delanceyplace.com 12/19/12 - corporate egos and the E.T. video game
In today's selection -- there is an irresistible allure when a high profile executive makes a business deal with another high profile executive or star -- the headline-grabbing story of one "big guy" negotiating with another, usually at some glamorous location, and sketching out a mega-deal on the back of a napkin. But sometimes these deals don't work out. As was the case in 1982, when Steve Ross, the man who built Time Warner into an entertainment powerhouse, entered into an agreement with the suddenly red-hot director Steven Speilberg to create a video game based on the movie E.T.:
"[By 1981, Steven] Spielberg was an established wunderkind who had directed Jaws, written and directed Close Encounters of the Third Kind, and directed Raiders of the Lost Ark, among others. Spielberg had started out at the age of twenty with an exclusive term contract at Universal, and over the years he developed an almost filial relationship with Sidney Sheinberg, the CEO of MCA (Universal's parent company). Virtually all his movies (with the notable exception of Close Encounters) had been made there.
"According to several people close to Ross, he was determined to find a means to loosen the Universal-Spielberg bond and bring Spielberg to [Time Warner subsidiary] Warner Brothers. Spielberg would have been an alluring asset for the Warner studio at any time, but the early eighties were especially fallow. ...
"In the summer of 1982, when the issue arose at MCA of licensing E. T. to a video-game manufacturer, Sidney Sheinberg would later recall, 'Steven [Spielberg] had promised Steve Ross that he would have the first opportunity to acquire it. Steven wanted (Time Warner subsidiary) Atari to have it.' Sheinberg said that he had had discussions with Coleco Industries, as well as another manufacturer, and he believed that he might be able to make a deal in the range of $15-$20 million. That, in any event, is what he told Charles (Skip) Paul, the president of Atari's coin-operated games divislon, when Paul came to see him.
" 'I offered MCA $1 million and 7 percent of royalties, which was far more than Atari had ever paid before for a license,' Paul said. 'And I was thrown out of Sid's office.'
" 'Then I was told that the deal had been done over a weekend, at East Hampton, between Steve and Steven -- and that it was for $23 million,' Paul continued. 'I thought, 'Yes, I understand the $1 million. But what is the other $22 million for? It must be for some other reason.' '
" '[Atari CEO Raymond] Kassar, who had very little contact with Ross, learned about the 'E.T.' deal when Ross called him. 'He said, 'I've made a deal with Spielberg to make a game out of E.T. -- what do you think?'
" 'I said, 'Okay. We've never made a game out of a movie before. But, okay.'
" 'Then he said, 'Part of the deal is, Spielberg says it has to be out for Christmas. '
" 'I said, 'It can't be.' This was July. With the lead time of delivery, it meant doing the game in four or five weeks, instead of our usual six months.
" 'He said, 'Also, I've guaranteed a $23 million royalty.'
" 'I said, 'We've never guaranteed a royalty! This is terrible!'
" 'And he said, 'Well, it's done.' I think he was annoyed at me for not saying how wonderful it was,' Kassar concluded.
What Atari had bought was the right to use the title, 'E.T.,' and also its image; engineers at Atari, with Spielberg's input, were now to design a game. The project, however, was blighted from inception. Its engineers told Kassar the movie wasn't suited to become a video game ('They said that it was a lovely, sweet movie, and kids like to kill things,' Kassar recalled). Once the game was done, it was established in focus groups that, in all likelihood, the company would be able to sell only one third of the 4 million that were slated for production (a quantity that Atari needed to sell in order to make a profit, considering the costs of the guaranteed royalty, production, and advertising).
"'E.T.' exceeded the most dire predictions. According to Kassar, of the 4 million they shipped, about 3.5 million were returned. 'It wasn't a game,' Paul recalled ruefully, 'it was a thing waddling around on a screen. It was shipped in time to be on stores' shelves for Thanksgiving weekend -- typically a significant retail weekend, the start of the Christmas season. But the news on 'E.T.'; on another new cartridge, 'Raiders of the Lost Ark'; and on the rest of Atari's games, as well as its new, much delayed home computer, known as the '5200,' all became increasingly stark by the beginning of December . On November 17, Atari revised its projections downward for the fourth quarter by $81 million; this reduced Atari's predicted fourth-quarter net income by more than 50 percent from the August forecast."