Zapped

Losses and layoffs at Atari

Toy store owners and other retailers queue up at the Consumer Electronics Show every June to place orders for the Christmas selling season. When participants gather this week in Chicago for the annual bazaar, however, the hot topic of conversation will not be whether Zaxxon or Keystone Kapers will unseat Centipede as the industry's bestselling videogame. It will be: What's going on at Atari?

The company that pioneered video-games and a year ago still had 80% of that exploding market is getting zapped. Last month another 225 workers were laid off, to add to the 1,700 furloughed earlier this year when some production was moved to overseas plants. Because of Atari's woes, its parent company, Warner Communications, lost $18.9 million during the first three months of 1983, and Warner Chairman Steven Ross, 55, says an even bigger loss is coming in the second quarter. The company's stock, which climbed to 63 last year, is now hovering around 30.

Last week Ross pushed through a full-scale management shake-up at Atari. Previously separate home-computer and video-game divisions were combined, and three new groups were formed to handle marketing and distribution, product development and manufacturing. Said one former Atari insider: "I'd say it is a desperation move." Atari Chairman Raymond Kassar, 55, survived, but it is unclear how much authority he will have.

Atari has been a victim of rough competition. The robust growth of the video-game industry has drawn so many new entrants that profits are increasingly hard to come by. More than 20 companies are now producing cartridges that play on Atari machines. While about 350 new game titles were released in all of 1982, dealers were inundated with 317 new ones in January of this year alone. Moreover, price cutting is rampant.

At the same time, Atari has not kept up with the fast-paced video-game market. Said one industry watcher: "A game company has to keep ahead technologically--invent and reinvent. If you don't have both the marketing and technical savvy, you're going to get killed." That is indeed what happened, when other video-game manufacturers came out with products that had superior graphics.

Atari, of course, is not the only video-game company having troubles. Mattel's electronics division, whose Intellivision was the second bestselling game last year, lost $28.2 million in the three months ending Jan. 29, and expects to lose about the same amount during the next quarter. The company blames the red ink on heavy advertising expenses, price cutting and slower sales.

At arcades, where new games are tested and potential hits find their audience, revenues have been falling. According to the Yankee Group, a Boston market research firm, the average video-game machine pulled in $140 per week in 1981, but only $109 per week last year.

The home video-game market continues to grow sensationally. Goldman Sachs estimates that 1983 sales could reach $6.5 billion, 58% more than a year ago. But that is not helping video-game makers all that much. Many consumers are buying inexpensive computers capable of playing video games in addition to performing simple computer tasks. As a result several game manufacturers are rushing out keyboard attachments that convert game machines into rudimentary computers. The price of Coleco stock, last year's hottest video-game newcomer, shot up ten points to 51 last week on word that it would soon announce a remarkable new system that combines several popular computer features with game attachments. Called Adam, it will be priced under $600, much less than anything comparable on the market.

At this week's Consumer Electronics Show, Atari will demonstrate new products that it hopes will bring back some old market magic. It will introduce four new home computers, ranging in price from $150 to $500, to replace outmoded models. The company will also show a new, voice-activated product. This allows someone playing video baseball, for example, to tell the hitter when to swing at a pitch. Available in October, the Voice Controller is expected to sell for under $100. Atari hopes this will be the monster hit it needs to get back into the game. qed This file is automatically generated by a robot program, so viewer discretion is required.