December 7, 1982
We’re going backwards just a bit, because researching and writing about Atari is so incredibly fun, even though I had plans for politics, baseball, music and movies that all got pushed back. But don’t worry, those updates are still in the pipeline….
December 7, 1982
The sports world is abuzz with rumors that the San Diego Padres have offered free agent first baseman Steve Garvey a five-year contract worth $6 million. The former MVP and eight-time All-Star first baseman is said to be “weighing other offers.”[1]
The New York Times reports that the unemployment rate in the U.S. has risen to a record 10.8%, with 11.9 million people out of work. Meanwhile, Laura Branigan’s “Gloria”
begins a six-week stay as the nation’s number one song, displacing Toni Basil’s cheerleader-anthem “Mickey.”[2]
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Ray Kassar, CEO of Atari, Inc., is meeting with four of his division heads – Coin-Op chief Jed Margolin [3], Design & Marketing head Regan Cheng [4], Software Division president Carla Meninsky [5], and Steve Mayer, who had recently been assigned by Warner to oversee Atari’s combined Computer and Video Game Hardware divisions, now simply called the “Hardware Division.”[6]
KASSAR: Okay, folks, we’ve got a problem. Warner released their numbers today, and even though they’re good and the Wall Street folks are happy [7], there’s a lot of danger lurking beneath the surface. I’m circulating our consolidated balance sheets for the past six months, along with the December projections, broken down by product ID, and you’ll see the problem.
MARGOLIN: The problem is that the economy’s in the toilet? We’re still making money from arcades over in Coin-Op….
KASSAR: No, no, Jed; you’re right that Coin-Op’s doing okay for this economy. The problem is that sales of the 5200 are way below projections. We’re losing market share to
Coleco, for God’s sake! How can that be?
MAYER: Beats me. The 5200 is considerably more advanced than the ColecoVision, Ray. It’s basically our 800 hardware in a closed-off box with a new operating system.
MENINSKY: Isn’t that the problem? The 5200 is great hardware, but it doesn’t run our own VCS games.[8] Meanwhile, Coleco’s box has a module that lets you run those classic 2600 games on
their system! Ray, I know you’ve got Legal trying to stop it, but right now, that’s Coleco’s major selling point. So look, I’m a suburban mom buying my kids Christmas presents. We’ve already got an Atari 2600; it’s five years old, and the kids want something new. Ironically, if I buy another Atari, that means throwing away all those 2600 games. But hey, if I buy the Coleco, it’s cheaper, and you can still use all those games.[9]
CHENG: It doesn’t help that the Coleco box looks a lot like our 5200, right down to the keypad-joysticks and everything. It reinforces in the customer’s mind that it’s basically the same thing, even though the 5200 has a lot more under the hood.
MAYER: With all due respect to Carla and Regan, I don’t think that piece of shit Coleco box is our problem. Our problem is this. [Hands out
an advertisement for the Commodore 64.] [10]
KASSAR: Ugh. Jack Tramiel. What the hell is wrong with that guy?
CHENG: He’s a secret agent sent by the KGB to destroy the U.S. computer industry, kind of like the way the Swiss sent Lenin back to Russia in 1917?
KASSAR: Don’t make me fire you, Regan. [Pause, and a wry smile.] Seriously, though, what’s he selling that fucking 64 for now? Five hundred bucks?
CHENG: $399 after rebates, and everything I’ve seen suggests he’s ready to go even lower.
KASSAR: Lower? Mayer, what’s our production cost on your 1200XL?
MAYER: Uh… about two hundred dollars. We were looking at a launch price of $899 until….
KASSAR: Yeah, until the 64 came along. I know. Then we had to triple the RAM on the 800
and slash its price
and rush the 1200XL through to development.
MAYER: Well, a lot of that is just bad luck. The 64 isn’t much different than the 800 on the inside; in fact, it has about as much free RAM as our 48K 800 after you load BASIC. [11] The difference is that the FCC changed its licensing requirements after we made the 800, so Commodore can crank those little bastards out in cheap-ass plastic cases. Meanwhile, we were stuck manufacturing a multi-board 800 in a big, heavy, metal-shielded case.
KASSAR: Give it to me straight: can we sell the 1200XL for four hundred bucks and make money on it?
MAYER: Not… I mean… Well, a little. Yes. Yes, we can sell it at $399.
KASSAR: What about $299?
MAYER: No. No way. But do you really think Tramiel is going to slash prices again?
CHENG: Of course he will. Look, it says it right there in the advertisement – “we make our own IC chips,
plus all of the parts of the computer they go into.” Every time we make an 800 – or a 1200XL, or a 5200 – we’ve got to buy the 6502 chip from MOS. And you know who owns MOS? Commodore!
MAYER: It doesn’t make sense to look at another 8-bit chip, Regan. Even with Commodore’s markup, the 6502 is still ten times cheaper and more powerful than what we can get from Zilog or Intel. Now if you wanted to go sixteen, or thirty-two bit, we’ve got some designs that use the Motorola 68000 and Nat Semi’s 16032, but those are selling for $200 a chip, just for the processor. You’re talking about a thousand-dollar system at a minimum.[12]
MARGOLIN: Yeah, we used the 68000 to make the
Food Fight console. Hell of a chip.
KASSAR: But right now, all of our hardware uses the 6502, right?
MAYER: Right.
KASSAR: So we’re never going to be able to sell the 1200XL cheaper than Commodore sells the 64?
CHENG: Exactly. And it’s worse than that; we’ve already gotten terrible reviews on the 1200XL because we closed off the 800’s slots and the PBI. Reviewers are already treating it like it’s a knockoff of the 64, even though the hardware is superior.
MAYER (reluctantly): Yeah.
KASSAR: So why are we introducing this thing? I mean, Steve, no offense, I know it’s your baby.
MAYER: It’s a stop-gap to bridge us to Sierra. What else can we do? We can’t just go dark on the computer market for two years and then try to come back; software developers will flock to Apple and Commodore and we’ll be left introducing a system with no software and no support. We need to maintain a share of the market – even if we’re only selling the system at a modest profit – and stay in the game until we can move away from the 6502.
KASSAR: Can’t we just reverse-engineer the 6502 and fabricate a version ourselves?
MAYER: No. I mean, Commodore already ripped it off from Motorola back in the 70s and had to settle a lawsuit and pay Motorola just to bring the 6502 to market. If we tried to do the same thing, we’d get slapped with an injunction immediately. It’d be a total waste of R&D.
MARGOLIN: Wait a minute. I knew Chuck Peddle back when he was at Motorola. Smart son-of-a-bitch, but he had an even smarter son-of-a-bitch working with him, guy by the name of Mensch. Didn’t he have some sort of falling-out with Commodore?
MAYER: Yeah, Bill Mensch. He and Peddle left Motorola, patented the 6502, and settled the lawsuit just before Commodore bought out MOS. Then Peddle stayed at Commodore and designed the VIC-20, while Mensch left to form Western Design Center back in... oh, ’77 or ’78.[13]
KASSAR: So what’s Western Design doing now?
MARGOLIN and MAYER exchange shrugs. Nobody knows.
KASSAR: Let me make sure I have this straight. The reason we’re losing to Commodore is because they own MOS and make the 6502. And yet the guy who co-developed the same chip, who settled a lawsuit that
legally lets him make the chip we so desperately need is off in some startup doing who the hell knows what?
MAYER: Yeah, I guess I never really thought of it that way before. [Pause] Do you really think you could convince Warner to buy Western Design?
KASSAR: Can’t hurt to try.
MENINSKY, who has been mostly silent throughout this interchange, taps a Camel cigarette against the table and then lights up. After a long drag, she jumps in to the conversation.
MENINSKY: I still think you’re missing out on the other half of the picture here. What’s offsetting your 5200 sales? Sales of the VCS, hardware and software. We sold 200,000 of them in the third quarter alone,
and five million copies of “E.T.” That’s nearly a half-billion dollars of revenue.
MAYER: The VCS is obsolete, Carla; it’s six-year-old technology.
MENINSKY: But that’s the point! The VCS is cheap to make; it uses the scaled-down 6507 that nobody wants and those 4K RAM chips that are basically free. We could probably put it in a cheap plastic case, drop the wood-grain and the shielding, and make it for fifteen or twenty bucks, tops. There’s still an untapped market, a downscale market for people who can’t or won’t pay two or three hundred dollars for a video game system or a computer, but they might save up seventy or eighty dollars for an extravagant Christmas present.
KASSAR: Regan, can Commodore sell the 64 for $100?
CHENG: No… not even as a loss-leader.
KASSAR: Can we sell the 5200 for $100?
CHENG: No.
MAYER: Well, part of that are all the add-ons that we thought would make the 5200 look cutting-edge, you know, the redesigned joysticks, the new video. Plus, we left a lot of legacy 800 stuff inside so that we could sell an expansion pack, turn the 5200 into a full-fledged computer.
KASSAR: Well, those plans are out the window now. Who’s going to buy a $250 video game system and then add a $200 upgrade when they could just buy the damn 64 to start with?
MAYER: Right, right. But like Carla was saying, we could take the 2600 and strip it down to its essentials; we could do the same thing with the 5200 and maybe get production costs down to the fifty dollar range. Particularly if we got a cheap source of 6502s.
CHENG: Could you put those two systems together, like Coleco has? Give us a 5200 that also runs 2600 games?
MAYER: Maybe, but that’s going to take six months to a year to work out the kinks. The scaled-down versions, I could get engineering to knock out a cheap 2600 in a few weeks, though. But we’ll still miss the Christmas season, obviously.
KASSAR: Okay, so here’s where we’re going. On the one hand, we have whatever’s going to replace the 2600 and 5200, a cheapo video-game unit based on the 6502, able to run all our old Atari games, and we need to be able to sell that for $100 or less. In the short term, we’ll crank out a revised 2600 and market the hell out of it. In the long term, we’ll replace the 5200 with Regan’s idea.
CHENG: We could call it the “7800” – you know, a 5200 plus a 2600….
KASSAR: Whatever. Then, we have the computer side, where we’re on the other side of the coin. Nothing we make is going to be as cheap as that crappy 64 crammed into its cheapo plastic case with its cheapo plastic keyboard.
MAYER: So… let’s go upscale. Why compete with our own sub-$200 line of video game systems? Let’s take the 1200XL, and market it as a professional computer. Compete with Apple and IBM.
MENINSKY [excitedly]: Yeah, it’s the other side of my mom example. Moms want the practical game machine for their kids. But what do dads want? They’re pushing 40, all of a sudden you don’t want a station wagon any more, you don’t want a Ford. You want something sexy. [She pouts, mock-seductively, and the all-male table starts laughing.] You want a Mustang, a Porsche, a Ferrari. Something that says 'I have an enormous penis,' but, you know, with a sense of fun.
[The rest of the table breaks out into uproarious laughter.]
MENINSKY [continuing]: So, it’s our ‘mid-life crisis computer.’ When you’re ready to be a
real man, you’re ready to upgrade from that 64 to an Atari. We emphasize all the business stuff, but then, they know, we’re also cranking out
manly video games. You work hard, you play hard.
KASSAR [laughing]: I love it.
CHENG: I love it, too. But Steve, Carla, we just can’t do that with the 1200XL. I helped design and build the thing. I love it. But it’s already being compared
unfavorably to the 64, at twice the price.
KASSAR: So why can Apple and IBM sell their stuff at Cadillac prices?
CHENG: Well, part of it is aesthetics. The IBM has a separate numeric keypad. Don’t laugh! And the quote key is next to the semicolon instead of shift-2. I know, it’s kind of silly, but that sort of thing screams 'Cadillac' to enthusiasts. I guess they think they’re going to use their home computer for, I don’t know, data entry or something.[14] Um… on the Atari, you have to turn on all of your peripherals separately, just like on the Commodore. On the Apple and IBM, the disk drives, the printers, they turn on and off from the computer. It’s just a vibe.
MAYER: You know, a lot of those 'Cadillac' changes are pretty cheap. We could wire in a keypad on the 1200 for a couple of bucks. And we’ve got already designed a
version of the 1200 motherboard that allows the computer to control the peripherals; we just cut it because it didn't fit the 'closed box' concept. So yeah, that’s all doable.
KASSAR: Okay, so you rework the 1200XL, add in a keypad and some other stuff, put those controllers on the motherboard and we bang out the 'Cadillac'?
MAYER: No. No, it just isn’t that simple. Part of the 'Cadillac' problem is that people see Atari as the home game computer, Apple as the educational computer, and IBM as the business computer, even though in the end, what each of them do is pretty similar. Part of that is that Apple and IBM have expansion slots; you can stick in all sorts of daughterboards to expand the memory, upgrade the graphics, add a coprocessor, run CP/M, display 80 columns, that sort of thing. They expand; they grow. We deliberately went the other way with the 1200XL to make it a home computer, like an appliance. That’s exactly what Commodore did, too. So it’s sort of natural to lump our 1200XL in with the 64 instead of with Apple and IBM.[15]
KASSAR: So what do we do?
MAYER: We take the 1200XL and go the other direction. All of that slot stuff is something we planned to do in the future anyway, with an expansion box. We’ve already got one built; it’s code-named
the 1090. And we’ve
also got three expansion cards ready to plug in, a CP/M card that adds a Z-80, a video card to display 80 columns, and a 64K memory upgrade.
KASSAR: Can we package the 1200XL with this 1090 box, and sell them together until you can redesign the system?
MAYER: No, that won’t work, either. When I closed off the parallel bus interface on the 1200XL, I had Regan stick it behind a single piece of molded plastic. The interface to connect to the 1090 is still there on the motherboard, but we can’t
get to it. [16]
CHENG: We could redesign the 1200XL case, open up the PBI….
KASSAR: No, no, no. I’m not going to retool our production lines for a redesigned case for a machine we’re going to cancel within the year anyway. Steve, how long would it take you build the 1090 and all of our 'Cadillac' features into a redesigned 1200XL from the ground up?
MAYER: Six months? It’s actually not that hard; all of the guts are there, it’s just a matter of making it work together and then getting it ready for production.
KASSAR: No way you could get it done in a month?
MAYER: No, but I could probably put together a non-working mock-up in a month or so.
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January 6, 1983
The Winter Consumer Electronics Show (CES)
Las Vegas, Nevada
Atari announces that it will not ship the previously-announced 1200XL, and unveils a (non-working) prototype of its 800XLP Professional Series computer, code-named 'Cadillac.' Thousands of pre-production 1200XLs already in distribution become semi-valuable collectors’ items.
Atari began distributing the 800XLP in the summer of 1983, aided by positive press from the Winter CES and backed by a nationwide TV and magazine ad campaign. One particular ad, which appeared in various magazines targeted at men (including
Sports Illustrated,
Car and Driver,
Popular Mechanics,
Discover, and, notably,
Playboy) throughout 1983 is reproduced below:
[Not sure why the image sometimes seems to load and sometimes not --
click here to view my custom Atari ad.
Atari’s “Work Hard, Play Hard” slogan remains one of the most recognizable catch-phrases of the 1980s, and Atari would eventually sell more than two million 800XLPs.
Meanwhile, Commodore announces that it will offer a $100 rebate for new purchases of the 64 when consumers “trade in” their old computer or video game system, dropping the effective price of the C-64 to $299. (Commodore’s rebate program will lead New York-based retailer
Crazy Eddie to sell C-64s along with a Timex Sinclair 1000 for an additional $19.95 so that first-time buyers can ship the Timex to Commodore to take advantage of the rebate.) By the end of 1983, Commodore will drop the price of the C-64 to under $200, and it will become the best-selling computer of all time, selling more than
fifteen million units,[17] and driving Texas Instruments, Timex-Sinclair, Coleco, Tandy-Radio Shack, and the IBM PCjr from the personal computer market in what is now called the "Home Computer Market Crash of 1984."[18]
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So there you have it: a bit more background on how Atari comes to shelve the 5200 and 1200XL and stay afloat during Jack Tramiel's crazy price wars of the 1980s, plus some fun hints for the future. Thoughts?
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[1] Just as IOTL. Garvey would ultimately sign with the Padres for 5 years/$6.6 million in February of 1983, a move that Sports Illustrated would call a “masterstroke” for San Diego. Garvey – who still holds the National League record for consecutive games played with 1,207 and was nicknamed the “Iron Man” – would dislocate his thumb during a collision at home plate during the first inning on July 29, 1983 and would miss 62 games for the first time in his career. After returning in 1984, Garvey would be elected to two more All-Star teams during his tenure in San Diego and would win the NLCS MVP award in 1984.
[2]
IOTL, “Gloria” peaked at #2, just behind “Mickey.” But take a look a little further down the top ten and you’ll see (ahem) “Dirty Laundry” in the midst of its nineteen-week run on the Billboard Top 100, peaking at #3. Those listeners have to go somewhere, and I think Laura Branigan is probably a closer step than, say, Lionel Richie, Hall & Oates, and Marvin Gaye. “Mickey” would also hit #1 IOTL, although not for a few weeks.
[3] As per OTL, except that IOTL, all of Coin-Op reported to Rick Moncrief, Director of Atari’s “Applied Research” division and not to Atari directly. The reorganization here is partly due to diminished Warner meddling in Atari management (because Atari is far more profitable ITTL), partly due to butterflies, and partly due to the fact that Margolin
has published his entire e-mail history during his tenure at Atari from 1982 to 1992, which is just an incredible resource (and a really fun read).
[4] Regan Cheng designed the Atari 1200XL and was responsible for the sleek “wedge” look. He came up with a
whole bunch of
really neat designs for Atari – most of which were shelved during 1983 (as Atari was losing money hand over fist) and lost for good during the implosion of 1984 (when Atari was sold to Jack Tramiel). Here, they’re not. Warner has always been interested in marketing Atari; IOTL, that interest is coupled with the thought that they’re actually getting a return on their investment.
I've (unrealistically) combined Cheng's character with Atari's director of Marketing, mainly for storytelling reasons.
[5] After Howard Scott Warshaw’s departure and Meninsky’s success with the 2600 version of “
E.T.,” she’s promoted to head of the Atari Software division.
[6] IOTL, Mayer – who designed every pre-Tramiel Atari 8-bit computer – was made CEO of “WCI Labs,” a Warner subsidiary separate from the Atari chain of command (and also separate from Atari’s videogame division!) and tasked with creating Atari’s next generation of computers. Although Tramiel bought Atari, he did
not buy WCI Labs, which led to the very weird situation in 1984 where Warner owned the research for Atari’s prototype 16-bit computers (codenamed SIERRA and GAZA), but not Atari Computers. As you might imagine, this means that pretty much everything Mayer worked on was ultimately lost.
[7] I picked this date because IOTL, Kassar sold $250,000 worth of Warner stock just
twenty minutes before Warner reported lower-than-projected profits of 10% for the year. Warner stock tanked at the announcement, and Kassar ultimately was investigated by the SEC for insider training, leading to his resignation. The cloud of (justifiable) suspicion that hung over Kassar for all of 1983 crippled Atari’s reputation on Wall Street and contributed to the cascade of disaster IOTL.
Here, the profit-conscious Kassar is actually an asset. Yes, his autocratic management style pissed off a lot of Atari engineers and programmers pissed off a lot of people back in 1979 (and led to the founding of Activision) – but everyone who’s left is used to it by now. As a guy who wants to line his own pockets, Kassar isn’t afraid to make bold choices or to go toe-to-toe with Steve Ross and demand investments from the parent company that he believe will pay off down the line.
[8] Atari’s 2600, as you may recall, was initially known as the “Video Computer System” (VCS) before being retconned as the 2600 in 1982 in order to promote the 5200. Long-standing 2600 programmers like Meninsky will still default to the classic nomenclature.
[9] All as IOTL. Ultimately, Atari’s lawsuit was dismissed because any engineer could recreate the entirety of the 2600 using off-the-shelf parts. (That’s essentially what Coleco’s Expansion Module 1 did – put an entire 2600 inside the ColecoVision.)
[10] As IOTL.
[11] True. If you owned (or knew anyone who owned) a C-64, you’ll remember the
now-iconic blue startup screen with “38911 BASIC BYTES FREE.”
[12] National Semiconductor would rename the 16032 as the 32016, but production and performance issues rendered it a second-division competitor to the MC68000, a similar chip that also had a 32-bit instruction set and a 16-bit data bus. Atari had designs with both chips that were lost during the sale to Tramiel in 1984.
[13] All as per OTL. Chuck Peddle and Bill Mensch designed the Motorola 6800, left to start MOS Technologies, co-patented the 6502, and were purchased by Commodore. Mensch left Commodore for WDC in 1978 and is still the CEO of WDC today.
[14] Seriously!
[15] IOTL, Compute! Magazine made precisely this point in print.
[16] Just as OTL.
[17] IOTL, the C-64 sells 17 million units. Here, Atari’s “Work Hard, Play Hard” strategy cuts into that margin just a bit with a marketing plan that turns out to be pitch-perfect for creating a niche in the rebounding economy that we associate with the go-go Reagan ‘80s.
[18] TTL's version of the Video Game Crash of 1983.