The Memo

When David Crane joined Atari in 1977, the company was maturing from a feisty Silicon Valley start-up to a mass-market entertainment company. “Nolan Bushnell had recently sold to Warner but he was still around offering creative guidance. Most of the drug culture was a thing of the past and the days of hot-tubbing in the office were over,” Crane recalled.

The sale to Warner Communications had given Atari the much-needed financial stability required to push into the home market with its new VCS console. Despite an uncertain start, the VCS soon became a retail sensation, bringing in hundreds of millions in profits for Atari. “It was a great place to work because we were creating cutting-edge home video games, and helping to define a new industry,” Crane remembered.

“But it wasn’t all roses as the California culture of creativity was being pushed out in favor of traditional corporate structure,” Crane noted. Bushnell clashed with Warner’s board of directors and in 1978 he was forced out of the company that he had founded. To replace Bushnell, Warner installed former Burlington executive Ray Kassar as the company’s new CEO, a man who had little in common with the creative programmers at Atari. “In spite of Warner’s management, Atari was still doing very well financially, and middle management made promises of profit sharing and other bonuses.

Unfortunately, when it came time to distribute these windfalls, senior management denied ever making such promises,” Crane remembered. “Creative people don’t like to be lied to, and there was a revolt with many people leaving and others threatening to go. Job satisfaction in the whole engineering department was at an all time low,” he said. “At the same time, a memo was circulated from the marketing department showing the prior year’s cartridge sales, broken down by game as a percentage of sales. The intent of the memo was to alert the game development staff to what types of games were selling well,” Crane recalled.

“This memo backfired however, as it demonstrated the value of the game designer individually. Video game design in those days was a one-man process with one person doing the creative design, the storyboards, the graphics, the music, the sound effects, every line of programming, and final play testing. So when I saw a memo that the games for which I was 100 percent responsible had generated over $20 million in revenues, I was one of the people wondering why I was working in complete anonymity for a $20,000 salary,” Crane said.

The Gang of Four

Crane wasn’t the only programmer who was dissatisfied with Atari’s management. Alan Miller had approached Atari’s executives with a contract proposal that would provide programmers with design credit and royalties on games only to be rejected by management. Larry Kaplan and Bob Whitehead were also looking for more recognition and fair compensation. Together they became known as the “Gang of Four”.

“When we looked closely at that memo, we saw that as a group we were responsible for 60 percent of their $100 million in cartridge sales for a single year,” Crane recalled. “With concrete evidence that our contribution to the company was of great value, we went to the president of Atari to ask for a little recognition and fair compensation. Ray Kassar looked us in the eye and said, ‘You are no more important to Atari than the person on the assembly line who puts the cartridges in the box.’ After that it was a pretty easy decision to leave.”

Start Up

At the time, several programmers had already left Atari only to turn around and become independent contractors for the company, still producing games, but for double the money. The Gang of Four decided on an ambitious and much riskier move. They would start an independent development and publishing company producing games for Atari’s VCS console, something no one had attempted before.

“To address company start-up issues we met with an attorney who, after hearing our story and our plans, suggested we meet with his friend [Jim Levy] who was ‘doing the same thing’,” Crane recalled. “Jim had been working at GRT Records and was in the process of raising VC money to go into business making cassette tape software for early computers like the Radio Shack TRS-80.” As Crane remembered, “We met with him over a barbecue at his house, and eventually became convinced that he had the marketing savvy and the business skills to run the company we had in mind. And it didn’t hurt that he was well into the VC fund raising process.”

“Sutter Hill ventures found the exploding video game business of more interest than the slowly building home computer market, and Jim put together a business plan and funding package in relatively short order,” Crane explained. “At the time, VC firms didn’t invest in software. It was only the fact that cartridges for the Atari game system were physical, electronic components that made it understandable. They invested less than $1 million for controlling interest in a company that grew to $300 million in three years. Pretty good deal!” Crane said.

Crane and Miller left Atari in August of 1979 and Activision was born. They quickly began programming a development system for Activision, working out of Crane’s apartment. Bob Whitehead and Larry Kaplan stayed at Atari for a short while longer before handing in their notices to join Activision.

Atari soon realized their error in letting prime talent walk out the door. However, their first response was to try and sue the fledgling company out of existence, accusing them of copyright and patent infringement in a 1980 lawsuit. “Atari bought full-page magazine ads to try to paint us as criminals, when all we were doing was pursuing our chosen craft,” Crane remembered. Atari’s lawyers would continue to dog Activision over the next two years before their complaint was finally thrown out.

Launch

Activision’s first games, Dragster, Boxing, Fishing Derby, and Checkers hit the shelves in 1980. Packaged in vibrantly colored boxes, the company’s games made a strong impression at retail. “Brand consistency was always of major concern,” Crane said. “Jim wanted Activision games to stand out on the store shelves, while clearly belonging to the brand,” he explained. Activision’s policy of crediting the designer and providing a clear screenshot of the game on the back of the box also reassured consumers that they were getting a quality product. “We were always annoyed at fanciful artists’ renderings of the game screens on competitor’s packaging. We wanted there to always be a true screen shot on the outside of the package,” Crane said.

The following year saw the release of Crane’s Freeway, Larry Kaplan’s Kaboom!, Bob Whitehead’s Stampede, and Alan Miller’s Ice Hockey. By 1982 the company was in top form, releasing Alan Miller’s Starmaster, Steve Cartwright’s Barnstorming, Crane’s Grand Prix, Carol Shaw’s River Raid, and Bob Whitehead’s Chopper Command. “Activision’s game designers were at the top of our field. We really knew how to make great games,” Crane said.

“We went to great lengths to make our games better looking, and we did this with subtle details that few people could identify. We spent thousands of hours per year inventing new ways to make the Atari 2600 hardware perform in ways unimagined by its chip designers. But other techniques were so much simpler.

We used only a subset of the color capability of the 2600 – only the bluest blue and greenest green. Where possible we bordered on-screen color changes with black pixels to reduce color bleed,” Crane remembered. “We were our most demanding critics, and we didn’t stop until the game was better looking than anything we had seen,” he said.

Pitfall Harry

1982 was also the year that Activision released Pitfall!, one of its biggest hits and a game that would become the foundation for a new genre. “During the development of Pitfall! it was clear that we had something special,” Crane remembered. “The game was born from a desire to have the main character of the game be more human than the tanks, jet planes, drag racers, etc. of the past.

But once you had a little man running, jumping, and climbing an entire universe of adventures were open to the game designer. People would walk up behind me during development, look at the screen with glazed-over eyes and brainstorm about all the ways this genre could go. Of course, I had to finish the first one and make it fun to play,” he said.

Activision went public in 1983 and enjoyed an astonishing success. “The Activision of the late 70s and early 80s was a pretty special place,” Crane remembered. “Because we were riding a rocket, everyone wanted to work there. With the choice of the best and brightest we ended up with a company full of over-achievers. When Activision reached sales of $60 million, we had 60 employees. People have to work pretty hard for a company to have revenues of $1 million per employee. And up until the game business crashed, everybody was content to work hard and grow the company.”

Crash

The game market was booming, driven by a vibrant arcade scene and home console hits like Pitfall!, Atari’s Pole Position, and Imagic’s Demon Attack. However, by 1983 there were signs of trouble. “It is really ironic that we didn’t see the crash coming, because we looked right at it,” Crane remembered. “In response to Activision’s success, there were dozens of wanna-be copycats. In one six month period between CES trade shows, 30 companies sprang into being determined to be the next Activision.

They got two to three million dollars in VC funding (they found it very easy in light of our success), and hired programmers off the street. Without professional game designers, these companies developed low quality games that we would have deleted from our computers. With their VC money, however, they built millions of copies of these awful games. When we saw the poor quality of the games being developed, we shook our heads and said ‘These guys will all be out of business in a year.’ We just didn’t see what that would do to the business.”

“The game crash came the following Christmas,” Crane remembered. “As these companies failed to sell their games and went into bankruptcy one after the other, some enterprising bottom-feeders went into action. Warehouses of unsold game cartridges were bought for $3 each, sold to stores for $4 each, to be retailed at $5 each. At the front of every store was a barrel full of games at $5 apiece. One estimate put the number of closeout games in the barrels that Christmas to be over 20 million pieces,” Crane said.

“Kids still asked for the latest Activision release for Christmas. But when Dad got to the store he saw that his $40 could buy eight games from the barrel and he could come home the hero. Sales of top of the line new games went to zero,” Crane said.

Weathering the crash, Activision began to diversify, publishing titles for the emerging PC market and spreading its games for the Atari VCS to Intellivision and ColecoVision. 1984 saw the release of Crane’s well-regarded movie-tie game Ghostbusters as well as his Pitfall II: Lost Caverns leveraged across a variety of platforms including the VCS, Commodore 64, Apple, and Atari 8-bit computers.

Unfortunately, the video game market continued to decline and Activision’s stock plummeted. With nowhere to go but up, Alan Miller and Bob Whitehead left the company to form Accolade. Larry Kaplan had already left two years earlier, returning to a VP position at Atari.

“After the crash, we became something of an incubator. You can trace the genesis of dozens of high-tech companies to people who left Activision,” Crane said. Notable personalities from Activision included Larry Probst, who would go on to become CEO of Electronic Arts and Greg Fischback, Jim Scoroposki, and Rob Holmes who founded Acclaim.

Infocom

With Atari’s VCS dead in the water and its successor, the 5200 a non-starter, Activision put most of its efforts into computer titles. High points of their 1985 releases included Crane’s innovative artificial life game Little Computer People and the complex adventure/strategy title Hacker. Reinforcing its PC focus, Activision began the process of acquiring Infocom, creators of Zork and an innovator in text adventure games.

Infocom enjoyed a string of hits in the early eighties with titles like A Mind Forever Voyaging, Trinity, The Hitchhiker’s Guide to the Galaxy, and The Lurking Horror but had fallen on hard times when the company tried to unsuccessfully branch out to database software.

Activision’s offer to buy Infocom seemed to provide a way out for the struggling company. However, as the deal was being inked, Activision’s board of directors decided to replace Jim Levy and brought in Bruce Davis as the new CEO. Davis was unhappy with the merger and felt that the purchase of Infocom was too costly for Activision. What was to be an “Info Wedding” quickly turned sour. Davis was a San Francisco lawyer who had previously overseen the dissolution of Imagic and after the deal was finalized in 1986, Activision filed a lawsuit in attempt to recoup money from Infocom’s shareholders.

Under Activision’s guidance Infocom moved toward producing graphic adventures, creating Zork Zero, James Clavell’s Shogun, and publishing Westwood’s BattleTech: The Crescent Hawk’s Inception. The new Infocom’s profits never matched their early years and by 1989 Activision shut the company down, later publishing The Lost Treasures of Infocom I and II CD-ROM collections in 1991 and 1992 as testament to Infocom’s past achievements.

Let It Be

The financial damage caused by the 1983-1984 Crash persisted for years. “The company was strong enough to weather the crash,” Crane remembered. “We had kept tight controls on cash, and so we were in OK shape. Jim Levy’s strategy was to come up with the best estimate of what the business would look like in one year, and then downsize the company to match that target. Every year he was just a little too optimistic, and the business took years to recover.”

“When the board put Bruce Davis in charge of Activision, it was a deathblow. I tried to work with him, but found that he had no creative or marketing skills. His only prior job was to run Imagic out of business – bringing it in for a landing, as it is said. The Activision that I had a hand in creating was gone, so I left,” Crane said. Crane continued to work for a time as an independent developer, creating games for Activision and then joined Gary Kitchen to form Absolute Entertainment in 1988.

Mediagenic

With the home console market in a deep freeze and the company’s founders all gone, Activision struggled to find its place. Over the next two years it would publish important titles like Alter Ego and the enduring puzzle game Shanghai but sales were poor and the company began to explore business and productivity software, marketing a line of HyperCard based products under its TenpointO and Activision Presentation Tools labels.

In 1988, still trying to find a viable market strategy, Activision reorganized and changed its name to Mediagenic. Although the company emphasized its reorientation to business software by publishing Danny Goodman’s Focal Point and Business Class as well as Paintworks and Reports, Mediagenic continued to release games under the Activision and Infocom brand names. In 1989 it published a CD-ROM version of Robyn and Rand Miller’s The Manhole, one of the first games available for PC CD drives.

Legacy and Rebirth

Despite efforts to turn the company around, Mediagenic fortunes continued to decline, posting a loss of $26.8 million on revenues of only $28.8 million in 1991. The BHK Corporation headed by Robert Kotick subsequently acquired Mediagenic with Kotick replacing Bruce Davis as the CEO. Completely restructured, the company changed its name back to Activision in 1992 and moved its headquarters to Los Angeles.

“The Activision name, however, still had value,” Crane noted. “When Bobby Kotick bought the company, that was mostly what he was buying – that, and huge debt left him by Bruce Davis. Bobby pared the company down to three or four people, moved it to Los Angeles, and managed to work through all of the debt issues. Under his leadership the company has come back strong, and he is to be commended for that. But it isn’t the Activision that I knew and loved,” Crane said.

Completely focused on games, Activision got back on its feet in 1994 with the success of Return to Zork. Over the next decade Activision published a string of important titles like Mechwarrior 2, Quake II, Interstate ’76, Spycraft: The Great Game, Return to Castle Wolfenstein, and Tony Hawk Pro Skater.

Moving into the new century Activision regained its former glory, building on a solid foundation of popular franchises like Call of Duty, Doom 3, Guitar Hero, Marvel: Ultimate Alliance, becoming one of the largest independent video game publishing companies in the world.

“Before the founding of Activision, game cartridges were only developed by the company who made the game consoles. Activision changed that,” Crane explained. “We were the first ever third-party developer of video game cartridges, and we knew that we were opening up a whole new business. And it wasn’t just a matter of being in the right place at the right time. We built the necessary technologies, fought the lawsuits, and battled through Atari’s attempts to close off the retail channels to our product.”

Reflecting on the importance of Activision’s accomplishments for the game industry, Crane said; “I recently attended the Game Developer’s Conference, and I looked out on the mass of people in the game business and guessed that 95% of them worked for a third-party developer or publisher. Is my estimate low?”

Further Reading

'Playing Catch Up: Conflict 2500’s William Volk' by Alistair Wallis

http://www.gamasutra.com/php-bin/news_index.php?story=13563

'Playing Catch-Up: A Boy And His Job: Activision's David Crane' by Frank Cifaldi

http://www.gamasutra.com/php-bin/news_index.php?story=7412