Spring+2009+Lecture+14+Notes

= __Spring 2009 Lecture 14 Notes__ =


 


 * Video-game industry fell in early 1980s – 3 principle players went through vast changes
 * July 1983 – Ray Kassar resigned as CEO of Atari – last days surrounded by scandal
 * Steve Ross – Warner Chairman – blamed Kassar for Atari's problems
 * Warner had other problems – confidence in company shaken due to Atari
 * Rupert Murdock – wealthy Australian publisher – planned hostile take-over of Warner
 * Ross turned to Herbert Siegel for help – Siegel chairman of Chris-Craft Industries
 * Help came with price – 29% of Warner's voting-stock went to Siegel
 * Ross losing control of Warner – needed to turn things around to keep company
 * Needed to make Atari profitable again – hired new CEO
 * James Morgan – big name in business world – hired to replace Kassar
 * Morgan – one of few top contenders to become president of Philip Morris
 * Received many previous offers from other companies – never even listened to them
 * Signed at Atari only 48 hours after meeting with Ross – highly unexpected
 * Promised $8.5 million over 7 years at Atari – additional performance bonus up to $25 mil
 * Significantly less than probably would have made as Philip Morris president
 * Morgan most likely took Atari job since it was a challenge
 * Morgan had no technological background – similar to Kassar
 * Knew nothing about computers – saw Atari simply as a business
 * Cut back expenses to try and make profits – laid off over 6000 employees
 * Atari workforce cut from 9800 people to 3500 people
 * Prepared to move Atari manufacturing overseas – Hong Kong and Taiwan
 * Mattel – things even worse – conflicting stories of nature of death of Mattel Electronics
 * Employees claim 1983 strong year for Mattel
 * Claim Mattel and competitors sold over 7 million consoles in 1983
 * Claim 75 million games sold – 15 million more than previous year
 * Other accounts – October 1983 Mattel had over $201 million deficit
 * Forced to lay off over 600 employees
 * Mattel claimed would not close electronics division in 1984
 * End of 1983 – all new hardware projects at Mattel Electronics canceled
 * March 1984 – Mattel closes Mattel Electronics – sells division
 * Terrence Valeski – former Senior VP of Marketing and Sales – buys for only $20 million
 * Valeski believed Intellivision market still viable
 * 3 million Intellivision owners – believed they still wanted to buy software
 * Renamed Mattel Electronics to Intellivision Inc. – later changed to INTV
 * Intellivision never as strong as once had been – began to fade away in years after 1983
 * Coleco suffered even worse – though did great in 1982
 * CEO Arnold Greenberg nervous about video-game crash
 * Decided Coleco needed more than ColecoVision to survive
 * Took Coleco in 2 directions - 1st toward Personal Computers
 * Adam Computer – all-in-one computer – master-console using audio-cassette for data
 * Slot for cartridge-based games – letter-quality printer – 75-key keyboard – all in one box
 * Complete Adam computer cost $600 – Coleco abandoned manufacturing ColecoVision
 * Also produced partial Adam kit – $400 – plugged into ColecoVision consoles
 * 1982 – Coleco first showed Adam Computer – promised to ship 500,000 units in 1983
 * Production slow – less than 100,000 units made – Greenberg still confident in Adam
 * Adam good value – came as complete package, including software – unheard of at $600
 * Coleco did fantastic marketing for Adam – hotly anticipated product
 * Greenberg now focused on other direction for Coleco – toy business
 * 1982 – Greenberg heard about toy company in GA – Appalachian Workers
 * Owner – 28 year old Xavier Roberts – studied sculpting at local college
 * Created dolls called “Little People” – dolls big success – Roberts drops out of school
 * Begins selling dolls at old clinic – calls it Babyland General Hospital
 * Unique method of doll creation – didn't say dolls manufactured – they were “delivered”
 * Assembly workers dressed as doctors and nurses – brought newly delivered babies out
 * Carried on beds of cabbage to viewing rooms for customers to see
 * Roberts did “sell” dolls – “put them up for adoption”
 * Adoption prices varied – from $125-$2000 depending on dolls
 * Some higher-priced dolls came with furs and diamonds
 * Each doll unique – own identity – birth certificates and adoption papers
 * End of 1983 – over 25,000 people had adopted Roberts' hand-made dolls
 * Greenberg of Coleco wanted to bring Little People dolls to rest of world
 * Licensed concept from Roberts – renamed dolls to “Cabbage Patch Kids”
 * Coleco made 2.5 million Cabbage Patch Kids in 1983
 * No one expected the demand the dolls would bring – sold out shipments almost instantly
 * Holiday season – stores sold out of Cabbage Patch Kids inventory
 * Number of incidents of near-riots – shoppers tried to get dolls any way they could
 * Stores severely raised prices – doubled from $25-$50 – still sold out
 * Scalpers re-sold Cabbage Patch Kids for well over $100
 * Coleco expected to do $1 billion in Cabbage Patch sales alone in 1984
 * Electronics side of Coleco – things far worse
 * Greenberg pushed Adam production – wouldn't back down from promised shipping date
 * Quality control lost – more than half Adam Computers in 1983 returned as defective
 * Coleco stock dropped nearly 10 points per share – company crippled
 * Problems fixed for second shipment – people already turned off from problems with first
 * Coleco's electronics department had virtually no sales
 * Atari dropped price of 5200 – Coleco followed suit
 * Dropped price of remaining ColecoVision inventory
 * Gave away Cabbage Patch Kid with purchase of a ColecoVision console and cartridge
 * Sales slow – Adam sales also almost gone – Coleco discontinued Adam in January 1985
 * Same year Cabbage Patch Kids popularity peaked – then began to decline
 * Greenberg acquired company that produced Trivial Pursuit in 1986
 * Last effort to save Coleco – by that point Trivial Pursuit fad over
 * 1988 – Coleco filed for bankruptcy – 1989 – bought out by Hasbro
 * Old video-game figure had begun to try and re-enter the field
 * Nolan Bushnell already a legend – success at both Atari and Chuck E. Cheese
 * Made a lot of money and fame – high-profile friends – actors and politicians
 * Tried to further creation of new ideas an technologies
 * Similar spirit to what Atari had under his ownership
 * Bushnell founded Catalyst Technologies – helped out start-up technology companies
 * Catalyst provided space and resource to new companies – as well as funding research
 * Bushnell and Catalyst retained piece of companies in return
 * Bushnell became involved in number of technologies this way
 * Early HDTV advances, new cable TV technologies, robotic toys, etc.
 * Pizza Time Theaters going strong at this point – 204 Chuck E. Cheese restaurants
 * Expected 73 more to open by end of 1983 – problem, however
 * ShowBiz Pizza – almost exact duplicate of Chuck E. Cheese experience
 * Even featured animatronic animals that played music – mascot Billy Bob Bear
 * Founder of ShowBiz Pizza – Robert Brock of Brock Hotel Group
 * Approached Bushnell in 1979 asking to open chain of 200 Chuck E. Cheeses in Midwest
 * Contract written up – Brock decided against going with Bushnell
 * Met inventor of robotic technology – produced characters like ones at Chuck E. Cheese
 * Higher quality – cost less – Brock wanted to start his own business with this technology
 * Demanded Bushnell tear up contract – Bushnell refused – Brock proceeded on his own
 * Bushnell sued for breach of contract – won law suit
 * Showed Chuck E. Cheese original idea – ShowBiz an unlicensed reproduction
 * Brock allowed continue – Bushnell got percentage of revenues from first 160 ShowBiz
 * ShowBiz still cut into Pizza Time Theaters profits
 * Pizza Time had other problems – Chuck E. Cheese restaurants not doing well
 * Poor quality pizza at high prices – video-games losing popularity
 * End of 1982 – profits declining – repeat business died
 * One-time visitors not enough to sustain costs of expensive restaurants
 * 1983 – Pizza Time losing money – Bushnell not directly managing
 * Focusing on Catalyst – had hired outside management for Pizza Time years before
 * Unaware of Pizza Time's financial problems until too late
 * Thinking Pizza Time OK, pursued other ventures
 * 7-year non-compete agreement with Warner when he left Atari set to expire
 * Wasted no time trying to get back into video-game industry
 * 8 months before non-compete agreement ended – Bushnell bought Videa Inc. for $2.2 mil
 * Videa – gaming company founded by 3 former Atari employees
 * Roger Hector, Howard Delman, and Ed Rotberg
 * Hector – leader at Atari – worked on Cosmos with Alcorn – handled hologram issues
 * Delman – engineer at Atari – developed Atari's vector generator technology
 * Rotberg – programmer at Atari – Battlezone – considered top programmer at Atari
 * Bushnell changed name of Videa Inc. to Sente Technologies
 * Like Atari – Sente term from Japanese game Go
 * Sente term for strategically better “position” than term Atari in game Go
 * Bushnell believed name Sente gave him upper-hand – was directly challenging Atari
 * Purchased Videa – now Sente – as subsidiary of Pizza Time Theaters
 * Believed products released through Sente would go to Chuck E. Cheese first
 * Possibly attract more customers to restaurants – didn't realize Pizza Time problems
 * March 1984 – Pizza Time Theaters filed for Chapter 11 bankruptcy protection
 * Sente already damaged simply by being subsidiary of failed company
 * Irony – ShowBiz Pizza bought out Pizza Time Theaters
 * Ran both Chuck E. Cheese and ShowBiz restaurants for years
 * 1990 – ShowBiz dropped Billy Bob as mascot – took Chuck E. Cheese as official mascot
 * Bushnell determined to move forward with Sente
 * Non-compete agreement came closer to ending – began hinting on his re-entry into field
 * Warned picked up on hints – filed suit against Bushnell for breach of contract
 * Didn't mind Bushnell being involved with Chuck E. Cheese – arcades customer of Atari
 * Sente direct competitor to Atari – suit filed
 * Bushnell continued as planned – held large party on September 30, 1984
 * Called it “Freedom Day party” – celebrating official end of non-compete agreement
 * Midnight on Freedom Day – exact moment when non-compete agreement ended
 * Bushnell officially announced Sente Technologies
 * Most likely would have announced Sente's product line – law suit took him off track
 * Did announce the official unveiling would be December 9, 1984
 * Date arrived – Bushnell had bigger party
 * Rented various animals from Marine World's Africa USA – had them walk around party
 * On-stage was huge box – alarm clock attached to it – 10:08AM sharp alarm goes off
 * Bushnell bursts out of box – celebrating his freedom – then announced initial Sente line
 * Series of arcade machines which used interchangeable cartridges
 * Arcade owners buy universal cabinet – swap out games when released
 * Makes arcade gaming more flexible – also saves arcade owners money
 * Not original idea – Nintendo first came up with idea
 * Used interchangeable cartridges in arcade games like Hogan's Alley
 * Nintendo made a lot of money with these games
 * Sente poised to follow in their footsteps – Bushnell needed money to make games
 * Used unusual tactic – said no one could buy into Sente without first purchasing hardware
 * Basically had to sign blind-agreements to purchase Sente products
 * Nolan Bushnell a legend – “father of video-games” – number of companies agreed to sign
 * Sente doomed to fail before it started – subsidiary of failed Pizza Time
 * Sente didn't survive much longer – products not very good
 * Hardware expensive – games not fun – all but 1 received overwhelmingly bad reviews
 * Bally purchased Sente away from now-bankrupt Pizza Time
 * President of Bally shut down Sente for good shortly after purchase


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