Game on for Atari or a retro-step too far?

Legend has it that when Atari launched a computer game based on the blockbuster movie ET in 1983, it sold so badly that 5 million copies had to be buried in a New Mexico desert. In order to stop the site being looted, the company ordered steamrollers to crush the games and then sealed a concrete slab over the bounty.

Unlike most legends this one is true and by the end of the year, Atari had racked up losses of more than $500m (&£330m at the time). By the end of 1984, 12 years after releasing the first commercially successful arcade game, Warner Communications, now part of AOL Time Warner, sold Atari to Jack Tramiel. For the next two decades the brand kept a low profile, passing from one owner to another and eventually moving out of consoles in the mid-Nineties as it was unable to compete with the likes of PlayStation.

But the Atari name has been resurrected by Infogrames Entertainment, one of the top five video games developers and publishers in the world, which gained all rights to the Atari license when it acquired Hasbro Interactive in December 2000.

In May, Infogrames announced it was to change its name to Atari. Chairman and chief executive Bruno Bonnell said at the time: “In any language, Atari is synonymous with video games and is recognised for transforming entertainment.”

The company is hoping that the Atari brand name – which is linked to a game for another blockbuster film, The Matrix: Reloaded – will attract new gamers and help it shake off heavy debts.

“The Atari brand means everything to the computer games industry,” says Interbrand director Richard Buchanan. “It was the original games console, but it was also more than that. It was the toy that every child dreamed of owning but few could afford.”

However, taking off the rose-tinted glasses reveals a darker side to the Atari name. The computer games industry has moved on immeasurably from the days of the clunky graphics and beeps of Pac-Man and Space Invaders. Atari may have been the original home games console but it will mean little to the new generation of gamers with their PlayStations, Xboxes and Gamecubes.

“The challenge now is to reinvent the values of the Atari brand for the 21st century,” says Larry Sparks, who left Infogrames just before the name change (MW February 6) to rejoin Acclaim Entertainment as vice-president of marketing, brand, international. “Atari needs to clearly define its strategy from the outset as this is too big a change to get wrong.”

This is the task that lies before Martin Spiess, formerly of US games publisher Crave Entertainment, who has been appointed to the new position of international marketing director at Atari (MW last week). He certainly has a challenge on his hands, but also a great opportunity. “Atari could be the designer brand of the games industry,” says Kim Bleasdale, managing director of The Source, which works as a creative agency for gaming rival Eidos.

Spiess and his colleagues have been helped to some extent by Atari’s latest big launch: Enter the Matrix. The game sold more than 1 million copies in the first week of release and has topped gaming charts in the five weeks since. But while this is no ET disaster, it’s not as positive a picture as it first appears. The game is one of the most expensive ever made – with production costs of $20m (&£12m) – and rumours are that it needs to sell at least 4 million copies just to break even. So far the gaming company claims to have sold more than 2.5 million copies.

The industry consensus is that Infogrames’ rebranding to Atari may have been a shrewd move, but everyone has different opinions on the reasons for the change. The explanation that seems to carry the most weight is a desire for Infogrames, which was founded in France, to become fully integrated in the dominant US market. Commerzbank Securities head of interactive entertainment Paul Heydon says: “One major reason behind the rebranding is the company’s wish to be seen as a US organisation. The majority of its business is in the US and Atari is a well-recognised US brand.”

But behind all the hype over the rebrand the stark reality is that Infogrames, now Atari, is heavily in debt. Reports show the convertible debt to be at least e350m (&£242m) – a reduction of e88m (&£60m) compared with June 30, 2002. The company also lags way behind market leader Electronic Arts. Some believe that the rebranding is an attempt to mask these underlying problems.

Analysts believe the Atari name should help the company attract new customers and generate additional revenue. However, without the strong performance of Enter the Matrix the share price, which has soared since the name change, may not have been so buoyant. The key to success in the computer games industry lies in the game rather than the company. Grand Theft Auto: Vice City is the current darling of the industry and has spawned a variety of spin-offs with a success that everyone wants to emulate. Yet not many people could name its publisher, Rockstar Games.

Atari will need an impressive stable of quality games to support it. While Enter the Matrix has sold well, most observers believe its success is largely due to the film tie-in, as the industry press has received the game itself poorly.

The Atari name may have returned from the wilderness, but while the opportunities for the newly reborn legend are clear to see, so are the warnings from the past. There is still plenty of desert available in New Mexico.