Perhaps you've heard stories of the mythical Atari landfill in New Mexico full of unsold E.T. the Extra-Terrestrial games. Well, there's actually nothing mythical about it: the E.T. game landfill is very much real. In fact, it's not just the universally panned game based on the beloved Spielberg film that's hidden beneath the earth in Alamogordo, NM. Atari dumped a number of their garbage games in this infamous spot, and they tried to cover it up - literally.
Much like the question "What happened to the G4 network?," people are still wondering what happened to Atari. For years, the company was at the forefront of arcade and in-home gaming innovation. They're responsible for Pong and the first video game Easter egg. Plus, they were one of the first consoles to play Tetris, even if they technically didn't have the real rights. But the early '80s got ugly in a hurry for the once-legendary creators of Pac-Man.
Here's the story of how Atari crumbled and left a pit full of useless video game cartridges in their wake.
In 1982, Atari Went From The Top Of The World To Nearly Bankrupt
By 1982, the Atari 2600, the video game console often referred to simply as "the Atari," was bringing in money hand over fist. The gaming system hit the market in 1977 and had transformed Atari Inc. from a $28 million investment into potentially a $2 billion company in less than six years.
Things changed over the course of 1982, however, as competitors flooded the market in the United States, creating unstable conditions that eventually lead to the video game crash of 1983. Atari was an American video game company, and it was the American companies that were hit hardest. Atari's share of the cartridge game market was drastically reduced by the end of 1982, which led to dismal sales at a critical point for the company. The stiff competition was just the start of their problems.
Competitors Were Catching Up And Atari Wasn't Evolving
While Atari had initially cornered the market by publishing both their game cartridges and the console itself, this advantage quickly disappeared. Developers unhappy with their treatment were leaving the company in droves to start their own companies where they made better games. Imagic and Activision were a couple of these companies, devastating Atari by creating games compatible for their 2600 system but of much higher quality. Up to that point, Atari's business model was to price their consoles as cheaply as they could and rely on game sales to maintain their profits, so losing the revenue from the hottest games was a big hit.
To make matters worse, more powerful new consoles were starting to enter the market, like Mattel's Intellivision and the ColecoVision, further crowding Atari's place in the home gaming market. These competitors found a way to make adapters that played Atari cartridges on non-Atari consoles, taking any potential benefit from Atari-exclusive games.
'E.T.' Was The First Licensed Game Based On A Movie - And A Huge Risk For Atari
Steve Ross, the head of Warner Communications, went all in on making a game inspired by the movie E.T. the Extra-Terrestrial, efforts that resulted in what's considered by many to be the worst game of all time. Ross reportedly purchased the rights to the title for $21 million, putting Atari in the tough position of having to sell 4 million copies just to make their money back. To make matters worse, Ross made the deal in July 1982 and demanded the game be ready for sale by that Christmas season. In the end, the developers had a total of five weeks to make the game from start to finish in order to hit the production deadline.
The 'E.T.' Game Tanked, Which Only Made Atari’s Financial Situation Worse
Unsurprisingly, the developers were unable to make a smash-hit game in only five weeks. The E.T. the Extra-Terrestrial game was a nightmare. Despite the connection to the movie, people hated the game, and initial sales moved just 500,000 of the 5 million units produced. When all was said and done, only an additional 1 million units were sold, meaning Atari had 3.5 million cartridges on their hands less than a year later with no hope of selling them.
Atari Produced More 'Pac-Man' Cartridges Than Atari 2600 Consoles Sold
Other questionable business decisions helped accelerate Atari's rapid demise. Despite having sold only 10 million units of their 2600 system, Atari went ahead and mass-produced 12 million copies of Pac-Man in the hopes that more people would buy the system to play the ultra-popular arcade game. This was a miscalculation. Although the game sold relatively well - 7.7 million copies totaling nearly $200 million in gross profit - they were obviously stuck with millions of copies they just couldn't move.
Perhaps it was the relatively poor quality of the at-home version of the game compared to the arcade version, but the result was the same: they bit off more than they could chew.
Atari Executives Started To Jump Ship All At Once
Larry Emmons had served as the head of research and development since the beginning of Atari, but he retired in 1982. Just a year later, CEO Ray Kassar was prosecuted for insider trading after trying to quickly sell his stock in the company before the ugly fourth-quarter reports came out about the previous year. James J. Morgan replaced him, but he only lasted a year. Then, the video game crash hit and the company's value decreased by 67%, prompting Warner Communications to sell off Atari. Basically, things snowballed in a hurry.