In the late ‘70s and early ‘80s, Atari was a giant in the entertainment world. It helped kickstart the video game industry with a combination of high-profile games and inventive hardware that invaded local bars as well as the living room. Atari became a cultural icon and one of America’s rising industrial stars. But it didn’t get there alone. As the first third-party developer, Activision was one of Atari’s biggest supporters, producing some of the most successful and best-loved games for the ­Atari 2600. Many credit Activision with bolstering Atari hardware sales and helping sustain the console maker’s branding. Atari didn’t see it that way. To Atari, Activision was the worst kind of enemy: an enemy that had come from within.

This story first appeared in issue 239 of Game Informer

The Memo that Sparked a Fire

In early 1979, Atari’s marketing department issued a memo to its programing staff that listed all the games Atari had sold the previous year. The list detailed the percentage of sales each game had contributed to the company’s overall profits. The purpose of the memo was to show the design team what kinds of games were selling and to inspire them to create more titles of a similar breed. Unfortunately, a few of Atari’s designers were less ­than ­inspired.

David Crane, Larry Kaplan, Alan Miller, and Bob Whitehead were four of Atari’s superstar programmers. Collectively, the group had been responsible for producing many of Atari’s most critical hits. Titles like Canyon Bomber and Surround don’t sound like much today, but over 30 years ago they were hot properties. The four programmers also respected each other’s work, and had formed a clique within the company.

“I remember looking at that memo with those other guys,” recalls Crane, “and we realized that we had been responsible for 60 percent of Atari’s sales in the previous year – the four of us. There were 35 people in the department, but the four of us were responsible for 60 percent of the sales. Then we found another announcement that [Atari] had done $100 million in cartridge sales the previous year, so that 60 percent translated into ­$60 ­million.”

These four men may have produced $60 million in profit, but they were only making about $22,000 a year. To them, the numbers seemed astronomically disproportionate. Part of the problem was that when the video game industry was founded, it had molded itself after the toy industry, where a designer was paid a fixed salary and everything that designer produced was wholly owned by the company. Crane, Kaplan, Miller, and Whitehead thought the video game industry should function more like the book, music, or film industries, where the creative talent behind a project got a larger share of the profits based on its success.

The four walked into the office of Atari CEO Ray Kassar and laid out their argument for programmer royalties. Atari was making a lot of money, but those without a corner office weren’t getting to share the wealth. Kassar – who had been installed as Atari’s CEO by parent company Warner Communications – felt obligated to keep production costs as low as possible. Warner was a massive c­orporation and everyone helped contribute to the ­company’s ­success.

“He told us, ‘You’re no more important to those projects than the person on the assembly line who put them together. Without them, your games wouldn’t have sold anything,’” Crane remembers. “He was trying to create this corporate line that it was all of us working together that make games happen. But these were creative works, these were authorships, and he didn’t ­get ­it.”

“Kassar called us towel designers,” Kaplan told InfoWorld magazine back in 1983, “He said, ‘I’ve dealt with your kind before. You’re a dime a dozen. You’re not unique. Anybody can do ­a ­cartridge.’”

The four programmers left Kassar’s office dejected. Warner was willing to give its recording artists royalties for the music they made, but their most productive programmers couldn’t even get a bonus after making the company millions. Crane, Kaplan, Miller, and Whitehead were good at making games – that in-house memo proved people wanted to play what they programmed. The four decided that they were done working for Atari. But they weren’t done making games for ­the ­Atari.

A New Kind of Company

In the ‘70s, when a company wanted to get into the video game business, it created a video game console and then started making games that would play on that console. Atari made game cartridges for the Atari 2600, Magnavox made games for its Odyssey system, and Mattel made games for its Intellivision. Making games for other consoles didn’t make practical business sense at the time. If you wanted to make video games, you had to make a console first.

David Crane On This First Activision Game



“My first game was Dragster, which was someone else’s arcade game that I really ported over. It was a simple game about two drag racers on a split screen. You only raced a quarter mile and it only took about six seconds to play. But the day after we gave our trade-show samples to the sales people, the adult son of one of our Chicago sales reps came up to me. It was a little scary, because he looked mafia. This Chicago sales guy, he looked connected and his son looked the same way. So he comes up, grabs me around the throat, and he said, “I could kill you for this.” It turns out he had played Dragster for 35 hours straight. He couldn’t put it down. So here’s a guy playing 35 hours straight of a game that lasts six seconds a run, just trying to improve his score. I was blown away; that’s when I knew there was something special about the games we ­were ­making.”

And then four dissatisfied programmers from Atari formed Activision.

“Before we started the company, we checked with lawyers to make sure that it was legal to do what we were talking about,” Crane says. “We actually budgeted for a lawsuit when we went to a venture capitalist and got backing. Sure enough, they tried to sue the pants off us.”

Getting funding was a challenge in and of itself. At the time, venture capital firms didn’t invest in software companies. Software didn’t seem like a real product because there was nothing tangible to hold onto. The four programmers secured backing for their company only on the basis that they would be producing physical cartridges, which would be marketed as games. Even then, the private equity firm Sutter Hill Ventures invested less than $1 million into the company. Within three years, Activision would be worth more than $300 million.

From the beginning, Activision looked like a different kind of video game company. Crane, Kaplan, Miller, and Whitehead teamed up with a businessman named Jim Levy, and the five founded their company on the idea that a game was a piece of art created by an author. As they envisioned it, Activision would give every programmer credit on the games they made, and would even promote authors by devoting a full page to them in the instruction manual. The founders decided to package their games in bright, colorful boxes with their Activision label clearly displayed across the top so the company’s games would clearly stand out on store shelves. Most importantly, the four programmers knew the Atari 2600 inside and out, so their games used every ounce of the system’s graphical capabilities. Black borders were even employed to keep color bleeding down. Many would later say that Activision’s games looked better than many of Atari’s own titles.

Battling a Giant

By the fall of 1979, the four programmers had set up inside Crane’s garage and started working on their initial launch lineup: Dragster, Fishing Derby, Checkers, and Boxing. The games wouldn’t release until the following summer, but to help build sales momentum for its new products, and in order to establish its brand name, Activision took its games to the summer Consumer Electronic Show ­in ­Chicago.

“Our first CES was quite a splash,” Crane says. “We were in the third sub-basement at McCormick Place. Fortunately, we were in the corner and we had our banner at an angle, so we had good visibility even though we were the last booth in the last place anyone went. Even so, people saw our booth and immediately started to ­get ­excited.”

The young developer started generating so much press that Atari felt it had to go on the offensive. On the second day of the show, Atari bought a full page ad in the CES trade show daily aimed directly ­at ­Activision.

“It said, ‘Atari believes that anyone who would steal trade secrets from another company and try to profit on them are evil, terrible people,’” Crane recalls. “They didn’t mention Activision by name, but it was pretty clear they were talking about us. It was funny, because they made that statement, but we all agreed with it because we weren’t stealing anything. They tried to paint us as being ­really ­bad.”

Atari continued its attack, trying to bully the fledgling publisher out of the retail market by telling retailers that they wouldn’t be able to carry Atari products if they distributed for Activision. Atari then accused Activision of stealing various proprietary information, including a programming trick known as the “venetian ­blinds” ­technique.

The venetian blinds technique had been invented by Bob Whitehead while he was working on Video Chess for Atari. The technique allowed sprites to change positions every scan line, meaning a programmer could get eight or more sprites to line up onscreen. Previously, programmers had only been able to get the Atari 2600 to produce six sprites on a single line, so this was a nifty trick. The problem for Atari was Activision hadn’t used the venetian blinds technique in any of ­its ­games.

Atari continued to threaten to sue Activision for stealing company secrets, so David Crane worked up a demo of a digital window overlooking a sunset. A player could use a joystick to raise or lower a set of venetian-style blinds attached to the window. When Atari’s lawyers came over to question the Activision crew about the venetian blinds programming technique, Crane showed them the demo of the digital venetian blinds, asking, “Is this what you’re talking about?” Everyone thought it was hilarious. Everyone except Atari’s lawyers; Atari filed a ­lawsuit alleging that Activision's members had violated a ­non-disclosure ­agreement.

“They tried all these monopolistic practices, and it was stupid because we helped make their console the de facto standard for a decade because we were supporting it and the next group supported it,” Crane says. “They were selling more consoles because of our support, but they couldn’t see it that way. We were the best thing that could have happened to Atari, but they didn’t think so at ­the ­time.”

Activision continued to churn out a string of hits that included Kaboom!, Chopper Command, Skiing, and Pitfall! Then in 1982, Atari decided that it was losing the lawsuit and opted to settle out of court. Activision could continue to develop third-party video games for Atari’s systems in return for royalties – an arrangement that functions much like modern first-party/third-party licensing agreements. The Atari 2600 was officially an open platform. Activision had swung the doors wide open for a slew of long-forgotten third party companies like Imagic, Tigervision, and Froggo Games to flood ­the ­market.

The Activision that exists today is a vastly different company than the one formed in David Crane’s garage back in 1979. The company has weathered a series of financial losses, a name change, and a multi-million dollar patent infringement lawsuit over the years. The company’s founders had all left by the mid-’80s and by the time that current CEO Bobby Kotick acquired the company, Activision was such a financial disaster that it was forced to file for Chapter 11 bankruptcy. Despite its dire straits, Activision was ­worth ­saving.



“What Bobby Kotick realized was that the Activision brand name was worth $50 million when he bought the company for less than $1 million,” Crane says. “It was estimated at that point that it would cost $50 million in marketing to make another company be as recognizable as Activision already was, so he had that going for him and he knew it.”

Much of Activision’s success today is built on that brand name, but its legacy is larger than a single company. Crane, Kaplan, Miller, and Whitehead envisioned an industry where game makers were credited as artistic visionaries who shared in the profits of a game’s financial success. They envisioned an industry where games were not just seen as toys, but as entertainment products comparable to movies, music, and books. It was a vision of today’s industry, a reality they ­helped ­shape.

Activision Timeline