Last December, Xbox Entertainment Studios announced that it would be producing a series of documentaries about the rise of digital entertainment. The first installment will be about E.T. the game, and screenwriter Zak Penn (X-Men: The Last Stand) is directing it. Wait a second…the Atari E.T. game? One of the biggest disasters in gaming history? Yep, and it’s actually a fascinating way to launch this series.
It would be much easier to make a documentary about a huge success in the gaming world. How about like how Tetris launched an industry? But success is very easy to take for granted. You can learn a lot more from failure, and it’s often way more interesting to dissect a flop in a post-mortem kind of way. The failure of the E.T. game is especially perplexing in that Atari just had its biggest year, and E.T. was at that point the highest grossing film of all time. How could something like this be on the biggest losers in video game history?
In 1981, Atari was riding high. The company had come a long way from the humble origins of Pong, and the company was growing by leaps and bounds. Atari was founded under its original name, Syzygy, by Nolan Bushnell in 1972. Their first games, Pong and Tank, were hits, and the company was doing well with sales in excess of $39 million in 1976.
It wasn't long before Atari was bought out by Warner Communications, but the first couple of years under the Warner umbrella Atari wasn’t making money. Once Bushnell was replaced by Raymond Kassar in 1978, the company finally took off. In 1979, Atari earned a profit of $6 million dollars, then the company scored nearly $70 million in profit a year later. Then in 1981, they hit a billion dollars in sales, with a profit of $300 million. As business reporter Connie Bruck wrote, “There had probably not been another company in the history of American business that grew as large, as fast, as Atari.”
Yet many will tell you that when a company explodes this fast, it makes investors nervous because it means they can go downhill just as fast. One person who knew Atari wouldn’t be a phenomenon forever was the late Warner chairman Steve Ross. Ross was one of the few naysayers who proclaimed that this kind of success wasn’t going to last, and many didn’t believe him.
In fact, Atari began a downward slide that soon turned into a freefall, and E.T. the game was a catalyst. Again, you can’t blame anyone involved from making this deal, because it seemed like a complete no brainer. E.T. had come out on June 11, 1982, and it became the biggest box office success in the history of film. Atari was at the peak of their success, and creating an E.T. game clearly would have created an incredible synergy of success.
As it turns out, there was also a hidden agenda behind the E.T. game. It was a pawn in getting Steven Spielberg to come over to Warner Brothers, where he would make several features, as well as set up his Amblin production company. Spielberg looked up to Steve Ross as a father figure, and although the director was loyal to Universal, he also made films at Columbia (Close Encounters, 1941), as well as at Paramount (Raiders of the Lost Ark).
Still, Universal was Spielberg’s home base, and Ross was determined to break that studio’s dominance over the director. Universal looked into setting up an E.T. video game as well, and Sid Sheinberg, the former head of Universal, believed he could have gotten $15 to $20 million for the rights. One executive at Atari offered Universal $1 million for the rights, along with a 7% royalty, and Sheinberg threw him out of his office.
Warner Chairman Steve Ross personally closed a deal with Spielberg for a whopping $23 million.
Then Ross personally closed a deal with Spielberg for a whopping $23 million.
Not only were many at Atari flabbergasted by this, but Spielberg also wanted the game out by Christmas, which gave the company no time to put it all together. Video games at that point typically had a six-month development time, and now an E.T. game had to be created on a hectic 4-5 week schedule.
Once the game was completed, it was released to stores right before Thanksgiving. Atari made four million cartridges, and they had to sell a third of them to make a profit. Out of the four million cartridges shipped, 3.5 million were sent back to the company when the game flopped. Many of the returned cartridges wound up dumped in a landfill in New Mexico.
It wasn’t long after this disaster that the entire gaming industry collapsed in 1983. The business peaked at $3.2 billion, but by 1985 it fell to $100 million. It was a devastating drop, much like our economic collapse five years ago, and it almost put gaming out of business for good.
One of the reasons the E.T. game flopped is the friendly alien was the wrong character to make into a game. As one Atari executive recalled, kids like to kill things in video games, and E.T. was too cute and lovable for that. The game also wasn’t very good, and perhaps Atari could have put a better one together if they had more time. These days, the game adaptation of a movie is often developed at the same time that a film is in production, so they can both come out at the same time, or shortly thereafter.
The gaming business is very mercurial, and it continues to be to this day. But however the game market was fairing at the time, a badly conceived game just wasn’t going to fly, and although E.T. did sell merchandise – it was a huge boon for Reese’s Pieces – it wasn’t the same merchandising bonanza that Star Wars enjoyed. (Remember those E.T. dolls made out of schlumpy brown leather?)
Atari also suffered when competition came along in the marketplace. Once they were the undisputed leader in the gaming world, but soon they were feeling the heat from Coleco, who created Donkey Kong, and from Parker Brothers, who came up with Frogger.
Once Spielberg was set up at Warner Brothers, he directed several movies for them, and they were more prestigious projects like The Color Purple and Empire of the Sun. His Amblin division also gave us Gremlins and Goonies, although its biggest hit, Back to the Future, was a Universal film. Apparently Ross’s bad investment in an E.T. game eventually paid off after all.
As one Atari executive told Ross’s biographer, the E.T. game was “a terrible mistake. I knew it hadn’t caused the downfall of Atari but it did throw gasoline on the fire.” Still, he admired the gamble Ross took, because it brought Steven Spielberg to Warner Brothers. “He succeeded in breaking MCA’s hold on Spielberg. Steve’s viewpoint was, so what if I overpay by $22 million? How can you compare that to the value of a relationship with Spielberg? And I think he was dead right.”
Like a lot of lot disasters in pop culture, the urban legend of the E.T. game refuses to die. One hacker even redesigned the game to make the graphics better, and supposedly the new version of E.T. is a lot of fun to play, an important factor that eluded the original version. Although most of the E.T. game cartridges got buried in asphalt, there’s still plenty of copies you can buy on Ebay if you still have an Atari 2600 and would like to try one out yourself.
So the whole saga of E.T. the game could indeed make a fascinating story, and perhaps Zak Penn wants to tackle this one to come to terms with his past. Penn had his own experiences with a sure thing that collapsed like a souffle. He first broke into the business with a script called The Last Action Hero.