Licensing and Videogames: An Ever-Changing Story

Posted by Marty Brochstein on August 26, 2014

Licensing is an ever-changing business, and perhaps no merchandise category reflects that statement as much as video games. Before we talk about the current climate, let’s take a step back in time – 30 years or so — to reflect on a single category that illustrates how completely a business can change in a relatively short period.

In late April came the news from the New Mexico desert that one of the great legends of the video game business had finally been confirmed. As reported by the digital publication Ars Technica, “Atari really did dump a bunch of E.T. and other Atari 2600 cartridges and paraphernalia into a landfill 30 years ago. Today, a team of video game archaeologists recovered the proof.

“With the wind at full blast out in the New Mexico desert, CAT tractors pulled heap after heap of waste from a 30-year-old landfill. It smelled faintly of sewage, and dust was everywhere. Occasionally the tractor dumped a heap off to the side in a cleared space, prompting a gaggle of men in hard hats and safety vests to gather around.

This team was hired by Fuel Entertainment and Xbox Entertainment Studios to analyze the contents of the landfill, which legend has always said contained truckloads of Atari games, consoles, or factory waste. The two production companies intend to make a documentary on the history of Atari, set to debut sometime this year.”

That history includes the fact that Atari in 1982 had “near-total control of the nascent market for home video game consoles that infiltrated 17 percent of US households….  By the end of 1982, a number of factors came together to bring it all crashing down incredibly quickly, leading to the North American Video Game Crash of 1983. Analysts disagree on the precise cause, but most agree that a glut of high-profile, low-quality game releases (and the failure of the Atari 5200…), caused both consumers and retailers to lose confidence in a market that had until that point been the hottest thing in consumer electronics.”

That brings us to the licensing part of this story. “Chief among these high-profile flops was the licensed game based on 1982′s hottest film, E.T. The game was rushed to market in time for the holiday season and massively panned by critics and players alike. The game’s sole programmer, Howard Scott Warshaw, said in later interviews that he had had five weeks to build the game from scratch, and no one at Atari was willing to take the project but him. Despite this, Atari pre-printed millions of cartridges, sure they had another holiday hit on their hands.”

But it bombed – complex and buggy. It was a short road from there to – according to the now confirmed legend – New Mexico landfill in the summer of ’83. The most common estimate is that 20 truckloads of material were dumped, including 3.5 million E.T. cartridges.

It was a very different video game world then, and there have been countless platform and technology transitions along the way. Software went from cartridges (which had to be manufactured well in advance and inventoried), to CD-ROMs (less lead time and manufacturing cost, but still inventory), to downloads. There have been a host of platform transitions. Along with players such as Atari, Nintendo, Sega, Microsoft and Sony, do the names Colecovision, Intellivision and Odyssey ring a bell?

Now, as three major platforms duke it out, licensed software for videogame consoles has receded into the background (with some exceptions, most notably licensed sports simulations such as FIFA Soccer, Madden Football, and the NBA2K series). At one time, video games were one of the primary revenue pillars for a major film release or TV show, generating millions of dollars in advances, guarantees and royalties. Today, we’re more than likely to be discussing promotional Smartphone-based casual gaming, inexpensive or free to play, with revenue generated by in-app purchases, with significantly less revenue.

It’s a very different world.