Atari. John Anderson.

ATARI

"We don't market,' Steven Ross, chairman of Warner Communications, told the Wall Street Journal. We've got the best goddamned computer, but we don't market it right.

Im pulling my hair out.'

That's just about the whole story in a nutshell. Atari has never made a dime from microcomputers. In 1979, Atari introduced two of the most advanced and best-designed low-end machines in the industry. They then proceeded to let the machines languish for four years and lost money on them each and every year. By the time they caught on and realized that it was not the hardware but the sellware that was wrong, they were on the ropes and bleeding red ink. It's a pity.

In The Beginning

In the beginning there was Nolan Bushnell. And there were some cockeyed ideas of his about making electronic games that people would want to play again and again. Nolan amassed some pretty good people and some pretty good products, too. In 1974 coinoperated video games like Pong and Tank Battle appeared. In 1978 Space Invaders broke through, and video games mania took hold.

Then there was the VCS 2600 programmable computer game, which began to catch on in 1978. Before it, home games computers were hard-wired to play maybe four different games. These grew boring in a hury, and the units soon headed for the closet. The VCS ended all that. Want a new game? Simply plug in a new ROM cartridge. The games were in color, and were superior to anything seen before. They had some staying power.

Then in 1979, some hard-partying wizards from the coin-op department teamed up to create the Atari 400 and 800 computers. It is hard to overstate what a feat these machines were. Based largely on the Apple, they were designed to do everything the Apple could do, and then some. As it turned out, the machines were so far ahead of their time, Atari ended up having no clear idea just what to do with them.

Asking me to ruminate about Atari is like asking Attila to say a few words about Huns. It has been an intense love-hate relationship, to say the least. I have been writing about the problems of Atari management for more than three years now. Atari computers will always have a special place in my heart, though Atari Corporate has broken that heart many times over.

Growth And Chaos

Well, in his preternatural wisdom Nolan sold Atari, and like clockwork, things started sliding fast. Many of the people I spoke to at Atari between 1980 and 1983 had little or no idea what the products they were selling were all about, or who if anyone would care. In one case, we were fed mis- and disinformation on a frighteningly regular basis, from a highly-placed someone supposedly in charge of all publicity concerning the computer systems. And chilling as the individual happenstance was, it seems to have been endemic at Atari at the time.

Atari was quite literally too big for its britches. Since acquisition by Warner, the big problem for Atari has been the very bigness of Atari. It is almost universally recognized that Atari is the single most important factor in the transformation of the electronic entertainment business in the late '70s. Before Atari, electronic games were a novelty. After Atari, they became a mainstay--a business with revenue counted in the billions of dollars.

As Atari grew--wildly and with the uncontainable force of Mount St. Helens --it also grew schizoid. It quickly evolved into a three-headed beast: the coin-op division, the consumer games division, and the home computer division all operated pretty much independently of one another. Rifts and rivalries developed. Most damaging was the split between the managements of the home games and the home computer divisions.

For at a time when those very categories were meshing in the marketplace and minds of consumers, Atari chose to isolate them totally from each other. The games division, having finally managed with the VCS 2600 game unit to over-take the coin-op division as profit leader, saw the home computer division as a threat rather than a savior. If any of their new machines could expand into true computers, the reins would automatically be handed over to the home computer division. To the games division, this was a fate worse than death.

And so it seems in their power and wisdom, they chose death.

If, in 1981, the next-generation game machine had been designed to be compatible with the Atari 400 and 800 microcomputers, Atari would not be in the state it is in today. Instead, the 5200 game unit was introduced. Inside, it was very nearly an Atari 800, and as such was a fabulous game machine. The notable exceptions were that all compatibility and expandability had been designed out, and an absolutely atrocious new game controller had been grafted on. The new game machine, with an external keyboard and 800 compatibility, could have been transformed into a product superior to the famed Coleco Adam, way back in 1982. "But noooo,' to quote the late great John Belushi.

As in Greek tragedy, the fatal flaw had surfaced: the hubris that eventually set the stage for surrender of the highend games market to Coleco and the low-end micro market to Commodore.

If, in 1981, Atari had decided to hire someone like Alan Alda to rework its image as a game company, it would not be in the state it is today. Instead, it failed to recognize the importance of its computers and allowed a sizable technological lead, as well as a burgeoning market, to slip away. They continue to this day to be perceived as a games company and only a games company. If I were Steven Ross, I would be bald by now.

Now that Atari's share of the micro market has been more than halved, they have hired Alan Alda, and he is doing all he can, for a reported $10 million three-year stint. He is undoubtedly worth it. Rumor has it, however, that Atari is about to abandon the hardware business entirely, in favor of software alone.

Only Software?

Software is like records. Warner already knows how to sell records, and does it very well. Atari could make a profit selling software. In June of 1983 Atari announced the creation of Atarisoft, a software label that would release packages not only for Atari computers but for the IBM PC, Apple, TRS-80, and Commodore 64 machines as well. Hence the springboard for rumors.

Was that step the beginning of the end for Atari hardware? No, according to Atari. They are in the hardware business to stay. They will turn things around. They will get their computers into the black for the first time. And they will keep them there.

In the attempt to reach this lofty goal, heavy cost-cutting is evident. Atari has laid off more than 3000 of its U.S. production line staff and moved manufacture of its computers to the Far East. It has removed the internal speaker, two of the controller ports, and other so-called "needless expenses' from all its new units. It has streamlined each computer to a single board, saving pennies wherever possible. Needless to say, this is a very different environment for product development from the one that couched the birth of the 400 and 800 machines. They, as opposed to the newer machines, were remarkably uncompromised.

Despite all of this, there is certainly one thing you must hand to Atari. They are about the only company in the entire industry in the position to suffer 1983 losses in excess of half a billion dollars, while remaining somewhat optimistic about the future. Warner stock went down from well over $60 to just over $20 in 1983. Shareholders' equity skidded 32 percent to $953.6 million from $1.4 billion a year earlier. And yet, Atari has mustered its confidence.

Warner Communications hasn't come close to offsetting Atari's losses, even with a pretty fair year at the movie box office and an even better year in the record business. The numbers are simply staggering. The fact is that Warner has come to depend on Atari for profits. I can't see them taking risks very much longer. Atari needs to find the black, and stay there--whatever that formula requires.

New Management

In August of 1983, James J. Morgan was brought on board from Philip-Morris to replace Ray Kassar as CEO and president of Atari. His work was cut out for him.

A recent article in the Wall Street Journal reports that Morgan was "stunned' both by the "chaos' at Atari when he took charge and at the fact that no one seemed to have anything even approaching a coherent game plan. Frequently a supposed "chain of command' would be split across eight or nine buildings, with a supervisor rarely even seeing certain members of his crew. Morgan has set out to change this.

Among his first actions was the dissolution of the direct educational sales force. He created a department called Atari Learning Systems to fill the gap. Some analysts have interpreted this as a general move in the direction of software as opposed to hardware. he also reassigned the president of Ataritel, the telecommunications branch of Atari, which has been in existence for nearly two years now, and has yet to ship a product. If Ataritel doesn't come through soon, don't expect it to last much longer. Warner can't afford the experiment.

By 1985, Atari will have moved to a 65-acre site in San Jose. The coin-op and engineering departments will remain in Milpitas, but the rest of the show will be consolidated. The cost of the move will approach $200 million.

In unrelated but interesting developments of the last year, Milton-Bradley sued Atari for $43 million, as a result of an alleged breach of contract concerning nondelivery of 400,000 voice synthesis/ recognition modules for the 2600 and 5200 game units.

Atari abandoned plans to introduce a keyboard add-on for the 2600, originally called "My First Computer,' and later dubbed "The Graduate.' Sales of such a unit were probably and rightly deemed as potentially harmful to Atari computer sales. The unit was, by the way, utterly incompatible with any other Atari computer.

Atari, it appears, has always had an unseemly habit of competing with itself. The latest clear example of this is a TV commercial aimed at Coleco--or so one would imagine. The Coleco-Vision has for some time had a VCS game adaptor available for it. The Atari commercial shows its own, substandard VCS version of Pac-Man running on the Coleco Vision, then compares it to the 5200 version, which looks much better (as in fact it was bowdlerized from the 400/800 computer version). Why they chose to make their own product look bad on prime-time TV is beyond my ability to analyze. Perhaps it is some bizarre form of self-punishment for past transgressions.

Coming Back

Well giants fall hard, but don't die easily. Atari may be down, and it may occasionally be eccentric, but it is far from out. It has a new XL line of 64K machines, and despite rumors to the contrary, claims to be moving ahead with plans to market all four. That includes the 1400 XL, with built-in modem, speech synthesis, and expansion capability. It includes the 1450 XLD, which sports all the features of the 1400 and a built-in high speed disk drive at an attractive price. I remain enthusiastic about these machines, if a bit less than utterly confident that they will ship in the near future.

Having personally made the recommendation that the machine on the heading of our Atari column be changed to the Atari 1450 six months ago, I surely hope to see one soon. It is hard to type with your fingers crossed.

Compatibility with existing 400/800 software has been achieved by way of a translator disk, which downloads the old 400/800 operating system to the top 16K of a 64K XL, so it can run the thousands of existing programs despite any incompatibilities with a revised XL operating system. The maintenance of some form of compatibility with the old machines was an extremely important step for Atari to have taken. It leaves the new line of machines in much better shape than they would have been otherwise, even after the January price hike.

Atari originally set a sales goal of 700,000 XL computers in 1983. Slipped ship dates and manufacturing problems cut that figure by nearly a power of ten, by our count. Let's hope that Atari fares better in 1984.

Philips and Atari may yet become partners in the microcomputer business. Their friendship stems from a cooperative distribution effort between Warner Records and Polygram (which belongs to Philips). In December there were rumors that Philips might actually acquire Atari. These are totally spurious, according to Atari. Still, I would not rule out the possibility of an Atari/ Philips computer appearing some time in the future. It might be just the thing to breathe new life into the beast.

So to paraphrase Twain: Reports of Atari's death have been greatly exaggerated. The red ink nosebleed has been behemothic, but may now have been stemmed.

Alan Kay, once of Xerox PARC and Smalltalk fame, who has been hiding in an Atari ivory tower for some time now, may soon surface like a fairy godmother with some amazing goodies. He is a true visionary--and if he hasn't been twiddling his thumbs for three years, may have an exciting show-and-tell for us at the next CES.

A final note. Rupert Murdoch, sensationalist newspaper owner and the man who made the New York Post the newspaper it is today, seems to agree that Atari has some life in it yet. He has reportedly acquired 6.7 percent of Warner's stock. Murdoch is not known as an investor, so it is assumed that he seeks a controlling interest. According to the Wall Street Journal, he is now the largest individual stockholder in Warner Communications and could gain the control he seeks with little over 20 percent of the stock.

If that happens, my only hope is that we shall be spared images of bikini-clad computer users in Atari ad campaigns, below headline like "Mom boils Baby's 600XL.' Atari, best of luck.

Photo: James J. Morgan, new chairman and CEO of Atari.