Original subtitles

Keith: Looking at the multi-billion dollar

video game industry today.

Manny: It's a major entertainment industry

bigger than the movie business.

Keith: I don't think anyone could have imagined that

coming from such humble origin.

Ralph Baer archival demo: Okay, one to nothing.

Mark Baer: Ralph Baer built this little machine

in his basement, that changed the world.

Nolan: Ralph claims that he invented Pong .

He didn't.

Alsaid, this patent is .

Keith: It was really a free for all.

- There was a lot of pot.

- This is how we put out games, huh?

- There were all these stories about sex in the Atari hot tub.

Keith: It was sex, drugs, and video games.

Jeff: Atari went from being just a hippie-dippie company to,

we were making money.

- Nolan Bushnell, you are an acknowledged visionary.

- I was young and dumb, never run a company before.

Manny: Everybody had the same reaction,

what the 's Nolan talking about?

What is he talking about?

- There were a lot of powerful characters butting heads.

Michael Fischer: Sega was David fighting Goliath.

We took Nintendo on.

- I used to get nasty letters from Howard Lincoln.

- It was just a great fight between two companies.

Trip: It was always personal.

- They were a bully.

Phillips: There was nothing like the rollercoaster ride

of early video games.

Steve: The video game frontier was wild.

- Well, it was the wild west.

Nolan: When I was in engineering school,

I started working at an amusement park,

in the games department.

Carny: How about you, sir, take a chance,

three for a dime, win a beautiful prize.

- So that sort of qualifies me as a carny.

Carny: Well hurry, hurry, hurry,

who's going to take another chance?

Nolan: I got a good cross section of what people liked,

what they were willing to pay, and how often they'd play it.

What it was really focused on

is getting people to play over and over and over again.

Even though they lose.

Carny: Missed again, how about another chance?

Nolan: And when you're convincing other people

that they can win, you convince yourself.

So, over time, you realize

that the future is actually quite manipulable,

with just force of will.

Henry: Through this experience,

Nolan Bushnell understood games as sort of an industry.

And then, he just so happened

to be an undergraduate at the very university

that was the center, Ground Zero,

for development of computer graphics.

Nolan: I was an engineering student

at the University of Utah,

and there I played a game called Space War .

Space War was a rocket ship against rocket ship,

two-player game,

it had a gravity field around a sun,

and you basically could fire missiles at each other.

And I was mesmerized by it.

- Nolan's goal was to

put a coin slot on that

and put it in the arcade.

The only problem was you need a million dollar machine.

Nolan: Space War was played on the million-dollar computer,

and the economics of the coin op business said,

the maximum you could charge was about 25 cents

for three minutes.

Archival Arcade News Story: Look what you get

for your money!

If you like that sort of thing.

Nolan: You just can't make the numbers work.

And I said, you know, someday.

Archival News: Across the bay with its spiderweb of bridges,

the pinnacles of San Francisco catching the afternoon sun.

Nolan: After I got my engineering degree,

I got a job at Ampex in the middle of Silicon Valley.

At the time,

Silicon Valley was more known for prune orchards,

than for technology.

Archival News: Miles and miles of fragrant orchards,

spreading in a vista of never-ending loveliness.

Al: There was no consumer electronics going on

in the valley, to my knowledge.

At all.

It was really semiconductor companies

and aerospace military companies.

Nolan: Ampex was white shirt, black tie.

Very stuffy.

It was the '70s,

and we all had our hippie costumes.

So I wasn't particularly excited to work for Ampex.

But, my office mate, Ted Dabney,

was probably one of the best engineers Ampex had.

nd remember, Space War simmered in the back of my head.

Well, I blinked, and one day, the cost of MSI chips

went from $2.80 a piece to fifteen cents.

And when I saw that price drop, I said,

now's the time to build a Space War clone.

And that was Computer Space.

The circuit was coming along nicely.

But, when it came to a cabinet, I thought, this is Space game.

So, I modeled this spacey looking thing

and Ted found a fiberglass boat manufacturer to scale it up.

Owen: It was a very futuristic fiberglass cabinet

which was really amazing, sparkly colors.

It looked like a kind of a deco rocket ship.

Nolan: Next to college campuses,

Computer Space earned extremely well.

But, put it in a working man's bar, earned nothing.

Owen: It had all these buttons

and you know, people couldn't get it.

They didn't understand how to play it, you know.

Geeks could get it, 'cause they're used to computers.

Nolan: It was very disappointing.

That was when I learned that the core axiom

of good games is: easy to learn,

difficult to master.

Well, not for a femtosecond

did I think that I was going to go back to Ampex.

So, I decided to go off and start a company with Ted

and eventually, we called it Atari.

My first hire was

a big bear of a man named Al Alcorn.

He was a brilliant, brilliant man and an anarchist.

Al: I figured it would fail in about a year

and I'd go back to work at Ampex, that was my plan.

So, I show up to work and said, what are you gonna do?

Nolan: The very first day Al started,

I assigned him a simple training mission.

Al: Nolan described a tennis game

with one moving spot, score digits,

a net, and two paddles.

So, it was just the simplest possible game

you could ever do.

I understood what it was to be.

Whether it would sell or not, I assumed it wouldn't.

- I think he had it done in a week.

And that turned out, of course, to be Pong.

Mark: When my dad, Ralph, first saw Pong ,

he did recognize that it was a derivative product

from what he had come up with before.

Jim: You know, it was always pretty obvious

that my father had started this stuff,

and this is his idea, gone.

- One of the most important people in this industry

was Ralph Baer, of course.

- Whip out your handy dandy

sweet tooth scrubber!

Jim: He was always thinking of ways

to use whatever was around to do other things.

- And that included things like, for example,

action games that we all know.

- Hopefully, we'll have some fun here.

And if you all gather round,

we will play a game of Ping Pong together.

Here we go... up...

and down.

And up, he's getting tricky.

- Did I steal Ralph Baer's idea?

Yes, and no.

Ralph Baer: A one, two, three.

Nolan: I thought it was just barely a game.

- And what we've built

we call the All Purpose Box.

The plug-in modules will cover

a variety of applications such as TV gaming.

Henry: There's no doubt, that Ralph Baer invented

the home television game console, no doubt.

So, I think he's kind of an interesting guy.

Jim: He was born in 1922 in Germany,

during the rise of Hitler.

My father made it out of Germany,

just in the nick of time, six months before Kristallnacht.

Most of the Baer family perishes in concentration camps.

Mark: But Ralph settled in New York

and he was a radio technician.

He just had a knack for the technical.

On the 1st of September 1966,

my dad was sitting down at the Port Authority building

in New York and he had had ideas of using television

for more than just a passive machine for years.

But it was at that time,

he sat down, and he wrote it all down.

It was an eureka moment.

- Ralph really was pioneering in the way of understanding

how broadly you could use the TV

for something other than passive viewing.

- With this box,

when the commercial comes on, push the button,

a tape recorder starts, the TV set is recorded.

- His vision was that everybody already had this TV,

they could do more with it.

- And next morning, you can't remember

the station on which you saw this thing

you really wanted to go out and buy...

- One of the really novel things that it could do was

impulse buying.

- I go ahead and push the appropriate number,

dial my 800 number on the telephone,

and lo and behold, my order is placed

in a rather painless way.

Mark: It was Amazon Circa 1969.

The company he was working for at the time,

Sanders and Associates, was a defense contractor.

Jim: He got Sanders to let him build a lab.

He just said, I have this idea and let me play with it.

Mark: Back in those days,

you could just pull people off the line.

So, he pulled a couple of guys,

he said he had a secret room up on the sixth floor,

and he's starting to tinker with television games.

- So he had his own area with a couple of people

who worked for him,

and essentially did everything on his own

to develop the Brown Box.

Mark: The original Brown Box prototype

did many, many things.

Ping Pong ultimately was the one that really ca on.

Jim: My father brought home one of the prototypes

and my brother and I played it.

We were the first kids to play video games.

And we had the first video game parties and I won.

- I think the record's clear that he lost all of the time.

- I defeated my brother, regardless of what he says.

Mark: But Sanders management decided,

we are not a consumer electronics company.

We're not going to build this.

Jim: Sanders was looking for a licensee,

'cause they were not in the business

of doing consumer products.

Mark: And he finally sits down with Magnavox

and they produced a commercial product

called the Magnavox Odyssey.

The first-line Odyssey was a black and white console

and it had two separate apparatus

where you control the spots.

You couldn't project things on your screen

without having a supercomputer.

So, what they did is they made plastic sheets

and it would look like a tennis court.

Odyssey was shown in 1972 in Silicon Valley.

It was a demo.

There were a lot of people who came,

including people, in other businesses.

Henry: Nolan Bushnell definitely saw

the Magnavox Odyssey there.

He signed the guest ledger and he was there.

- I had heard there was a video game

being displayed and I thought that's my area,

who has the affront to do a video game?

But I was unimpressed from the minute I saw it.

It was fuzzy.

The gameplay was funny,

because you had control of the ball after you hit it.

It had no score, it had no sound.

To me, it was an incomplete project.

So I improved upon it.

I made it functional, and I made it better.

The thought that it was going to cause me some problems

didn't even enter my mind.

I was unimpressed.

And I said, let's make this game and fix it.

It was meant as an exercise, and so, I assigned it to Al.

I went to the blackboard and drew out what we wanted

and he says, okay, I can do that.

- We got it to work

but it was terrible,

it was clearly no fun,

'cause it was either too fast

and you couldn't get the hang of it

or it was too slow and it was boring.

- Al Alcorn looked at what the Odysseygame was

and found ways to make it a more compelling experience.

Nolan: The first thing we had to do is make sure

that the game had an offense

and that was created by the angle

that the ball left the paddle

be dependent on where on the paddle it hit.

That's when we decided that we would increase

the ball speed after x number of volleys.

- And he says, oh, it's got to have sound.

I said, okay, I'll be right back,

and I poked around and found some sounds

that were already in the sync generator

and put them out.

Since then, there have been articles written

about how brilliant the sound was,

which I think is hilarious.

Nolan: In probably three weeks, it became so fun,

we were staying after work to play the damn thing.

Al: At some point, Nolan and Ted said,

that's pretty good, let's put it in a box

and put it on location at Andy Capp's Tavern.

And just see what the public thinks of it.

- It was a peanut shell on the floor beer bar.

You know, and it had a bunch of games in the back.

Three days later,

we got a service call.

And so, we thought, oh, geez,

we've got a reliability problem.

- So, I went over there to my surprise,

when I opened the coin box, all these quarters gushed out.

It wasn't broken, it was just so full of quarters

it wouldn't take any more.

- People were waiting for the bar to open

o they'd come in and play Pong.

They were playing it all day.

Al: I remember sitting at Andy Capp's Tavern

and Nolan basically says,

we're gonna be in the manufacturing business.

And Ted and I said, "No way, we're engineers,

we don't know anything about manufacturing!"

- I said, you know,

I think we can sell these things.

We had enough money, 300 bucks,

to buy the parts for 12 units.

And literally, in three weeks,

we built the 12 and sold them all for a thousand bucks.

I went to Al and I said,

you know, we've got to ramp up, two hundred a day.

He says, you've lost your mind, Nolan.

- Insane. Whenever I see a new idea,

I immediately think of all the reasons it can't work.

I'm a pessimist.

- But I'm an optimist

and I really do believe, if you think you can do it,

it will get that way.

- We had no experience, we had no employees,

we had no money, we had no space.

Nolan: We rented an old defunct skating rink.

That was our manufacturing facility.

Al: But, how do you hire people?

The only thing that occurred to us

is just go to the unemployment office

and get people and uh, what could go wrong?

- I didn't realize that all these people were derelicts

and of course, we didn't have security.

- It was crazy time.

Nolan: But, piece by piece by piece,

we actually started to know what we were doing.

Atari Archival: Here is where it all takes place.

The Atari engineering building

in its bucolic surroundings in picturesque Sunnyvale,

staffed by a group of technical people

who are truly outstanding in their field.

Ed: I walked into Atari

and I saw a bunch of people having just a blast working.

They were excited about what they were doing.

They were my age. It was just exciting as heck.

Elaine: It wasn't like work.

We had rock and roll music blasting through the factory,

which was totally awesome.

I remember Steve Miller, the Moody Blues.

Nolan: We felt we could hire anyone,

no matter how strange they were.

Atari Archival: Fully factory condition

with genuine Atari parts stolen direct from the Atari factory.

Nolan: I wrote a manifesto

that encapsulated the values of our company.

We wanted to treat everyone as equally as we possibly could.

For example, I wouldn't allow

reserved parking spaces for the executives.

We don't care how you dress,

we don't care when you come to work,

we don't care if you come to work;

get your job done, and everything's fine.

We had this attitude of;

people were adults and free to do as they wished.

- We were young horny engineers

and we'd ogle and there was funny banter.

Elaine: I remember one girl,

made bikini tops out of leather that some people wore,

but you didn't wear bikini bottoms,

that was uncalled for.

- Did a lot of people go home together, absolutely.

- But it was the '70s,

and that was part of American culture in the '70s.

I think it's difficult to look at that

through today's lens,

because it was a very different era.

Archival News: What do we want?

- ERA! - When do we want it?

- Now!

Nancy: The '70s were really the birth of feminism,

and Atari led the way in all that.

Atari had an equal pay for equal work policy.

Elaine: I never thought

the women or men were treated any different.

And I had like 48 people working for me one time

and nobody treated me any different,

because I was a woman.

- There was also this whole idea of hot tub culture.

Something that through the lens of today

probably looks a little bit promiscuous.

People would get naked and get into the hot tub

at the end of a party.

I mean, it was kind of normal.

- I think it was a woman who installed it.

Loni: I was in charge of picking out colors

for all the different parts

and that included the tiles for the hot tub,

which were a blue and orange.

They had the Atari logo on the back wall.

- I remember the day Nolan and I decided

we're going to break the hot tub in.

Owen: There were times where it was locked

and people were in it,

so you can use your imagination

what might've been going on in the hot tub room.

- I was never in that hot tub.

Other hot tubs, but not that one.

- We actually had a board meeting one time

in the hot tub.

We didn't think about it.

Atari Archival: One more!

Now he's really eating cornflakes!

Hup, two, three, four!

Elaine: The Atari, to me, kind of set the standards

for how to have a fun company.

- Every two weeks, if we met quota,

there was a beer bust with free pizza and beer.

- By this time, we were pretty well known

as the most fun place to work in Silicon Valley.

Trip: We were hearing stories about Atari,

I mean, it had kind of a legendary culture.

They're all doing dope on the assembly line.

Nolan was probably high a good chunk of the time too.

- There was a funny smell to the air.

Atari Employee Archival: This is how we put out games, huh?

Engineering in action!

Elaine: There was a lot of pot.

- So, I don't know if you know the name, Rolling Papers,

it was S.D. Modiano, right.

So, anybody in the company could use the pager

to page the whole building. And you would hear...

Atari Employee Archival: S.D. Modiano to the upstairs

conference room, please.

- And that was the key that anybody wanted to go out

and smoke a joint.

Jeff: I remember the day they said, don't smoke pot

in front of the building.

Just go out back, and so we did.

It was a great place to work.

I would do it all over again.

Absolutely, without the drugs.

Odyssey Commercial: What does your family do

on those stay-indoors rainy afternoons?

Or on those cold, blustery winter days?

Entertain themselves with Odyssey !

Mark: Odyssey finally came to market in 1972.

It took a while.

Magnavox did drag their feet.

Henry: By the time it did come out,

the technology underneath the hood

was no longer as current as it could have been.

Mark: They sold 'bout 350,000 of these units.

Pretty good sales, but it certainly didn't blow up.

Henry: The Magnavox Odyssey was not a failure,

but it was not a great success.

A part of that was Magnavox.

Magnavox TV Commercial: Want to save $50

and solve two gift problems at once?

Get Odyssey by Magnavox.

- Ralph would have liked to have seen it marketed better.

Magnavox TV Commercial: This $99.95 value is only $49.95

when you buy any Magnavox TV, 17 inches or larger.

Henry: Magnavox made televisions

and many people assumed

they would need a Magnavox television

to operate this device.

- They limited the potential, my father was very annoyed.

agnavox TV Commercial: Odyssey, now at your Magnavox dealer.

- I think Ralph thought they had compromised too much.

So, it didn't get out into the consciousness of the nation

the way that something novel might get out today.

I think Ralph felt a little bit neglected

and left in the dust.

Keith: And he felt that Magnavox should have been doing more,

and he pushed them to call their lawyers.

Nolan: Pong was a phenomenon.

So, sales were easy.

The distributors would say, send me 10, send me 10,

and all of a sudden, I had a backlog of 4,000 units.

The problem was that anybody could climb

into the business.

- Everybody was copying our machine.

But in those days, we didn't think much of patents.

Nolan: Because in the video game business,

technology is moving so quickly

we always had better things to do

with our time than patent litigation.

Henry: Atari's commitment to innovation was so great,

that they really weren't concerned

about controlling the industry.

Nolan: We had a strategy of just doing better

and better and better.

And so, from Pong, we went to Pong Doubles,

and Quadra Pong and then Space Race .

We just kept them coming.

Elaine: There was Tank ,

which ended up being a really big game for us.

Ed: Gotcha, Night Driver .

Sprint , a great driving game, a lot of fun,

it had nothing to do with reality.

Nolan: I had a game that wanted built called Breakout ,

which is a ball and paddle game,

and none of my engineers wanted to do it.

But one day, a guy came into the lobby and said,

I'm not leaving until you hire me.

He was, scruffy, ill-kempt, and brash.

It was Steve Jobs.

I asked Steve to do Breakout on the night shift

because I knew, if Steve was on the night shift,

Steve Wozniak would come over after work

at Hewlett Packard.

And I knew that the two of them

could get this game knocked out

in really good time.

And they did.

Steve Wozniak: We both stayed up all night long,

four nights in a row.

We both got mononucleosis from it.

We were really stressing ourselves,

but we felt we actually did design it.

Nolan: They ended up getting a $5,000 bonus.

Twenty years later, Wozniak was sitting in my kitchen

and I said, hey, you know, when you got that bonus,

what did you do with it?

$2,500?

He shook his head and he says, Steve did it to me again.

Steve had told Wozniak that it was a $500 bonus.

And so, he gave him 250 and kept the rest for himself.

Steve did break out

and then got this idea to do a personal computer.

And he came to me and said,

do you want a third of Apple Computer for $50,000?

And I turned it down,

which I've subsequently regretted.

Just a little.

TV Reporter: Nolan Bushnell,

you are an acknowledged visionary

in this part of the world.

Did even you foresee what Pongwould bring?

- Well, I'm not sure that I thought

it was going to be quite this big this quickly.

We had talked about a home version

of our stuff a lot,

but the economics of our technology

couldn't allow it.

was to put everythinge on a single piece of silicon,

a custom chip.

- But Al came into me and said,

I've just found some new technology.

And so, all of a sudden,

the opportunity of putting Pongon chip was real.

It was a small little console, two knobs.

And it was cute.

I think we ended up building about 180,000.

Sold every one of them.

- At this point, Ralph Baer is still the company man

at Sanders Associates, coming up with new inventions,

but the phenomenal success of home Pong

would not escape his attentions.

- A lot of people, made a lot of money

off of Dad's inventions.

- You wanna score, Bill?

Mark: Did it annoy him

that other people took credit for his work?

I mean, as it would anybody.

Ralph Baer: Get closer than that,

make it a little faster.

Bob: It was very important to him that people understood

that it was his idea originally.

- It's clear that Ralph Baer was the designer

of the first working game.

Nolan: I never had a problem with Ralph

until he started claiming that he invented Pong .

He invented Odyssey and it was very different than Pong .

- Nolan Bushnell is claiming that he invented video gaming

and my father did resent someone trying to steal the credit.

Mark: If Ralph had truly been a great promoter,

self-aggrandizing kind of guy,

yeah, he would have gotten a lot more recognition,

probably got a lot more money

and had a lot more people behind him,

but that just wasn't him.

Jim: Ralph Baer is the father of video games.

- The father of video games is a construct

that I kind of think is specious.

I don't feel any animosity to Ralph, whatsoever.

I think he was a brilliant analog engineer

that did some very, very good work.

But in terms of commercial success,

it's me, period.

I think I had at the right time,

the right place, technical skills,

and the business smarts to launch an industry.

Owen: Ralph got that you could play a game on a TV.

Nolan figured out how to make it fun.

Henry: It wouldn't surprise me one bit

if Ralph agitated Magnavox executives

that they needed to go after Atari.

Mark: It might've been the 1970's,

but business is business and if there's money to be made,

they went after the infringers.

- Nolan Bushnell and the people at Atari

were more focused on coming up with new and exciting ideas

to stay ahead of the audience

than they were trying to protect the ideas of games.

But Ralph Baer felt very differently about patents.

Ralph Baer was an engineer, and engineers live on patents.

- Ralph Baer and Magnavox sent us a letter

noticing that they had a patent on the whole thing

and wanted us to stop making them, you know.

Nolan: I thought it was specious,

because their technology was different as cheese and chalk.

Al: Oh, when I read that letter,

I said, this patent is

because the patent was very broad.

- And the reason it could be broad

was because it was the first one that was out there.

It was definitive.

Nolan: They were asserting that a spot

colliding with another spot on a video screen

was protected by their patents.

Bob: Ralph was extremely good at keeping notes.

He wrote everything down,

which actually was great in the end,

because there's no way

that he would have been able to have the success that he did

had he not done so.

Jim: He could come up with an idea

and write it down in the form of disclosures

that the lawyers can translate directly into the forms.

He got very good at that.

- That helped enormously for patent enforcement.

- Our attorney's saying,

we could fight them, we could win.

And Nolan said, fine, how much would that cost.

Oh, at least a million dollars.

Nolan: I didn't want to spend a lot of time litigating it.

And so, I agreed to a paid up license,

- Ironically, this settlement

was one of the keys to Atari's success.

Nolan: Here's the trick, I decided that we would settle,

but only for a de minimis amount of money.

And in our settlement,

I required them to go after our competitors.

Mark: So Magnavox sued all of the players of the day.

Nolan: It was going to weaken our competitors

and it was strengthening me.

No harm, no foul.

And so, I wasn't that concerned

about the Sanders Magnavox lawsuit,

because I knew I had other things up my sleeve.

Henry: In the beginning of the home console,

the machine played one game.

Ralph Baer: Missed it, one up.

Henry: The next step would be,

what about a machine that can play multiple games?

Al: We had a research group up in Grass Valley.

And we had given them the task

of designing this system.

Nolan: Everything that was up there

was a little bit hush hush.

- They were like our secret group, we called them.

Nolan: They worked together like a fine Swiss watch.

I mean, it was a dream team.

Joe: I was hired because I could write a game

and design chips

and without knowing what my mission was,

my mission was to help prove

that a programmable design would work.

Al: The Grass Valley group had developed this prototype,

for this home cartridge-based video game

that was called the Atari VCS, or the 2600.

Nolan: It was a great prototype.

The problem was, we just didn't have enough capital

to bring it into the market the correct way.

- And so, they looked for a buyer

in the entertainment space.

Atari Archival: It is my privilege

to invite you inside Atari.

During the next few minutes, I will show you

why this is such an exciting company,

and tell you about some of our plans for the future.

Elaine: Bankers and everybody started coming through

and so the company tried to clean us up

and make it a little bit more corporate,

giving us a little bit better dress code

and no bare midriffs.

Nolan: We talked to Intel, National Semiconductor,

the Silicon Valley neighbors, really.

Nobody saw it.

And then we got introduced to Warner.

Manny: I got a call one day,

would you be interested in a fast growing

technology based entertainment company?

And those words sounded good, so I said, yes.

And that was my introduction to Atari.

They showed me early prototypes of the 2600,

which was a programmable video game.

It was an "Aha" moment for me.

I said, I have seen the future and it's called the 2600.

I said, this is a big deal.

Al: We had a flash meeting at Nolan's house

in the hot tub and he said,

Warner's offered 28 million dollars

to buy the company.

Holy Moly, this was just mind-blowing.

- I thought, all of a sudden,

I've got a bigger sandbox I can play in.

Al: It was wonderful in the beginning.

But it was a very strange marriage,

because this is a very conservative

East Coast classic public company,

and we were not.

Atari Archival: The snake eats the gun.

And the snake gets one segment longer.

It's a bug shooter!

Manny: I remember writing a memo that said,

the problem here is these guys are all a little out of control

and if we give them too much money,

I don't know how I'm going to control them.

Daniel: Why?

- Why?

Nolan: I don't believe there was understanding

on the part of Warner management of how fast tech moves

and that a breakthrough piece of technology today

is trash in three years.

And I felt that we needed to start work immediately

on the replacement for the VCS.

Manny: I think it was 1978,

we used to have budget meetings in New York in December.

And you'd have all the Warner people in the room,

and all the company people in the room,

and this is for every division.

And at some point, Nolan said...

- We've got to start immediately

on the next generation of the VCS.

Manny: Get rid of all the inventory, it's over.

- And they said, we just bought this!

Why would we do that?

Well, it wasn't new technology.

I mean, the VCS only had 128 bytes of RAM,

that's nothing.

I wanted to sell as many VCS' as quickly as possible

and then move on to new technology.

- I mean, the Atari people were looking at me

like I'm supposed to know what this is all about,

and everybody had the same reaction,

what the 's Nolan talking about?

What is he talking about!

I got called into Steve Ross' office,

who's the CEO of the company, the next morning

and Steve was kind of panicky.

He said, the guy you bought the company from,

has just told him, it's all over but the shouting.

But I said, Steve, you don't know what you're talking about.

In my opinion, on December 26th, there will not be a 2600

on any shelf in any store in America.

And if that is true,

this business is about to take off.

And by the way, if it's not true, we're .

And of course, it was a feeding frenzy.

It was the hottest product in America.

Woman on PA: Attention, shoppers!

The new Atari cartridge game is in!

- You can get nine cartridges, 187 games.

- Ooh, I'd like an Atari.

- Sorry, only our demonstrator's left.

- Mine!

- No, George.

Mine!

Keith: Atari took off like a rocket.

It was the faster growing company

in the history of the United States at that point.

Manny: In that six-month period after we bought Atari,

the consumer division started to take off.

- Three years ago, the video ga industry

was practically unknown.

Now it's producing one of the hottest consumer items

of the Christmas season.

Manny: The 2600 was one of the great businesses.

It was an amazing business.

Nolan: Manny was able to nurse two years more

than I would've ever guessed.

But that doesn't say that I wasn't right.

- Of course I was right.

- Manny was right, he called it right.

- I wasn't wrong about it, maybe by two years.

- There were definitely clashes between Nolan and Manny.

Manny: It was a freewheeling wild place,

and the company was growing,

but I don't think you can run a company

making money hand over fist in the wild west.

I think honestly, it was just hard

for Nolan to let go.

- Piece by piece by piece,

there was a disillusionment setting in,

this wasn't my company anymore, and I wasn't the chief architect

and PT Barnum and Disney of this.

- I have vivid memories of screaming board meetings.

Nolan had vehement disagreement with the direction of things.

Manny: Well, it's not that he was a pain in the ass,

which he was, at times.

But Nolan has 100 ideas a minute

and he believes they're all wonderful,

and they're not.

There are sometimes soso really good ones,

but he loves them all because they're all his children.

He was not meant to manage an enterprise

as big as this one became, period, end of comment.

- Ah, screw 'em.

Manny: My mission was to find adult supervision.

Nolan: Warner had a relationship with a guy named Ray Kassar.

They said, this guy might be the perfect guy

for head of consumer division.

Manny: And we hired him.

'Cause Ray had the kind of background,

in terms of just general business that made sense to me.

- Those of us in the lab

could see that it was not going in good directions.

Nolan was moved out of day-to-day operations,

promoted, quote unquote, to "Chairman of the Board."

Owen: I don't know how Ray Kassar was picked

to be put in charge of it.

He didn't understand the video game industry at all.

Joe: Ray came from being the CEO of a fabric company.

- Ray just didn't seem to get it at all.

Manny: Let me explain Atari engineers to you;

one day I was in the engineering building

in the men's room, standing at a urinal,

and I saw a pair of bare feet next to me

and it was a guy standing there in a bathing suit.

I walked out, I said, "Who was that?"

Oh, that's so and so, he doesn't like clothes, okay,

but that's how you manage engineers.

Nolan got that.

I mean, even I got that.

But that never made Ray comfortable.

I've reflected a lot on the mistakes we made at Atari,

'cause we made some big ones.

But the biggest one I think Ray made was,

there was a complete disconnect.

They didn't like him, he wasn't one of them.

- Uuuuuh, I believe the saying is, Ray Kassar was an ass.

Nolan: Ray wanted to have an executive dining room,

reserved parking spots for the executives,

which was just against the DNA of the company.

- Good afternoon, Atari sales.

Nolan: I mean, it all just felt bad to me.

- My group in marketing services

is responsible to achieve maximum visibility

for video games.

- We must take into consideration

the ease of comprehending the objective of the game.

Loni: It was unpleasant.

They were trying to make Atari more like New York,

like a corporate Wall Street company.

- What we've just shown you are some of the programs

that prepare us at Atari for our future growth.

To maintain that growth, we will continue to expand

our advertising programs.

Nolan: There was increasingly an us versus them mentality.

Ray thought that I was an out-of-control lunatic

and I thought he was a pompous .

He was single-handedly dismantling

the corporate culture.

The company as it had become, was not fun anymore.

- Nolan said, we want to be out, and we did,

because at that point, we were beyond the pale,

and we were glad to.

- I said, I quit.

And they said, no, you're fired.

Loni: You kind of felt like dad got kicked out of the house.

That's kind of how it felt, and you don't really know why,

because no one really knew why.

Owen: It was sad to see him go,

'cause as far as we're concerned,

he was the father of it as well.

Elaine: It was like part of our family was ripped away.

- But pretty soon, the rug was going to be pulled out

from under all of them.

News Archival: This symphony of electronic noises

is the music of money.

Nearly 3 billion dollars

were stuffed into video games last year.

News Archival: This year, as if to prove

they are not a passing fad,

five and a half million video game consoles will be sold.

- The early '80s was the golden age

of the video game business.

- The home video game market was exploding,

but it was really the arcade game market

that was driving it.

That's where the big hit games came from

and Atari had a slew of them and other companies as well.

Howard Phillips: All these really great games

that were so different from one another.

Asteroids.

Elaine: Centipede .

Owen: Tempest .

Galaga.

Ed: Missile Command .

Battlezone has to be in that group.

Owen: Defender .

Joust.

Ed: Dig Dug .

And obviously Donkey Kong .

Keith: One of the earliest games

that cemented video games

as a lasting medium was Space Invaders .

- Space invaders was a successful arcade game

that Atari didn't write.

Manny: Space Invaders was a phenomenon in the arcades.

And, I moseyed over one day to the engineering building,

and all the engineers are playing a coin op version

of Space Invaders.

And I immediately walked back across the street

to Ray Kassar's office and I said,

Ray, here's what I want, take that Space Invaders,

and build a consumer version of that game

and license the name from them, pay them.

And if you can't license the name, steal the game play.

I don't care, but I want that game.

When we introduced the cartridge,

that blew the 2600 into the next universe.

Reporter: The hypnotic appeal of electronically destroying

enemy invaders, led to one of the biggest

and fastest toy industry booms in history.

Joe: Space Invaders was successful

because the VCS was capable of displaying that game

as it was presented in the arcade world.

Henry: Arcade technology was more robust

than what you could put in your living room.

Pac Man was a big hit in the arcade,

but you played it on the 2600.

And it just didn't seem like quite the same game.

It just didn't have what the game gave you

in an arcade.

Owen: Pac Man has to have all these ghosts running around

and your player and you can go anywhere

and these little tiny dots that the graphics system

wasn't capable of drawing.

Joe: And it got a reputation for what people call

flicker man.

- The Atari 2600 had a huge amount of compromises in it.

It was a very primitive system for the time.

David: The Atari 2600 was still alive

ten years after its launch

so that technology was pretty old,

and the rest of the world was catching up.

Coming up with better and faster hardware.

Atari was still riding the old dinosaur,

when they could have been innovating new hardware.

Virtually every game we made on the 2600,

we had to come up with some programming technique

that made it do something it was never intended to do.

- We expected this thing to sell well for 2 or 3 years,

it sold well for a dozen

because the programmers turned out to be

a lot smarter than we expected them to be.

- I'm David Crane, C-R-A-N-E.

- Larry Kaplan, K-A-P-L-A-N.

- Al Miller.

Reporter: M-I-L-L-E-R.

- Yes. - Bob Whitehead.

David: I was part of a group of four guys

that said, wait a minute, of the top 20 selling games,

two thirds of them were designed by the four of us.

Well, we sat across from Ray Kassar and said,

games that we made, made you $60,000,000 last year

and we're getting, $24,000 salaries,

doesn't seem to be equitable.

We'd just like to have a piece,

just something, a royalty, a bonus.

And Ray looked at us across his desk and said,

these are Atari products.

The guy down on the assembly line

is as important to the game as you are

because if he didn't put them together,

you wouldn't be able to sell any.

- At Atari, we don't really like to talk about

who designed what... Bryant Gumbel: Why not?

- Well, because we like to

make the game the superstar as opposed to the programmer.

- Why shouldn't you get credit if you designed the game?

- Well, because it is a corporate product, okay.

These are games by Atari,

so it keeps more of a corporate image,

you're buying Atari products.

- At that point, we knew it was over at Atari.

Reporter: Were the four of you at Atari

when you decided to strike out?

- Yes, we worked together designing games,

and decided that we wanted to go off

and try something on our own.

David: We decided we're going to go out

and produce, manufacture, and publish our own games

and that is how we ended up founding Activision.

But Atari had a monopoly.

The only cartridges that would work on the Atari console

were Atari cartridges.

- Atari kept their first machine as a black box,

they didn't tell anybody how it worked,

and they didn't really welcome third party developers

to make something that would work on the platform.

David: So before we could make a game,

we had to reverse engineer the 2600

and that's something that I did,

in the spare bedroom of my apartment.

For years, I had been trying to put

a little running man into a video game.

But the Atari 2600 was not designed to do that.

And I said, I am going to do this if it kills me.

- I was lost in the jungle with Pitfall Harry.

Surrounded by giant scorpions and man-eating crocodiles.

Commercial: If you haven't met Pitfall Harry,

you're missing the year's most incredible

video game adventure,

Pitfall for the Atari 2600 and Intellevision.

Designed by David Crane, for Activision.

David: I believe that Activision sold about

four and a half million copies of Pitfall ,

generating around $50,000,000 in wholesale revenues.

- Just like that...

David: Not everyone knows that was one of Jack Black's

first commercial appearances.

He was only 12 at the time, I think.

Nolan: I knew that the long arm of Atari

would soon come and try to put them out of business legally,

just because that's who they were.

David: We had good lawyers and we were told

they're going to sue you.

They don't have any grounds to sue you,

but yes, Atari sued us.

- They were sued for theft of trade secrets.

David: They just assumed that we had stolen

intellectual property.

And we hadn't done anything like that.

- I don't remember the issues, but yes, we didn't win.

David: Once the lawsuit was settled with Atari,

it was clear that making video games

for someone else's console was something that could be done.

Thus what we did was create the third party video game

software publishing business we know today.

- Anybody could make a cartridge for the 2600

and it was what killed the company.

deo Computer System...

Starmaster by Activision.

Joe: After that Activision lawsuit,

dozens of companies got into the business.

David: Overnight, there were 30 companies

making video games for the Atari 2600 system.

They were all just young startups

picking programmers off the street.

- People who could knock these things out

could make a huge profit selling junk.

David: Games like Lost Luggage...

even Quaker Oats

started making Atari 2600 games.

Manny: There was the fabled Custer's Revenge,

which was essentially raping Indian women.

That's basically what it was.

Now, we're making a game for kids with the 2600

and we have no control, forget the quality,

the content of this stuff was out of control.

- Now Atari had it stinkers, like ET.

avid: ET , the Atari 2600 game, is widely considered

to be the worst game ever made.

News Reporter: Steven Spielberg, who directed the movie,

insisted the game be programmed to follow the movie plot.

Manny: Steve Ross was the chairman and CEO

of Warner Communications,

and he was wooing Steven Spielberg.

He liked him, they liked each other.

I don't remember the numbers, but it was a guarantee

that was north of 20 million dollars

for this cartridge.

We were crazed.

David: But it had to be out by Christmas

and by the time that deal was signed,

there were six weeks left to make the game.

Atari ET Game Commercial: The video game

that lets you help ET get home.

Just in time for Christmas.

Happy Holidays from Atari.

- It was doomed to fail from the moment you told them

you got 15 minutes to make a cartridge.

So do the best you can.

David: The first screen, you moved the joystick,

he falls in a pit.

Game over.

I mean, I'm a game expert, and I couldn't get the guy

out of the pit either.

Manny: It was terrible.

- It sold like gangbusters for a week,

and then they started being returned.

- And there was this urban legend

that millions of ET cartridges had been buried in the desert.

It's a great story, except it wasn't true.

Jeff: At the time, the factory in El Paso was closing

and they just took everything wholesale out of there,

it wasn't just ET's, it was 400's, 800's, parts.

They couldn't let it on the market

and so they just put it in a landfill.

David: Regardless, ET was a very poor business decision

and cost millions and millions and millions of dollars.

- There may be trouble in Toyland,

at least in the video games division.

News Archival: Warner Communications,

the parent company that owns Atari,

has been having major problems since Christmas.

Manny: On December 7th, I remember I got a call,

the CFO said, we're gonna fall below the estimates by 30%.

And that was the beginning

of this sort of unraveling, if you will.

News Archival: The problem is an overabundance of competition.

Atari was once one of three companies

in this business.

- This year we have about

25 companies selling cartridges.

Manny: The ability for third parties

to make software was where Atari died.

If we could ever have solved the third party software,

we'd have been fine.

- A lot of people think that it was bad software,

this, and that, wasn't that at all.

They tried to put 15 million units

into the market that was saturated.

And that's what caused the collapse...

News Archival: Warner Communications

down one and a quarter points today,

sixteen and three quarter points yesterday.

Newsreader: Atari, Inc. is laying off

1,700 employees in California.

- Atari had to lay off massive numbers of people

and eventually had to sell the consumer division.

- It got sold, it got split in two.

- Atari was gone.

- I felt Atari was my baby.

It was my heritage.

It was really sad to see it die.

Jeff: It was the best place you could ever hope to work.

I found myself walking the halls

of this empty building, and pouf!

Everybody was gone.

Manny: I've read some things now, when Nolan says,

the worst thing we ever did

was sell it to Warner Communications.

That's just stupid.

- I can remember in 1983, Manny saying,

well, the video game business is over.

I think it's the only time in the history of business,

where the market leader abandoned their business.

And I've often kicked myself for not going out, raising money

and taking it back over.

Nancy: Nolan really predicted exactly what happened.

So it was sad.

Nolan: I just sort of shook my head

and clucked my tongue and said:

Too bad.

Keith: People thought that the end of Atari

meant the end of the video game industry.

But it turned out that they were wrong.

News Archival: Suddenly, surprising as it may seem,s,

the video game industry is in trouble.

Trip: In 1983, there was a big decline in the market,

triggered by the implosion of Atari.

News Archival: Warner Communications,

which lost half a billion dollars last year,

on its Atari division, has had enough.

It's selling Atari

and getting out of video games and computers.

- After Atari crashed, the video game industry was dead.

- As Warner's goes, so does the industry?

- I think that's true.

Howard: It was dead as a doornail.

News Archival: Are video game addicts losing their addiction?

Is the home video game concept just a fad?

Howard: The media concluded home video games

were a passing fashion.

Analyst: The video game industry

is now becoming very much like hula hoops.

Owen: People stopped buying and down it went.

- EA Sports first products are coming out in 1983,

and our sales people were saying,

who do we sell these to?

- At the same time that there was this collapse

in the United States,

the home video game market in Japan was red hot

with the introduction of Nintendo's

Family Computer System or Famicom.

Howard Phillips: The Famicom came out in 1983,

and in Japan, it was a huge success.

But in the US market, we weren't ready for it yet

because the retailers were too burned.

That left us kind of in a quandary.

What do we do?

And the answer was, we wait.

Howard Lincoln: So we made sure

that when we introduced our product,

we could convince retailers to take it.

Howard Phillips: Eventually, In 1985,

Nintendo came out with the Entertainment System.

NES Commercial: Will you be the one to witness

the birth of the incredible Nintendo Entertainment System?

The one to play with Rob, the extraordinary video robot.

Batteries not included.

Greg: They launched it as a robot.

Bill White: Rob the Robot.

Rob the Robot was an accessory that worked

with the Nintendo Entertainment System.

In reality, it was, you know, the Trojan horse.

Gail: We all now know the robot wasn't that fantastic.

Howard Phillips: But it allowed Nintendo

to go to the retailers and say,

come on and talk to us,

we got this new cool thing, it's not a video game system

but an entertainment system that uses technology

and all these things.

NES Commercial: The Nintendo Entertainment System

comes with Rob, zapper, control deck,

two controllers, gyromite and Duck Hunt.

Howard Lincoln: We knew all along

that once it was successful,

Rob the Robot would hit the dust.

Before we introduced the NES,

Nintendo was strictly a coin operated video game company.

And one of its great hits was Donkey Kong .

- Nintendo really focused on making games

that were deep and interesting and compelling

and because they had this wunderkind there.

Howard Lincoln: Donkey Kong was created

by a very young employee, Shigeru Miyamoto.

An artist by trade, it turned out

that he was a creative genius.

In the game, there's a little guy

with a mustache and a red hat who is dodging balls

that are being thrown by a gorilla.

We had to come up with a name for this character

and somebody remembered the name of our landlord, Mario Segale.

So we decided that we would call this character Mario.

And Mr. Miyamoto loved it and so he started

creating Mario games.

Mario Commercial: Mario! Mario!

Mario! Mario! Mario!

Howard Lincoln: There is no substitute for great games,

that's the key to this business.

And without question, the game that made Nintendo,

both in the United States and around the world,

was Super Mario Bros .

Gail Tilden: Many people think of Mr. Miyamoto

as kind of like

the Steven Spielberg of video games.

Howard Phillips: It's a little bit hallucinogenic.

I think if you think about Mario Brothers;

the fact that he put that on the screen,

it's testimony to his kind of creative comfort level,

that he was willing to express himself

with such random weird stuff.

And, he distilled it down into just a little scenario

within the game that just made it so cat nippy.

News Archival: This year, kids and their parents

will spend more than three billion dollars

on video games and game cartridges.

Almost 9 out of 10 of those dollars on Nintendo.

Gail: Pretty quickly we realized video games weren't dead,

and kids were still loving playing them.

Bill: Sales took off.

Howard Lincoln: People were clamoring for the product

and we couldn't keep it on retail shelves.

- Volleyball?

Salesman: Sold out.

Mike Tyson's sold out.

- Everything is sold out?

Salesman: Everything is sold out, yes.

- By 1986, we knew that we had

a mega hit on our hands.

Gail: But, about the time that we were

in full launch of the NES, there was another

Japanese company that was making video games.

TV Commercial: Sega!

News Archival: The game businesses' giant Nintendo

is no longer the only game in town.

Howard Lincoln: We certainly knew of Sega.

Sega introduced a home video game system

in competition with Nintendo.

- The Sega Master System was an 8 bit system

and it was not very successful against Nintendo in any market.

- The Sega Master system was rolling back the clock,

because here's these games in the arcade that look cool.

But then when you see them on the home system,

they just looked crappy.

So, nobody thought that Nintendo could ever be unseated

by somebody like Sega.

We were riding that rocket ship of growth,

nobodyhought it was going to end.

Tom: I was in Hawaii.

I had most recently been CEO of Universal Matchbox

and we had sold the company to Tyco.

So I was unemployed, on a beach in Hawaii with my family.

And all of a sudden, Hayao Nakayama,

the CEO of Sega of Japan, appears in his suit and tie

and starts talking to me about Sega.

I wanted to know how the hell he found me

and second of all, what are you doing here?

Well, he wanted me to come back to Japan with him

and look at what 16-bit technology could do

for the video game industry.

Mike: Every system up until then had been 8-bit technology.

- The last thing I thought I was going to do

was enter the video game market.

But when I saw 16-bit, I actually was blown away.

16-bit was so different, so dramatically better.

I joined the company.

Mike: Tom Kalinske was this superstar hotshot executive

from the toy industry, and we couldn't believe

that he would join a little company like ours.

Tom: I thought there was a chance

of at least grabbing some market share from Nintendo.

Shinobu: When Sega decided to launch 16-bit Sega Genesis ,

Nintendo was very formidable

and Tom Kalinske often called this, David and Goliath.

Sega Commercial: What's the hottest

16-bit video game system?

With true arcade games, great graphics, real challenge,

stereo sound, and the hottest library too?

Genesis from Sega.

Genesis , the new generation in video games.

Howard Lincoln: By the end of 1986,

Nintendo had essentially 100 percent

of the home video game market in the United States.

Howard Phillips: But Nintendo didn't want to just

make a platform that like early Atari's

could just be crushed by bad product and shovel ware.

- So we had to figure out some way

to keep bad games, or games that we did not control,

off our system.

Trip: They wanted to control everything.

And they wanted to be able to approve games in advance

and approve the final version

after they would personally test it.

It was really a financially challenging model.

- Nintendo's response was to come down

with an iron fist.

They controlled the market from top to bottom.

News Archival: The FTC is still investigating

charges Nintendo has unfairly monopolized

the highly lucrative software end

of the video game market.

- They did care what the titles were and they--

and they were very strict about it.

They were a bully.

- I don't perceive myself as a bully.

I don't think that Nintendo was ever a bully.

And it worked in the sense that

the home video game business didn't collapse,

in fact it arose.

- We haven't done anything wrong here.

What we've done in the last three and a half years

is to single-handedly recreate a dead industry.

We have resurrected the home video game business.

Tom: A lot of the third parties really resented

how Nintendo had ordered them around.

And it was clear we needed the support

of important third parties, and one of the most important

that I could see was Electronic Arts.

Trip: The part of the industry that I helped pioneer

was video game publishing as we know it today.

It was pretty much an amateur operation

until I launched Electronic Arts.

I began to take Sega seriously

when I heard rumors that they had a 16-bit machine.

We thought, wow, we could really

make some great games for this.

And I thought, you know, why don't we just

figure out for ourselves,

how to make games for this machine,

and then, we don't have to be bound

by an onerous license agreement.

Tom: I'd heard from my staff that EA had reverse-engineered

the Genesis system and they were planning

to release games on the Sega Genesis system

without paying royalty to us.

And I thought that was wrong.

So, I went to EA and had a rather unfriendly meeting

with Trip Hawkins.

Trip: Tom was actually very useful

because he's a good, reasonable, articulate American businessman.

- He may not remember this, but I asked him,

I said, Trip, did your mother ever teach you

the difference between right and wrong?

And he got quite upset over that.

- Sega said to him, you work with us, together

to beat Nintendo, and Trip liked that idea.

- And we worked out a license agreement

that turned out to be a win-win.

Tom: The EA breakthrough helped us convince

other third party developers

to take the battle with Nintendo and just tell them,

they were going to publish on Sega Genesis.

And Nintendo wasn't happy about it.

They were so stuck in their ways,

it made it somewhat easy for us to take them on.

But we needed a character

who could compete effectively with Mario.

Shinobu: As Nintendo often said, the name of the game

is the game.

One game can change the fate of the company.

If I have to mention only one reason

why Sega succeeded, it is Sonic the Hedgehog.

Tom: When I finally got a chance to see the actual game,

I was blown away.

It showed off the graphics of the Genesis system,

it showed off the speed.

I wasn't sure it could ever be

as successful as Mario was,

but by god, we were going to try to make it such.

I knew that instead of going directly against Nintendo,

we had to do something different.

So, my basic philosophy was, alright,

we're going to leave them the 9- to 12-year-old boy,

and we're going to go after an older age group.

File Footage Sot: 16-bit marketplace, we believe,

is a much more sophisticated marketplace

and we're directing this towards the teenager

and the young adult.

Mike: Nintendo was the game system

your parents wanted you to play.

This was the one that your kind of devious uncle

would let you play.

Tom: And then, in terms of our marketing,

we took Nintendo on.

We made fun of them.

Sega Commercial: Genesis does, Genesis does.

Genesis does, Genesis does.

What Nintendon't.

- Sega does what Nintendo don't, or something.

I thought it was kind of funny, quite frankly.

- We also moved to the famous scream.

Sega Commercials: Sega! Sega! Sega!

- Sega!

I started taking my kids to school in the morning

and when our car would pull up, the girls would yell, Sega!

Back at me.

And I thought, wow, I've even got the girls

yelling Sega, this is great.

Diane: We had a goal to beat Nintendo.

Every time something came up and it was a hurdle,

it was like, what would we need to do to beat Nintendo?

Gail: They came in with an attack,

that Mario was a dumpy old plumber

and they had something that was faster,

cooler and, you know, you can't just turn around and say,

oh, no, Mario's cooler.

- They were an easy target.

We knew they wouldn't respond, so you could be nimble

and sort of run around them.

Sega Commercial:

- They were in your face in terms of their commercials

and marketing.

Sega Commercials: Sonic 2 fits easily into any tacklebox.

Act now.

The Sega Genesis has Blast Processing,

Super Nintendo doesn't.

Tom: I used to get nasty letters from Howard Lincoln,

to cease and desist our advertising.

- I don't think we took anything like that seriously

until they started gaining market share...

Then, we did take it seriously.

Tom: The work environment at Sega

was really a lot of fun.

We were one of those companies that had the ping pong table

and we were shooting Nerf things at each other.

In that sense, we were a throwback to the Atari days.

- We were a wild bunch of different types of characters.

Bill: Nintendo, on the other hand,

was lean and mean.

We were conservative.

Trip: Nintendo was run like an army.

- Listen up!

You have to take your oral examination,

you have to take your oral test.

- And Sega was run more like a dude ranch.

- I don't think there's any clearer way

of showing the difference between the Nintendo attitude

and the Sega attitude than Mortal Kombat .

Mortal Kombat Ad: Mortal Kombat!

Howard Phillips: Mortal Kombat was a game

designed to appeal to the older interests

of a teenage boy.

Man 1: If you knock her out two times,

then you get to kill her.

Man 2: Kids love blood and guts

and it makes it something exciting.

Howard Phillips: It had pretty gratuitous violence.

- Taking out hearts and ripping heads off.

Howard Lincoln: Blood was flowing freely.

Reporter: Heads are yanked off with their spines attached.

Consumer: You take a guy's head off,

that's what the kids want out there.

Greg: You laugh today

and say, well, what, why is everybody get

so upset about this?

The problem was, it was the first game

that has blood in it.

- The publisher Acclaim, decided to publish

for both Sega Genesis and the Nintendo Super NES.

Greg: And, when we told Howard Lincoln,

they actually went into a deep review and said,

hmm, I don't know if it's going to fit for their system.

- We were very concerned

with the type of content of the games.

We had our own internal guidelines

for what was acceptable, and we concluded

that we could not allow blood on the Nintendo version.

Greg: Howard said, you have to make the blood green.

So we said, sure, we'll make the blood green.

Is that what you want, Howard?

We'll make the blood green.

Tom: Everybody knew it was silly

and I thought what Nintendo was doing was censorship.

Mike: At Sega, it was the statement that,

hey, we're going to let you see the red blood and they're not.

- Super Nintendo has a more tame version of Mortal Kombat.

But some believe the company's effort to sanitize the game

will kill off most of its sales.

- We clearly got branded as the cool machine.

And that was something that Sega had never been before.

- We've had three times as many orders

for the Sega version as we have the Super Nintendo version.

Greg: It was much more successful on the Sega system

and made Sega a much more successful company

during that period of time than Nintendo.

- They cleaned our clock.

Bill White: Mortal Kombat created quite a fever

in the marketplace from a sales standpoint,

but it also created quite a bit of publicity;

from parents.

- Absolutely, I'm concerned.

- I am concerned because it directly affects

the behavior of my children.

- I am very concerned,

and there is one tape in particular

that I understand is very violent.

It's called Mortal Kombat .

Bill: Ultimately, that reached a point of discussion

where Congress decided to take a look at game violence.

Lieberman: I think it's time to draw the line.

I know that one place parents want us to draw the line

is with violence in video games.

Howard Lincoln: Sen. Lieberman and his committee

decided to look into home video game violence.

- What you're about to see

are scenes from the most violent new video games.

First we have Mortal Kombat ...

- It is a sick, disgusting video game in my judgement.

Shame on the people that produce that trash.

Tom: They thought this was warping the minds of children

and there should be government controls

put over what kind of games should be brought out

into the marketplace.

- If you don't do something about it, we will.

- The decision was made to send me,

although I'd only been at Sega for a few months.

But I did have the benefit of having multiple years

at Nintendo.

- We decided to send Bill White to represent Sega

because Bill had worked for Howard.

And we thought this was gonna really get under Howard's skin.

- I can't sit here and allow you to be told

that somehow the video game business

has been transformed today from children to adults.

It hasn't been.

And Mr. White, who is a former Nintendo employee,

knows the demographics as well as I do.

Gail: Howard was actually an attorney by practice.

So, I don't know that it was a very fair setup for Bill.

I think he got kind of thrown to the wolves.

- Small children bought this at Toys R Us,

and he knows that as well as I do.

Bill: Nintendo basically took the side of the senators.

Tom: Howard Lincoln presented Nintendo

as being the perfect company.

He pretended to be literally saint-like.

But then Bill White pulls out a rifle.

- A rapid fire machine gun.

- And said, what are you talking about?

Look at this rifle you guys have.

- That uses the same technology

to our understanding with several games available.

And they have no rating on that product

to suggest that product's for adults.

Lieberman: Nintendo produces that, you say?

- Yes... LIEBERMAN: Yeah.

I must say, to me, that looks like a--

looks like a weapon

Tom: We tried to dissuade the senators from this viewpoint

that everybody who played video games was a child.

And that just wasn't the case.

- The average Sega Genesis user

is almost 19 years old, and fewer than 30 percent

are under age 13.

- They all thought it was little kids

playing at home with their moms.

And it wasn't.

Lieberman: Thank you, Mr. Lincoln.

You're not perfect, but you're--

you've been a damn sight better than the competition.

I find the course of behavior by Sega

the most objectionable here in these games

that we're talking about.

- It was not a good day for Sega.

Tom: I was quite angry with Howard over his performance.

So we had a few nasty comments back and forth.

- I sent him a poem.

Roses are red, violets are blue.

You had a bad day, Tom, bo-hoo-hoo.

Howard Lincoln: But there was a growing concern

that the senate hearings would have a negative impact

on sales of home video games.

Tom: Because of the negative publicity,

we were very concerned about a crash occurring again.

Bill: Ultimately though, it was in Nintendo's

best interest and Sega's best interest

to develop a rating system

that allowed the consumer parents to choose

which games were right for their children.

Howard Phillips: It helped establish

that there's different types of games

that are appropriate for different ages

or for people of different tastes,

and ratings really codified that for the whole industry.

So, it was a great thing.

Tom: The video game market actually grew substantially.

It actually helped us broaden the market

to go after the older age audience

who now said, "Oh, yeah,

there's stuff here in this video game business

that appeals to us as well".

Anchor: It won't be long before budding young actors,

who used to dream of going to Hollywood,

will dream of going to Silicon Valley.

Howard Phillips: The future with CD-ROM technology

means the kind of production qualities

that you're used to seeing in films.

Mike: In the early '90s, it was very clear

that CD ROM was going to be the direction

of games in the future.

- You could make a video game look like a television program

with photorealistic images and full motion video.

- Cartridges were costing like $45.

But with a CD-ROM, you could have all that data

for a $1.80 at the time.

Tom: We'd heard that Nintendo was going to work with Sony

on developing the next video game system

using Sony Optical Disc technology.

Mike: When we heard that Sony was partnering with Nintendo,

it sounded like calamity.

How could Sega compete with those two giants together?

I was actually at the Consumer Electronics Show

in Las Vegas when we were all expecting

to hear the joint announcement from Sony and Nintendo.

- I think there was the expectation

that we were going to do something with Sony.

But Nintendo made a business decision.

I recall announcing that decision

and I knew it was a shocker.

- Howard Lincoln surprised the world

by saying that they were going to use

Philips Optical Disc technology and not Sony,

and they apparently had not told Sony this

before the presentation.

So the Sony executives were furious.

- And it was a total, "What the ", moment.

Sony was really left with its pants down.

You gotta think that made it personal

for Sony at that point.

In Japanese culture, it was incredible humiliation

for this iconic national brand like Sony

to be left at the altar by Nintendo.

- And so, rather than work with someone else

as a third party content provider,

they were intent on

developing their own platform

that they could control from the very beginning.

- We may have poked a sleeping dragon.

We poked a lot of dragons.

- It may seem like a footnote in history

for everyone except the game geeks,

but it really was a turning point

in the entire industry's development.

That was like Waterloo for our industry.

History would never be the same.

Howard Phillips: Sony did a very smart job

of entering the market.

Diane: We knew for a fact that Sony was bringing out

a system that could really hurt us badly.

Male Announcer: The games are ready!

Are you?

- When we heard rumors from the development community

about how powerful PlayStation was going to be...

particularly about how rich and fast the 3D graphics were,

we just assumed that it would be a super high-end system.

I mean, if you think about it,

a lot of Sony's consumer electronics products

were very expensive systems.

- We had heard that the Sony system

was gonna be a $500 priced system.

And we didn't think that would be successful,

because we knew price was so important

in the video game industry.

- Nintendo wasn't terribly concerned.

They thought, yeah, if they're at 500 bucks,

that's a problem for them.

Steve: There was a lot of talk about

what the price point was going to be.

It started out at 499, and then we convinced them

that it needed to be substantially lower,

and they were all set to do it at 399.

Trip: I think Nintendo probably thought to themselves,

well, shoot, if they want to be really aggressive,

they'll offer it at 399, but that's still too high.

- We agitated for a long period of time

that it needed to be a lower price point

right up until the day of the announcement.

Trip: I was there in the room

when the PlayStation was introduced.

- I'm going to ask

Sony Computer Entertainment President of America,

Steve Race to join me for a brief presentation.

- I had a speech prepared

but I threw it away and just said...

299.

Trip: He said, 299, and there was a gasp.

- And that was the shortest speech

in the history of Western business, I think.

- Oh, .

Oh, .

- We wanted them to say, oh, .

We wanted them to know they're in trouble,

that we're here to play.

- We never saw a price point like that coming.

There was panic in the office.

- No!

- We knew we were in for a battle.

- They changed the whole nature of the business.

Sony ends up being a real disruptor.

- Sony eliminated Sega from being a hardware competitor

and it marginalized Nintendo.

Man In Sony Commercial: Hey, plumber boy, mustache man,

your worst nightmare has arrived.

I got a little surprise for you here!

3D, lush organic environments.

How's that make you feel, buddy?

Feel a little like your days are numbered?

- Nintendo kind of bumped along the bottom

for a number of years.

- Nintendo was eventually able to come back and fight.

But, for Sega, it was the end.

Shinobu: Sega fought very fiercely, of course,

we can't give up, but eventually,

our loss was very obvious.

- It was the death knell of Sega.

- The decisions started to revert back to Japan

and I was being ordered to do things

that I didn't agree with,

and I was tired of not being able to make my own decisions

for Sega America, and about that time,

I resigned from Sega.

Howard: When I heard that Tom had retired,

I sent him a letter.

- "Dear Tom, I was saddened to learn

that you are leaving Sega."

- "You've done a great job over the last 6 years..."

Both Together: "...dramatically increasing Sega's market share,

at our expense."

- "Let me wish you the very best of luck

in your new venture."

- "All my best, Sincerely, Howard Lincoln,

Chairman, Nintendo of America."

- I was really touched by this letter.

- I felt it was the appropriate message

to send to a worthy competitor.

I never considered it personal.

It was just a great fight between two companies.

Hats off to Tom Kalinske, he did a great job,

it was a great fight.

At the end of the day, we had better games

and deeper pockets.

Mark: It's incredible to think

that Ralph Baer toiled away in his basement,

and his intent was not to be in record books.

He just wanted to build something cool.

He just wanted to have fun,

and it turned out to be something.

Ralph was not recognized for a long time,

but his idea has blossomed

into a hundred billion dollar industry.

Why would you not be happy about that?

Ralph Baer: There's a horizontal knob here

as you can see.

Trip: When you're doing something

truly out of passion,

purely driven by your desire and your sincere belief

in a dream, and you don't really know yet

what's gonna happen,

and then it works, there's just no better feeling.

David: Now there are millions of people

working in the video game business,

and I'm proud of the fact that we created an industry.

Nancy: Everybody was creating something brand new.

It was the future.

And so, you just felt it in the air.

It was, you know, Camelot.

Tom: We had real entrepreneurs, real entrepreneurial people

looking for the next great thing

and really pushing the envelope in game development.

Nolan's day was really the wild west.

Nancy: Nolan likes to say that he doesn't spend his life

looking in the rear view mirror.

Nolan: Thinking about how sad I am over Atari

being screwed up by idiots is not nearly as important

as new innovative product.

Ideas are actually the cheap part.

Any idiot who's ever had a shower's had a good idea.

It's the people that get out and work on it that matter.

I believe the best life is when you work hard, play hard.

Whatever you do, do it with the volume turned up.