We know of companies who have shot themselves in the foot going for instant glory and in the bargain sacrificing sustainability. Here’s an example of an entire industry – video gaming, which back in the 80s was bigger than Hollywood and pop music combined went bust, thanks to the mad rush for riches. Centrestage was the then world’s largest gaming company Atari and its hotshot video game creator Howard Scott Warshaw.
“Founded in 1972 by Nolan Bushnell and Ted Dabney, Atari had grown from an arcade game maker into what was then the fastest-growing company in US history — a $2B-per-year ($6.2B in 2019 dollars) behemoth with 80% market share. Warner Communications, which had purchased Atari in 1976, was thirsty for more.
At the time, video games were in the midst of a golden age. Driven by hits like Space Invaders (1978), Asteroids (1979), and Pac-Man (1980), the coin-op arcade industry was, by the early ‘80s, more profitable than Hollywood and the pop music industry combined.
The holy grail was in replicating these arcade games in a play-at-home console. Atari, which had recently released its VCS (later renamed the Atari 2600), was well-poised to dominate its competition…”
With the huge success of Atari’s game Raiders of the Lost Ark inspired the hit Spieberg movie, gaming companies started licensing rights of successful movies often paying over the odds to chase instant success.
“In its earlier days, Atari gave programmers ample time (5-10 months) to create and develop innovative games. But that window closed when the company realized that the real road to riches was in licensing the rights to films.
When Raiders of the Lost Ark saw success, Atari’s culture shifted from one led by engineers to one dominated by sales and marketing employees tasked with rushing games to the market.
The typical game took 1k hours’ worth of work over 6 months. Warshaw had less than 36 hours to come up with a concept to present to Hollywood’s hottest director.
Worse yet, he had just 5 weeks to finish the game — a task that one reporter called “the computer equivalent of simultaneously composing and playing a minute waltz in under 30 seconds.”
“The reason a game takes 6 months is there’s a lot of tuning and tweaking; you work on the game until you have a good one and the variable is time,” said Warshaw. “In this case, it was an inversion of that: Instead of starting with the goal of making a good game, it’s, ‘OK I have 5 weeks — let’s see how good of a game I can make.’”
The pursuit of quantity over quality meant that not just the game but the whole industry headed for disaster.
“Initially priced at $38, the game was soon on sale for $7.99. Millions of copies went unsold, and thousands more were returned.
Unfortunately for Warshaw, the flop of E.T. coincided with a much graver event: The video game crash of 1983.
A flood of low-quality, hastily created games, coupled with the rise of the personal computer, led to a moment of reckoning: In the 2 years following the release of E.T., the video game industry saw its revenue fall from $3.2B to just $100m — a 97% decline.
By the end of 1983, Atari reported $536m in losses. Over a 12-month period, the company went from 10k to 2k employees, and its stock slid from $60 to $20. In mid-1984, Warner sold the ailing company for $50 cash and $240m in stock.”
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