Chuck E Cheese vs ShowBiz Pizza | Rat Pizza | 1

0:08May 1977, San Jose, California. Ted Dabney pulls into the parking lot of a windowless single-story building. Above the door, a sign reads, Chuck E. Cheese's Pizza Time Theater. Dabney is a 40-year-old former Marine with a horseshoe mustache. Five years ago, he co-founded Atari, the company that kick-started the video game industry. He no longer works there, but he's still friends with Atari's other co-founder, CEO Nolan Bushnell. So he didn't hesitate when Bushnell asked him to check out his latest venture. Bushnell described it as a pizzeria crossed with an arcade, where the main attraction is an animatronic show to rival those at Disneyland.

0:52Dabney enters and is hit with a wall of sound. Kids running wild, screeches of dozens of coin-operated video games, change machines gushing quarters, staff shouting out order numbers. Ears reeling, Dabney weaves through the tight rows of tables. At one, there's a birthday party with balloons, paper cups full of soda, and a cake. And on the walls, looking down on it all, is a cast of motionless animatronic animals poking out of picture frames. At the counter, an acne-faced teenage girl in a t-shirt and flared jeans welcomes him. Welcome to Chuck E. Cheese's Pizza Time Theater. What can I get you?

1:32Uh, yeah, I'll have a regular pizza with Canadian bacon and mushrooms. And, uh, give me a large root beer. The teenager hands Dabney his drink and a fake coin the size of a quarter. That's your free game token so you can play while you wait. Use the change machine if you want more. Your order number is 87. I'll holler when it's ready. Dabney skips the games and finds a seat. He pushes the remains of a previous customer's meal away and makes a mental note to tell Bushnell his pizzeria is dirty. Then, the animatronic characters jerk into life. Kids rush back from the games to watch the show. Dabney cranes his neck up.

2:11On one wall is a hound dog with a banjo. On another, a cat in a basketball jersey. But the star is Chuck E. Cheese. Chuck's got rough gray fur, two buck teeth, and a red derby hat. In one hand, he's clutching a microphone. In the other, a fat cigar. He's also a rat. A rat with a New Jersey accent. By now, it's probably no surprise to anybody that we got a birthday number coming up here. Well, it's a surprise to me. I didn't even get a present. Me neither, Big C. That's because it's not your birthday, Nick. 87? Oh, yeah! Order of 87. Dabney and the other customers twist back and forth to keep track of which character's talking.

2:55He feels the need to keep looking up, giving him a crick in the neck. All right, all right, now. Everyone in the audience is going to sing along here. We're going to do this nice and simple. Dabney joins in as the entire restaurant starts singing. The birthday girl clambers onto a table with icing smeared over her face. But then, he hears a voice buried beneath the den. Number 87. Seven. Dabney jumps up to collect his pizza. The teenager stares at him. I was calling you forever. Sorry, I couldn't hear over the show. Yeah, happens a lot, Pops. Dabney carries his thin crust pizza back to his seat.

3:40He stares at the lukewarm pie. It looks sad. He picks up a slice and takes a bite. Tomato-y with indistinct cheese, tasteless mushrooms and bland bacon. It's pizza, but not good pizza. Dabney leaves shaking his head and wonders how he's going to break the news to Bushnell that the best thing he could do with his rat-themed pizzeria is call in an exterminator.

4:10So, you just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. See, when it comes to hiring, Indeed is all you need. Stop struggling to get your job posts seen on other job sites. Indeed's Sponsored Jobs help you stand out and hire fast. With Sponsored Jobs, your post jumps to the top of the page for your relevant candidates so you can reach the people you want faster. And that makes a huge difference. According to Indeed data, sponsored jobs posted directly on Indeed have 45 % more applications than non-sponsored jobs. Plus, with Indeed sponsored jobs, there aren't any monthly subscriptions, no long-term contracts.

4:59You only pay for results. How fast is Indeed? Well, in the minute I've been talking with you, 23 hires were made on Indeed, according to Indeed data worldwide. Look, there's no need to wait any longer. you can speed up your hiring right now with Indeed. And listeners of Business Wars will get a$75 sponsored job credit to get your jobs more visibility. That's at Indeed.com slash BW. Just go to Indeed.com slash BW right now and support our show by saying you heard about Indeed right here on Business Wars. That's Indeed.com slash BW. Terms and conditions apply. Hiring, indeed, is all you need. This message is brought to you by Apple Card.

5:47So, you left your wallet in the car. Or, was it at home? No need to panic. With your iPhone, you can tap to pay using Apple Card with Apple Pay and earn unlimited daily cash back when you do. Apple Card is ready when you need it. Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA, Salt Lake City Branch. Terms and more at AppleCard.com.

6:16From Wondery, I'm David Brown, and this is Business Wars.

6:42In this season, we explore the 80s pizza rivalry that captivated a generation of American kids. We're talking, of course, about the cook-off between Chuck E. Cheese and its copycat nemesis, Showbiz Pizza. Their fusion of pizza, arcades, and live entertainment from a cast of furry robotic entertainers made them the end thing for pre-teens hooked on Rubik's Cubes and Knight Rider. and later inspired the creepy video game hit Five Nights at Freddy's. But behind the smiles, these two chains were jostling to grab the biggest slice of the animatronic pizza market, a subcategory that turned extracting cash from mom and dad into a science.

7:24Their struggle was one packed with boardroom backstabbing huge lawsuits and shattered dreams. And it all began with a Silicon Valley entrepreneur with a taste for pizza and profits. This is Episode 1, Rat Pizza.

7:501973, Redwood City, 30 miles south of San Francisco. In a busy pizzeria, the chatter subsides as a man in a tuxedo steps onto a stage at the front of the restaurant. He settles into a cushioned seat in front of an ornate Wurlitzer organ. Once upon a time, this gigantic musical instrument played the soundtracks for silent movies. Now, it entertains pizza-munching families at Pizza and Pipes. The organist plays a chord. The organ pipes embedded in the wall light up. The diners applaud. Then, the organist launches into the first tune of the night. As he plays, the place is filled with sound and flashing lights.

8:33All the customers clap along, eyes glued to the organist and his musical light show. All the customers, except for one man, Nolan Bushnell, the shaggy-haired CEO of Atari, the company behind Pong, the world's first hit video game. Tonight, he's here with his family, but while they're watching the show, he's watching the other diners. And as he watches the clapping customers, he's forming a plan. Before founding Atari, he dreamed of starting a pizza chain where people would play pinball machines while waiting for their pies to cook. But the big problem was how to stand out enough from the other pizzerias to get people through the door.

9:16Pizza and Pipes has solved that problem. It's not packed because it sells the best or cheapest pizza, but because it offers customers a good time with its live entertainment. Just then, Bushnell turns back to the stage and sees a flaw. The organist. He's human. He needs to be paid and given breaks, too. And when he's not playing, well, the fun stops. Pizza and pipes would make much more money if the organist was a robot. Robots don't talk back or demand paychecks. He recalls the animatronic robot shows he'd seen at Disneyland. Those machines don't get any downtime. An equation forms in Bushnell's mind.

10:00Pizza plus animatronic entertainment equals mega profit. And as the CEO of the company that's just started the video game business, he's already got the engineers he needs to build his robotic entertainers.

10:191974, Los Gatos, California. In Atari's headquarters, an excited Bushnell paints his vision for his executive team. The company's going to move into restaurants. He no longer thinks the idea he had at Pizza and Pipes is a good one. He now thinks it's an amazing one. He lounges back in his chair, taking puffs on his tobacco pipe as he talks. Here at Atari, we create and build video games and then sell them to arcades for$1 ,000. But those games make$15 ,000 in their lifetime. We're on the wrong side of the business equation. A sales executive cuts in. Nolan, we can't get into the arcade business.

11:01We'd be competing against our own customers. Yes, I know that. So that's why we open arcades that are disguised as pizza parlors. Also, by doing that, we attract little kids and parents who think arcades are hangouts for teenage thugs. All right, but why pizza? Why not hot dogs or steak? Well, pizza takes 20 minutes to cook. Customers will play the games while they wait. Also, pizza's got the perfect bill schedule. Bill schedule? You're opening a restaurant, not a factory. I don't see the difference. You can mess up a steak, but pizza is simple to make. If you have good cheese, sauce, and dough, any old fool can make a passable pizza.

11:41The representative from the finance team raises an eyebrow. Uh, who's gonna come for passable pizza? They won't come for the pizza. They'll come for the animatronic show. The pitch is, we brought Disneyland to your neighborhood. It's why we don't need to open in prime locations. People will travel further because of the entertainment. It's also why we can charge more for our pizza. Where are we getting the animatronics? Our engineers will figure it out. What matters is that the show appeals to kids, but has enough snark to entertain the parents too. But first, we need a mascot, a character kids will latch onto.

12:24November, 1975, Atlanta, Georgia. Bushnell is on the exhibition floor at the annual convention of the International Association of Amusement Parks and Attractions. Every year, this show brings together theme park buyers with sellers of coin-op games, roller coasters, cotton candy machines, and more. Bushnell's here to give a talk about the arcade business, but he's also here to check out the latest inventions. He's still thinking about how to start his robotic pizzeria. He's codenamed it Coyote Pizza, and his engineers are making headway on the tech, but he still needs a mascot. But then, Bushnell turns a corner and sees a huge display of walk-around costumes, the kind used for sports mascots and theme park greeters.

13:12He heads over and his eyes widen in delight as he notices the torso of a gray-furred creature with a long nose and buck teeth. A saleswoman from the stand notices his interest and moves in. Hey there, see anything you want? Yeah, I need that coyote. The woman looks in the direction that Bushnell's pointing. The coyote? Uh, yeah, sure. You're paying by credit card? Perfect. Bushnell leaves, grinning. The animatronic skeletons are almost ready. And now, he's found the perfect costume for his pizza chain's star attraction.

13:561976, Grass Valley, California. Nolan Bushnell enters the engineering floor of Atari's research facility. It's been a while since he had the coyote costume shipped to the team, and he's eager for an update. He spots the engineer leading the animatronics project and hurries over. Hey, how's the animatronic coyote coming on? The animatronics are running much smoother now. The computer control system and pneumatic air cylinders are working much better, I think. That's cool. And the coyote? The engineer gives Bushnell a sideways look. What coyote? The coyote. Come on, the one I had shipped out to you.

14:35Nolan, that wasn't a coyote. It wasn't? No, it's a rat. A rat? No, no, no, it's definitely a coyote. When did you last see a coyote with a pink tail? Show me. The engineer leads Bushnell to a side room. Inside, the costume Bushnell bought is hanging up with its long pink tail looped on the floor. Yep, that's definitely a rat. Okay, well, I guess I can't call the place Coyote Pizza anymore. Still, no problem. We'll just rename it Rick Rat's Pizza.

15:16A few weeks later, Atari headquarters Sunnyvale, California. Bushnell puffs on his pipe as his marketing chief blows a fuse. You can't name the restaurant after a friggin' rat. Why not? Why not? Why not? Because rats are dirty. No one wants rat pizza, and that includes the folks at Warner Communications. Bushnell sighs. He's in the process of selling Atari to movies and music giant Warner Communications, and they're not keen on his pizza project. But Bushnell's sure that once the pilot restaurant opens next year, they'll see the light. Bushnell looks at the marketing man. Okay, can it be a rat, but we just de-emphasize the ratness?

16:03The marketing chief sighs. Well, that might be just about okay, but you have to change the name. Rick Ratt's Pizza Time Theater will not work. Okay, okay, fine. But you name him then, and I want him to have a happy name. A week later, Atari's marketing department comes up with what it calls a three-smile name. A name that makes people smile three times when they say it. Chuck E. Cheese. After roughly three years in gestation, Bushnell's Rat Restaurant is ready. But now, it's got to prove to Atari's new masters at Warner Communications that this theme park arcade pizzeria mashup can catch fire.

16:55When planning for your future, you want someone with a history of keeping their word year after year. For nearly 160 years, Pacific Life has been a trusted name in the industry. But that isn't just a number. It's experience that matters. It's 160 years of promises held, helping generations retire with confidence, protect their loved ones, and plan for whatever comes next. Whether you're looking for life insurance, employee benefits, or retirement income solutions, when your future is on the line, you want history on your side. And believe me, Pacific Life has been there, always there through changing times, always focused on your needs.

17:34Ready to secure your tomorrow? Ask a financial professional how Pacific Life can help you feel prepared for what's next. Pacific Life Insurance Company, Omaha, Nebraska, and in New York, Pacific Life & Annuity, Phoenix, Arizona. Because with Pacific Life, you're not just planning for the future, you're partnering with trusted experience. You hear it all the time on Business Wars, the battles between brands, the bold moves, the breakthroughs. But behind every winning business, there's something less talked about. Great IT. That's where Manage Engine comes in. Manage Engine offers a comprehensive suite of AI-powered IT management solutions that give you complete control over your IT operations.

18:18Your employees can collaborate securely. Your IT admins can easily monitor and manage devices. And you get full visibility of your data hygiene. ManageEngine also integrates well with most popular IT software programs out there. So, if you're a growing business or an organization looking for enterprise-grade IT management and cybersecurity solutions, visit ManageEngine.com to take control of your IT. That's www.m-a-n-a-g-e-e-n-g-i-n-e dot com.

19:06May 1977, Atari Headquarters, Sunnyvale, California. In his office, Nolan Bushnell listens as his former business partner, Ted Dabney, reports on his experience at the first Chuck E. Cheese's Pizza Time Theater in San Jose. Nolan, it's not good. The place is dirty for a start. Bushnell nods. He likes Dabney's focus on the practical. By his own admission, Bushnell's not much of a manager. Strategy and vision are his forte. Okay, Ted, I'll fix that. But Dabney's only getting started. It's too damn noisy. I can barely think, let alone hold a conversation. Bushnell shrugs. It's an arcade, Ted. It's for kids.

19:50I had to keep turning in my seat to watch the show. That's stupid. The show should be in one spot. Okay, okay, noted. Anything else? The pizza's expensive, and it's not good. Not good? It's mediocre at best, and in restaurants, anything less than good is unacceptable. Mediocre is fine. Parents decide when to go, but it's the kids who decide where to go. And kids don't care about how the pizza tastes or how much it costs. I couldn't hear my damn order being called, and so my pizza was room temperature when I got it. Okay, okay, that is a problem. Any suggestions? Well, you could rig up a TV screen that shows the numbers, as they're called.

20:30That would be pretty simple to make. Okay, great. And since it's so simple, how about you build it for me?

20:41Warner Communications Headquarters, Manhattan. It's December 1977, and Bushnell's in the boardroom trying to get Warner's top executives to sign off on Atari's spending plans for the coming year. And pizzerias are one of his priorities. The pilot Chuck E. Cheese's Pizza Time Theater in San Jose is doing great. We're on track for sales of half a million a year. If anything, it's too small. 5 ,000 square feet isn't enough. Should have been 10 ,000. Warner's executives don't look impressed. They never wanted Chuck E. Cheese. They bought Atari to get into video games, not to take on Pizza Hut. Bushnell presses on.

21:22The next step is to open a second restaurant to refine the concept. Then we franchise. Go nationwide. Manny Gerard, the Warner executive who oversees Atari, shakes his head. Nolan, we don't want to be in the food business. This isn't about food. It's about vertical integration of the coin-op game business. Sorry, Nolan. We bought Atari to put video games into people's homes, not to get into fast food. We're not funding another restaurant. Either shut it down or find a buyer. You're crazy. This is going to be huge. All the better for you finding a buyer, then.

22:01Bushnell spends two months looking for buyers and then hits on an alternative plan. If Warner doesn't want Chuck E. Cheese, he'll buy it himself, using the millions he made from selling Atari. He strikes a deal with Warner to buy the business for half a million dollars, paid over five years. In June 1978, he founds Pizza Time Theater Incorporated and quickly opens a second restaurant, this time with more space, and easier to watch show, and TV screens to tell people when their pies are ready. The second location rings up even more sales than the first. So when Bushnell falls out with Warner over strategy and leaves Atari in January 1979, he devotes himself to making his pizza chain a success.

22:50He recruits a Holiday Inn executive to sell franchises, And within weeks, that executive finds him a major league franchisee.

23:03Summer, 1979, Cupertino, California. In the Pizza Time Theater boardroom, Bushnell smiles at the guy sitting on the other side of the table. He's Robert Brock, the 54-year-old chairman of Topeka Inn Management, the biggest Holiday Inn franchisee in the U.S., operating more than 50 of its hotels. Brock's wearing a dark suit with flared trousers and polished black shoes. Bushnell makes his pitch. Our animatronics are state-of-the-art. We've invested more than$1.5 million in their development. Outside Disneyland, nothing comes close. So their movements are still a little stiff. Kids don't mind, but the technology is only going to get better.

23:46Look at video games. Five years ago, they were simple bat-and-ball games. Now we have Space Invaders. Brock feels reassured by Bushnell's promise. He's made his millions as a hotel franchisee, but he wants to take his Kansas-based company public next year. Getting in early on the next venture of this tech visionary will surely get Wall Street excited about his IPO. Well, I have to say, Nolan, I've been in the hospitality business for years, and these numbers are amazing. You're averaging close to$10 per family visit when the average pizzeria does less than six. So how much of the tab comes from the food?

24:2680 % from food and beverages. Two dollars from the games. It's our intention to sell more pizza in ten years than Pizza Hut. Brock is sold. Okay, I'm in. But here's what I'm after. I don't want any old franchise agreement. I want a co-development deal. I want to open these restaurants across the Midwest and South. I'm talking 200 restaurants. That's a$100 to$200 million commitment. But for that, I need sweeter terms. Paying you 6 % of gross sales is too much. Bushnell squashes the urge to smile. He might have tech industry cred, but the restaurant industry is still skeptical of him. This deal with Brock would be a vote of confidence that would have other would-be franchisees begging to come in.

25:14But Bushnell knows better than to take the first offer on the table. Well, Robert, there's a lot of interest right now. But if you raise that commitment to 300 restaurants, we can bring down the fees. 285 restaurants over five years. I won't go any higher. All right. Agree. Brock grins and reaches over to shake Bushnell's hand. You know, Nolan, I think we might have just done the biggest franchise deal in U.S. history.

25:52Deal signed? Brock starts a new division of Topeka Inn Management dedicated to opening Chuck E. Cheese restaurants. He names the division Pizza Showbiz, but the name eventually morphs into Showbiz Pizza. He decides to open the first new Chuck E. Cheese in Kansas City in March 1980. And as Brock prepares to bring Chuck to the middle of the country, Bushnell starts opening new company-owned locations in California and striking deals with other franchisees. But the union between Bushnell and Brock is about to nosedive.