Because video games are again really no more than organized bits of information, storable on inert media or capable of being electronically transmitted, they are indeed close technological cousins to many other entertainment industry products. The only difference with video games, then, is that you need a computer to play them. As we shall see, both branches of the video-game industry grow from the same roots and share a future governed by the rate of innovation in electronic component and software design.

One of the most important early pin models was the Ballyhoo, introduced by a struggling Chicago-based company, Lion Manufacturing. Lion was predecessor to the Bally Manufacturing Company, which, along with several other Chicago companies, including Gottlieb, Williams, and Stern, had by the early 1970s become the leading worldwide producers of such machines.

But in the mid-1970s there were two critical events: Bally replaced electromechanical pinball components with new electronic circuitry, and large cities such as Los Angeles, Chicago, and New York legalized placement of pins in general public locations. The effects were to catapult Bally to a position of industry leadership and to dramatically expand the demand for state-of-the-art electronic models with enhanced features. Thereafter, demand for pins declined until, by the year 2000, only one small privately held company remained.

The next important step came in 1968, when a Sanders Associates engineer developed a console that could be used to display games on ordinary television sets. Sanders patented this idea and sold the rights to Magnavox, now a division of Philips, the large Dutch consumer electronics conglomerate.

But it was not until the early 1970s that a young University of Utah engineering graduate, Nolan Bushnell, came to realize that the price of electronic computing power (integrated circuits) had declined to the point that adaptation of Spacewar from a large computer into coin-op form was becoming economically feasible. Bushnell and his associates began working on such a machine in a converted bedroom workshop. What they ultimately developed instead was a simple tennis-like game that they named Pong.

Pong took the industry by storm and quickly became the first coin-operated video-game hit. And soon thereafter, commercial Pong-style home video games also appeared. Yet despite early enthusiasm, consumer interest in this area proved much more fleeting and fickle than had been anticipated and, as price competition and losses mounted, most of the early manufacturers withdrew from the field.

Profits, moreover, proved to be just as elusive at Bushnell's company, Atari, where a rapidly growing market presence in coin-op and home video required greater infusions of capital and more professional management than the company could readily muster. By the end of 1976, the founders of Atari had sold their holdings to Warner Communications for about $28 million, a value approximating their sales in that year.

	Thinking Point
	Why do you think there has been a recent enthusiasm for retro gaming and emulators that turn today's powerful computers into games machines from the 1970s and 1980s?

At that point, coin-operated video games seemed just another passing fad. But the introduction of Space Invaders--an arcade model produced by Japanese coin-op manufacturer Taito and sold through US national distributor Bally-Midway--proved otherwise. With its more colorful graphics and quick-response shoot-'em-up play features, Space Invaders immediately captured the public's fancy, becoming the first popular machine to highlight the emerging capabilities of microelectronics and of software design.

Quite naturally, then, there soon followed a flurry of popular videos that employed the same or better hardware and even more imaginative software. Of these, Pac-Man (in 1980) was especially significant in that it was the first to attract female video-game players in large numbers.

By the late 1970s, the same software improvements and technological advances (faster microprocessors and larger memories) that permitted designers to produce spectacular aural and visual effects for coin-op machines were also being applied to home video units. It was thus only a short while before the programmable consoles that had been languishing for lack of software suddenly began to sell in large numbers: Consumers had finally discovered that they could play a reasonable facsimile of their favorite arcade games at home. The impact on Atari was astounding. Unprofitable for the first three years under the aegis of parent Warner Communications, Atari had, by the end of 1979, hit its stride. By either self-designing or licensing the most popular arcade concepts for cartridge format, the company had captured some 80 percent of the worldwide market for home video games.

Cambridge University Press

Figure 4: Home video game and toy sales, United States manufacturers' shipments in dollars, 1980-99. Source data: Nintendo of America, Inc. and TMA.

Industry sales of consoles and cartridges rose from practically zero in 1977 to over $2 billion at wholesale ($3 billion at retail) in 1982. By then, as Figure 4 shows, video game hardware and software sales accounted for nearly one-third of total US toy manufacturers' shipments.

Pong had indeed pinged.