a different version. According to Bushnell, Atari cold-called Sears got put through to a buyer who was immediately interested and came out to California right away.

27:49Nolan Bushnell:And I actually love these two different stories. I think there's like a little—stop looking at your computer. I'm sorry. I'm playing punk. Go on. Yes. It's addictive. Yes, go on. And I actually think there's something interesting in the fact that these two guys remember this so differently because it speaks to this divide between venture capitalists and founders that persist today. And the question is, what is venture capital really doing? A lot of founders will say, oh, they're just putting up the money. And most of the venture capitalists will be like, no, no, these are guys who don't know what they're doing.

28:21Nolan Bushnell:We're putting up the money. We make introductions, right? We help guide your decisions. Yeah. And so I don't know what happened in this case, but whatever was the case, a buyer from Sears did come out to Atari one day in April of 1975, showed up at 8 a.m. And, of course, nobody from Atari is in the office yet. But eventually, Bushnell and the others show up. They let the Sears buyer play with their Pong prototype. It's fun, you know. Bushnell gives him a sales pitch. Bushnell's a great salesman. And the Sears guy wants in. And he asks Atari, how many of these, you know, home video game devices can you make for this year's Christmas shopping season?

29:04Nolan Bushnell:It's April, right? It's April. At this point, Atari has made zero of these home machines. Yes. Not even really this prototype because it's a fake prototype. It's this wood box painted to look like it's plastic and like glued to whatever, a coffee table. And it's got a hole underneath it. And there's wires running down to like a much bigger, essentially, computer they've jerry-rigged in, like an apple crate hidden under the table. And then an eight-year-old moving the pixels around. Right. It's the Mechanical Turk home pong. So the Sears guy asks, you know, how many can you make for Sears, the biggest retailer in the world, I believe, still at this point?

29:41Nolan Bushnell:And Bushnell's like, give me a minute to talk with the team. And he goes out and he talks to his head of manufacturing. And, you know, they've been making at this point big arcade games where a big run is 5 ,000 machines. The head of manufacturing is like, how many can we make, you know, in a few months to get them in time? We can make 25 ,000, 25 ,000. So Bushnell goes back in with the Sears guy and he says, for this year, we can make you $75 ,000. Just multiply it by three. That's a good CEO move. They asked him how he did it. He didn't even say multiply by three. He's talking about it later in an interview.

30:14He said, quote, I was just pulling it out of my butt. Also a good CEO move. Sears guy here,$75 ,000 and thinks we're Sears. Come on. Come on. What's$75 ,000? You think you're talking to J.C. Penney here? Montgomery Ward? Come on, Radio Shack? $150 ,000 is what they order. And Bushnell says, okay.

30:38Nolan Bushnell:They have a few months to do it. Now Bushnell really does need that capital, but he also has a huge order from the biggest retailer in the world, much easier to get funding, and Valentine, Sequoia, comes through with the money. Atari becomes Sequoia's first ever investment. it. And Sears now does the Sears thing that we talked about on the Sears show, right? They help this little company figure out how to scale really quickly, right? They get Bushnell set up with the Sears Bank, which is cool at a nerdy finance way. They create this bonded warehouse so that now when Atari makes this one home pong game, they don't have to wait to get money for it and get 80 % of the value of it right as soon as it goes into the warehouse.

31:24Nolan Bushnell:Clearly, a roller Rink's not going to work to make 150 ,000 home video game consoles. So they get a, you know, a kind of real factory with a conveyor belt where Bushnell loves to ride around in a box on the conveyor belt. The guy loved to play, right? He loved to play, which is essential. Actually, one day some Sears execs in suits show up and Bushnell is in fact riding on the conveyor belt in a box. They're like, okay, whatever, just keep making the games. And they do. Atari that year shipped over 150 ,000 units. They exceeded that 150 ,000 number for the 1975 Christmas season. And Sears sold all of them.

32:02Nolan Bushnell:Pong was the hit game of the year. Merry Christmas, tiny Robert Smith. Happy ending. There are no happy endings in technology. Nope. There are only happy middles, right? You do not get to make home pong and then coast on it forever. It is not Barbie. It is not Monopoly, right? Because of Moore's Law, essentially, every year, people are going to make better video games. Right? This is clear to anybody in Silicon Valley. It's clear to Bushnell. And in fact, the year after Atari wins Christmas in 1976, our old friend Fairchild, Fairchild Semiconductor, they start selling a home video game console that is not just one game like Pong, but it allows you to buy different cartridges and swap in different games.

32:45Nolan Bushnell:It's called Channel F, like Fairchild, but also Channel Fun. As I was reading that, I was also like, remember channels? I don't think my kids know what a channel is, I guess. I mean, then there were six of them. They were free, and they sucked. So now Atari needs to make its own cartridge-based game, and they need much, much more money than they needed for Home Pong, right? Like, Sears Bank funding them isn't going to do it. The capital costs are just too high. Venture capital isn't big enough at this point to fund that. They consider going public, but it doesn't work out. So in 1976, Bushnell and Valentine decide that they need to sell.

33:26Nolan Bushnell:They need to sell Atari to get the capital to take the next step. And they look around at, you know, big incumbents who might buy them. And one possibility is Warner Communications. Based in New York, it owns movie studios, record labels, getting into cable TV at this time. Yeah, it's a media company, essentially, a big media company. run by a guy named Steve Ross, who just coincidentally had recently taken his kids to Disneyland, where they spent a long time putting quarters into an Atari video game called Indy 800, a driving game. So he had a steering wheel. Had a steering wheel, I'm sure. Yeah.

34:01Nolan Bushnell:So good. Remember the one where you could sit in it and it would go around you? Yeah. It was rad. So Ross sends the Warner Jet out to California to pick up Bushnell and Valentine to discuss a possible acquisition. On the way to New York, the jet stops in Sun Valley, Idaho, to pick up Clint Eastwood, who was starring in a Warner Brothers movie at the time. And they get to New York, and Ross puts him up in this beautiful suite at the Waldorf Astoria, invites him over to his, you know, penthouse on Fifth Avenue for a screening of the Clint Eastwood movie that's not out yet. This is a whole different league and a whole different business coming into video games.

34:39Yes.

34:40Nolan Bushnell:And Bushnell loves it. here's what he said later looking back on this experience. Were we impressed? Yeah. Were we smitten? Yeah. Did he warm us up and, you know, ready for the kill? Yeah. Yeah. I mean, when I think about it, you just have to really hand it to somebody that's a bigger con artist than you are. I love this guy Bushnell. He's so good. Yeah, he knows. He knows what's happening. At least he knows in retrospect. And he respects it. It's like the Midway, right? It's like Steve Ross is like the carny. And Bushnell is the rube. He's the rube. He's getting played at a much higher level.

35:24Nolan Bushnell:Respect. Respect. And he respects it. So the next morning, the morning after the screening, Bushnell agreed to sell Atari to Ross, to Warner, for$28 million. And Bushnell stayed on. He kept running the company as he had been. And now he has the capital to work on this console that, you know, we will eventually know as the Atari 2600. It had the stick of joy. The stick of joy. A literal stick of joy. One joystick, the orange button, one button that you usually would fire or jump were the things it would do. A million times a second, yes. Yeah, so fast. Not just a knob. Now there's a button. comes out in 1977, and it does, it does like okay.

36:08Nolan Bushnell:It does pretty well, but it does not do amazingly well. It is not the success that we know it will come to be. And the executives in New York at Warner decide the hippies out in California need a grown-up to help them become a real grown-up company. Classic moment, Barry. and Warner brings in this guy named Ray Kazar to work with Atari. Not a tech guy. I'd been an executive at a big textile firm, started his own shirt company. Oh, shirts. Kids love shirts. And, you know, initially Kazar is kind of consulting, whatever. But after a few months, the executives at Warner tell Bushnell that he can stay on as chairman, but Kazar is going to be the CEO.

36:56Nolan Bushnell:of Atari. And Bushnell says, no, no, this shirt guy is not going to be the CEO of Atari. And Warner says, yeah, we own the company. He is going to be the CEO. And if you don't like it, you're fired. And Bushnell says, no, I'm not. You can't fire me. I quit. Expect something a little more creative from Bushnell, but maybe he made it. Maybe he was the first guy to say this. It's definitely on Bushnell's kind of cowboy brand, right? He doesn't the money, made a bunch of money selling Atari. And interestingly, he has this little side hustle at this point, a place he started in order to collect all the quarters that people were putting into the Atari arcade games, a place called Chuck E.

37:39Nolan Bushnell:Cheese's Pizza Time Theater. Yeah, he had started as part of Atari. And then when Warner bought Atari, they were like, we don't want to own a pizza place. So he bought it from them for$500 ,000. So Bushnell is, you know, riding off, into the sunset on an animatronic... Singing rat. Yeah, yeah. He's done at Atari. But luckily the geniuses at a giant media company know how to run a video game company, right? That's after the break.

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38:57It's built to grow with your business, whether you are just starting out or already scaling up. Plus, it's easy to use, customizable, and designed to streamline every process, so you can focus on what really matters, running your business. Thousands of businesses have made the switch, so why not you? Try Odoo for free at odoo.com. That's O-D-O-O dot com. Life moves fast. At American Military University, they are ready to help you keep up. AMU's flexible, affordable online programs in cybersecurity, IT, space studies, and more are designed for service members, veterans, and their families. AMU provides the support you need to take the next step wherever life takes you.

39:42American Military University, built for what's next. Learn more at amu.apus.edu.

40:1220 % year over year. You can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S and P 500. Then you can invest in a few clicks. Generated assets are like ETFs with infinite possibilities, completely customizable and based on your thesis, not someone else's go to public.com slash podcast and earn an uncapped 1 % bonus. When you transfer your portfolio, that's public.com slash podcast paid for by public investing brokerage services by open to the public investing, Inc. Member FINRA and SIPC. Advisory services by Public Advisors LLC, SEC Registered Advisor.

40:45Generated Assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or advice. Complete disclosures available at public.com slash disclosures.

41:05Nolan Bushnell:We're back from the ad break. Bushnell is out and Kazar, the shirt guy is in at Atari. And the next thing that happens is really surprising. This East Coast businessman who doesn't know anything about video games or engineering turns the Atari 2600 into a smash hit. Turns out he's a really good marketer, has a sense of what's going on, and he has the good sense to license a hit arcade game that was not made by Atari. A game called Space Invaders. I'm sure you remember well. Of course. Beautiful game. He licenses it for Atari to develop for the 2600. And it is a huge hit. And this is a smart thing that a big media company can do.

41:51Recognize basically franchises, right, that are popular at the Pizza Place, which is where I played it, Red Banjo Pizza in Park City, Utah. And then get that into a home game, right? Make money off of the name. And that's great. Yes. And remember, they're in the console business, right?

42:07Nolan Bushnell:Console business is not doing great. The console business needs its killer app. Space Invaders becomes the killer app. And the popularity of this piece of software drives the sales of the hardware, right? Everybody goes out and buys a 2600 so they can play Space Invaders. So revenue at Atari before Kazar got there, it was less than$100 million. And after he'd been running Atari for a few years, revenues are over a billion. He has 10X'd it more. And now it's the early 80s, and America is going bananas for video games. Pac-Man Fever. I don't know the name of this thing. Pac-Man Fever. It was an actual hit song.

42:49It was an actual hit song.

42:49Nolan Bushnell:I got a pocket full of quarters, and I'm headed for the arcade. I don't make a lot of money, but I'm spending everything I make. I didn't look it up. I remember it. And if I'm misremembering it, you can tell me. Business history at Pushkin.fm. Everybody's getting into the video games business now. Toy companies in particular are looking at this and being like, oh, this is a toy. So Mattel, Barbie, you know, they make the Intellivision. Coleco, which around this time is making Cabbage Patch Kids, another 80s shout out. Coleco makes ColecoVision. but Atari is winning. They are dominant. They have something like 80 % market share.

43:27Nolan Bushnell:Incredible. And this is the peak. This is the moment. We have finished the rise and now we begin the fall. The fall starts with Pac-Man, interestingly. This huge hit game, this huge hit arcade game. Atari doesn't make it, so they license it. Figure, like, worked for Space Invaders. It'll work for Pac-Man. Yeah. They make 12 million cartridges of Pac-Man, despite the fact that only 10 million people own Atari 2600. They think this game is going to be so popular that everyone with an Atari will buy it, and 2 million more people will buy Atari consoles to play it. Doesn't happen. The game kind of sucks, just technically doesn't play as well.

44:13Because part of the Pac-Man appeal was that it was a very fast-moving game. Like you had to turn on a dime. You had these whole systems you had when you played in the arcades, and you wanted to use those systems at home. And if there's a little bit of a lag, it doesn't really quite work as well. Yeah, it's not fun enough, right?

44:30Nolan Bushnell:There is this thing where a video game has to be really fun to be a big hit, and Pac-Man for the 2600 is not fun enough. So it's starting to get bad, and it's going to get worse. and the reason it gets worse, which I love, is E.T. the Extraterrestrial. Wait, E.T. never made anything worse. He was so adorable. It's not his fault. Ouch. So E.T. comes out in the summer of 82. It's a giant hit. Holds up, by the way. At least I held up. I watched it, I don't know, eight years ago with my children. Made Reese's Pieces a big hit, too. Beautiful movie. Yeah. Was not distributed by Warner Brothers. It's not distributed by Warner, the company that owns Atari, right?

45:12Nolan Bushnell:And Ross, the guy running Warner Brothers, really wants to work with Spielberg. Of course you want to work with Spielberg. You're running a movie studio, you want to work with Spielberg. And so he thinks that turning E.T. into a hit game would help entice Spielberg to come work at Warner Brothers. So he makes this deal with Spielberg in the summer of 82. First of all, he pays a ton of money to license the game. And he tells Spielberg, we will have a great version of E.T. for the Atari 2600 out in time for the Christmas season. The problem with this is it takes like five or six months to make a new video game.

45:53Nolan Bushnell:But to have the game in stores in time to sell it for the Christmas season, this is the summer already. Yeah, yeah. And they have to, you know, produce the games. They're going to have to write this game in like five or six weeks instead of five or six months. And people at Atari are like, no, we can't do it. You can't make a good game that fast. It's just not the way it works. Kazar, who's running Atari, is like, no, whatever. It's Spielberg. What, are you going to say no to Spielberg? You say no to the CEO? No. We can make a shirt. We can make a shirt in like three hours. You know how many shirts we can make by Christmas?

46:22Nolan Bushnell:You just got to make one game. So they eventually find an engineer to make the game. A good engineer, a guy who made Yars Revenge. I don't know if you remember that one. It was a hit game at Atari. He gets it done in a matter of weeks. Atari makes five million copies, gets them on the shelves in time for the Christmas season, and the game is bad. The game is not fun. You just, like, you move him along, and he, like, falls into holes. The falling into holes is a big thing. And he makes it, like, errr. It's like, yeah. I'm going to read you a couple of reviews from the time. One from a publication called Joystick.

46:58Nolan Bushnell:No C. E.T. has nothing to phone home about. What? Another review from Electronic Games. If E.T. does call home, please don't tell him about this. I see a theme. So, A, there are millions of unsold copies. The engineer who made the game ends up leaving Atari, leaving the business, eventually becomes a therapist. I think it was a lot for him to deal with. And Atari sucks now, right? Now the thing is like, oh, I went, I paid a lot of money for this game, and it sucks. It's interesting, right? Like the thrill of a new invention only lasts so long, right? You know, the very first movie of, you know, people moving around a garden, everybody's like, oh my God, it's amazing.

47:46You know, three weeks later, they're like, eh, the plot kind of sucks. Maybe an explosion or something, right? You know, probably the same movie with Gutenberg, right? Yeah, that's amazing. Yeah, I read the Bible. You got another book for me? What's the second book?

47:59Nolan Bushnell:Was it Johannes? I think it's Johannes, but don't know. Business history at Pushkin.fm. End of 82. Actually, Warner announces earnings, right? They're a public company. They're way worse than expected. The stock crashes. And as we go into 83 now, it's not just Atari. The whole video game industry collapses. There is this incredible glut of consoles. All these different companies are selling consoles of games. There's a lot of really bad games. There's like third-party companies are selling games. Apparently, Chuckwagon Dogfood. There's like a Chuckwagon Dogfood video game. And on top of all that now, you have home computers.

48:43Nolan Bushnell:Real computers like we would think of as computers with keyboards. You know, there's the Commodore 64 is coming out at this time. At my house, we had the lesser-known Texas Instruments TI-994A, which I remember for its cassette deck instead of a disk drive. So Atari is now losing hundreds of millions of dollars. Kazar, the CEO, he gets accused by the SEC of insider trading, of selling shares just before that bad earnings announcement at the end of 82. He leaves the company in the summer, says he didn't do anything wrong, but he's out. Warner replaces him with a marketing guy from Philip Morris, a guy who helped come up with the Marlboro Man.

49:23Nolan Bushnell:And a few months later, in the second half of 83, Atari actually has so much unsold merchandise, so many video games that nobody wants to buy, that they actually go and supposedly dump hundreds of thousands of unsold cartridges in a landfill, in a pit, in Alamo Gordo, New Mexico. and cover it up. It's heartbreaking. It's heartbreaking. And is it even true? Delightfully, I don't know, 10 years ago or so, they made a documentary where they actually went and dug up the landfill in Alamogordo. And in fact, they found ET cartridges there and other video games. This is really the end for Atari. And it's perfect, obviously, metaphorically, right?

50:09Nolan Bushnell:Like, it's a burial. They are burying video games. And, you know, Atari is going to have this sort of shambolic afterlife as brands do, as companies do. They get acquired and acquired and whatever. So let's go back to the question we asked at the beginning and try and answer it, right? Like Atari, practically speaking, invented video games. They changed culture. They changed business. They brought the computer to the home. Video games continued to be this giant thing. Atari disappeared. Why? Like, why did that happen? And I think there are a few answers that it's worth going through, right? One, one is just timing.

50:45Nolan Bushnell:One is just kind of bad luck, right? Like the crash of 83, the video game crash of 83 was brutal. And it took out everybody, right? It took out Atari, but it also took out Coleco, which was making ColecoVision. It also took out, you know, Mattel gave up on Intellivision. And so as the incumbent, Atari had more money invested. They were further out over their skis when the crash came. Yes, yes. and huge warehouses, employees, engineers, the whole thing. Hundreds of thousands of cartridges. Yeah. And they have to keep, you know, putting out these things to support their legacy systems, right? It's a classic, classic incumbent problem.

51:23Nolan Bushnell:Yeah. And the glut goes on for a few years through the mid 80s. And, you know, retailers themselves don't want to stock video games anymore. They were left with them. And in fact, when the next video game revival comes, it's driven notably by a game that It doesn't call itself a video game. It calls itself an entertainment system, the Nintendo Entertainment System, classic. So, you know, maybe anybody would have got wiped out. Maybe there was nothing Atari could have done. But I do wonder, you have to wonder, right, what would have happened if Bushnell had managed to hold on to the company, if he'd managed to, say, go public, to not have to sell to Warner?

52:02Nolan Bushnell:because clearly Bushnell was the perfect guy to run a video game company, right? He was the amusement park carny genius who knew what fun was, who knew what games were, who was also an engineer, who also created this culture where engineers could come and play and be creative. And when he sold, he sold to an entertainment company. It's not about the engineering for them, which is why they sent a shirt guy to run Atari, right? He knew logistics. He knew selling. He knew how to get things into stores. Sure. But it does seem like he thought the engineers were just employees on an assembly line. And that was a key mistake.

52:45Nolan Bushnell:And there's one story that I want to end with that I think really reveals this fact, what a mistake that was. And that's this. not long after Kazar took over, a few of the engineers, the game designers, the guys actually creating these games, realized that they had created games that were making the company millions of dollars. And they were, you know, staff employees making like$20 ,000 a year or something. And so they went to Kazar to ask for a better deal. They're like, look, we're making these games. They're making all this money. Give us a better deal. And Kazar said, no. He's like, anybody can do that.

53:21Nolan Bushnell:You know, you guys are just cranking out these things. And so these game designers left, and they started their own video game company. Not to make hardware, just to make games, which was not a thing yet, right? They are inventing the standalone video game company. And they create a company called Activision. And Activision survives the crash of 83 and goes on to become one of the biggest video game companies in the world. They create Call of Duty, this gigantic franchise. They eventually merge with another company called Blizzard. And in 2022, Activision Blizzard gets bought by Microsoft for$69 billion.

54:03Nolan Bushnell:Nice. So, you know, when you look at the video game industry over the long arc, what you see is the companies that wind up dominating it are not media companies, right? Basically, Nintendo, Sony, Microsoft, these are all companies with very deep roots in electronics. They're all, at some level, technology companies. And once Bushnell left Atari, I think at a deep level, it wasn't fundamentally run like a technology company anymore. And that is why Atari failed. I disagree. I think Bushnell had his moment. He changed the world. But as we often see with technology companies, the person who founded the company might not be the person to take it all the way.

54:51You know, he was using it as a game company and it would eventually become a multimedia, you know, essentially movies in a box, a huge technological innovation. I'm not sure he could have done. And we see this across other industries, right? The first mover advantage is usually not an advantage, right? Because you have to spend all this money solving problems that other people can come and just take from you. But also you have a certain arrogance, right? You are the successful leader. Everyone wants an Atari. Everyone has an Atari system. So you don't really have to innovate to make a better Atari system.

55:29You just have to get them to just keep buying cartridges. And yes, Atari did try and come up with a new system. And it was okay, right? It just didn't work that well. Because I think they were like, the world will always have Atari. Atari will always be number one. You can't conceive of a world without Atari. And then it happened.

55:50Nolan Bushnell:We live in a world without Atari. If you are into video games, there's a good chance you have thoughts about things we got wrong on today's show. Don't take it to Reddit. Take it to the email systems. Write to us at businesshistoryatpushkin.fm or leave us a comment. I will read all the emails in the comments because, frankly, we don't get that many yet. And I want to get more. And I want to make the show better. Tell us, if you listen to the show, if you watch the show, what do you want to hear? What do you want to see? We want to make shows that you like. We're very grateful that you're listening.

56:19Nolan Bushnell:And tell a friend if you like it. Today's show was produced by Gabriel Hunter Chang. It was engineered by Sarah Bruguer. and it was edited by our showrunner, Ryan Dilley, who told me that if you had told him in 1982 that he could play, eat tea at home and have a Coca-Cola, he would have thought it was the greatest thing in the world. Life moves fast. At American Military University, they are ready to help you keep up. AMU's flexible, affordable online programs in cybersecurity, IT, space studies, and more are designed for service members, veterans, and their families. AMU provides the support you need to take the next step, wherever life takes you.

57:05American Military University, built for what's next. Learn more at amu.apus.edu. At CVS, it matters that we're not just in your community, but that we're part of it. It matters that we're here for you when you need us, day or night. And we want everyone to feel welcomed. and rewarded. It matters that CVS is here to fill your prescriptions and here to fill your craving for a tasty and yeah, healthy snack. At CVS, we're proud to serve your community because we believe where you get your medicine matters. So visit us at cvs.com or just come by our store. We can't wait to meet you. Store hours vary by location.

57:47This is Chelsea Handler from Dear Chelsea. After the big game, like most people, I kept thinking about the commercials and there was one that stayed with me. It was from the Blue Square Alliance Against Hate, and it wasn't loud or flashy. It showed a Jewish kid being targeted at school and another student who chose not to ignore it. As someone who is Jewish, that moment felt very real to me. Not dramatic, just familiar. And what struck me was how clearly it showed that hate doesn't always announce itself, but the impact is still huge. If you saw the Blue Square spot during the big game, it's worth thinking about.

58:20And if you want to show support, sharing the Blue Square is one small way to do that.