How a friendly alien and poor supply chain practices nearly destroyed a pioneering video game company
The E.T. Atari game is considered one of the biggest failures in video game history. The game was developed by Atari and released in 1982, just a few months after the release of the popular movie “E.T. the Extra-Terrestrial” was released. The game frequently tops the list of the worst games of all time. However, the legend of the video game “so awful that it had to be buried 28 feet down in a New Mexico landfill” wasn’t entirely true. The blame for Atari’s “E.T. problem” may have had less to do with lousy video game design and more to do with bad inventory practices. Better supply chain and production practices may have helped prevent the E.T. game’s failure and Atari’s ultimate downfall.
“E.T.” was a science fiction film made for children, directed by Steven Spielberg, and released in 1982. It tells the story of a young boy named Elliott who discovers an extra-terrestrial creature, or “E.T.” for short. Elliott and his siblings, including a very young Drew Barrymore, try to help E.T. return to his home planet. while protecting him from the government officials trying to capture him.
The film was a huge critical and commercial success, becoming among the highest-grossing films ever. It was praised for its heartwarming story, stunning visual effects, and memorable score, receiving several Academy Award nominations, including Best Picture, and winning four Oscars.
The Video Game Company
Founded in 1972 to create arcade games, Atari soon expanded into the home video game market with the release of the Atari 2600. The 2600 became one of the most popular home video game consoles of its time. The company’s success continued throughout the next decade with hits like Pac-Man, Space Invaders, and Asteroids. However, by the mid-eighties, the home video game market had become saturated, and Atari faced financial difficulties.
In 1983, Atari suffered a major setback when it released a much-hyped game called E.T. the Extra-Terrestrial, designed in a record five weeks by a single programmer. The game was a commercial failure due to its poor quality and difficult gameplay. Atari struggled to recover from the poor sales of E.T. and never recovered its reputation among the gaming community. The company continued to release products but never regained the dominance it had in the early days of home video gaming.
Despite the movie’s popularity, the game was poorly received due to its “confusing gameplay and poor graphics.” Atari had produced millions of copies of the game, expecting it to be a huge success with film fans, but it ended up being a commercial failure. Today, the E.T. Atari game is remembered as a cautionary tale in the video game industry about the dangers of overhyping a product and not properly testing it before release.
More than just a bad game
It’s important to note that other factors, such as poor product design and testing, were at play; supply chain planning and inventory management are just a few pieces of the puzzle regarding product development and success. But it is possible that better supply chain planning could have helped to prevent the failure of the E.T. Atari game; or, at the very least, mitigated some of its negative impact on the company.
Factors that may have contributed to the game’s failure and how better supply chain planning could have helped:
Inadequate Inventory Management
Suppose Atari had used proper inventory management techniques, forecasting demand and production capacity, monitoring sales, and adjusting production levels accordingly. This action may have helped to prevent overproduction, minimize wasted stock, and reduce the costs associated with storing and ultimately disposing of 3 million game cartridges and excess inventory.
Making better use of their available data could have led to lessening the impact of what turned out to be Atari’s fatal blow. Many supply chain professionals now use sophisticated supply chain planning solutions that use Artificial Intelligence (AI) and Machine Learning (ML) to model different scenarios and predict demand.
Atari expected the game to be a huge success and produced millions of copies of the E.T. game. They did not understand how many copies they needed to produce to meet demand, nor did they have the agility to make continuous supply chain decisions that reflected current demand. Better supply chain planning could have helped Atari produce a more accurate number of copies, avoiding the legendary excess inventory that ultimately had to be dealt with. Atari initially produced five million E.T. cartridges, which they expected to sell well over the holiday season. Unfortunately, the company only sold approximately 1.5 million when stores began sending copies back due to low sales, leaving Atari with millions of unsellable game cartridges.
Lack of Collaboration
There may have been a lack of communication and collaboration between different departments at Atari, such as marketing, production, and supply chain. Better S&OP practices could have involved better communication and collaboration across these departments to ensure that everyone was aligned on the product strategy and goals.
In September 1983, rumors began that several tons of cargo from an Atari warehouse in El Paso, Texas, had been crushed and buried in a landfill in the New Mexico desert. Rumors quickly spread that the cargo buried in the landfill was largely composed of the unused (and unwanted) cartridges of E.T. the Extra-Terrestrial. The burial of the game cartridges was long considered an urban legend until, in 2014, filmmaker Zak Penn and a team of filmmakers/game enthusiasts went to Alamogordo, NM, and uncovered hundreds of copies of the game, confirming the decades-old story.
Excess inventory is not a plague that only hit companies in the 80s. It’s alive and well in 2023. Funko Pop!, a company that produces vinyl pop culture figurines, finds itself in a similar situation to that Atari experienced in 2023. A saturated collectors market and excess inventory due to waning demand for its products have led to a financial loss for the company. Funko reported a Q4 loss of nearly $47 million, falling from a $17 million profit year over year, and the need to dispose of millions of dollars worth of inventory. By the end of 2022, its “inventory totaled $246 million worth of product — soaring 48% percent from a year earlier.” Funko’s excess inventory problem has forced the company to rent storage containers to hold the excess product. And now, the product is worth less than it costs to keep on hand.
Effective supply chain planning software could have helped Funko avoid this situation by aligning its inventory levels with the operating capacity and customer demand. While the collectibles market doesn’t seem likely to slow down anytime soon, the value of toys that celebrate pop culture fads can fluctuate just as quickly as the fads themselves, highlighting the need for an agile supply chain planning solution to adapt rapidly to changing market conditions and unlock working capital by right-sizing inventory.
As revealed in the film Atari: Game Over, available to stream on YouTube, The E.T. Game can’t take all the credit for the “fall of Atari.” Upon the successful excavation of the Alamogordo Landfill, only 10% of the total 728,000 cartridges uncovered by the archeologists on site turned out to be E.T. games; the burial site also contained some of the company’s most popular titles. Atari’s ultimate demise came not at the hands of “one terrible game” but in the face of some poor business practices and inaccurate demand forecasting.
Excavated copies of the game cartridges recovered from the Alamogordo Landfill have been donated to various museums worldwide, including the Smithsonian in Washington, DC. In September 2014, the City of Alamogordo, the de facto owner of the buried games, held an eBay auction, with one E.T. copy selling for more than $1,500.
The Lessons Learned
To prevent incidents like the failure of the E.T. Atari game and Funko’s current trouble, companies can implement the following practices to help keep their products going from warehouse to landfill:
- Agile inventory management
- Advanced analytics and demand forecasting
- Cross-company collaboration
- Adoption of supply chain planning technology
Companies need to use proper inventory management techniques, forecasting demand and production capacity, and monitoring sales to adjust production levels accordingly, which may help to prevent overproduction, minimize wasted stock, and reduce costs associated with storing and ultimately disposing of or writing off excess inventory.
Using a sophisticated supply chain planning solution that uses Artificial Intelligence (AI) to model different scenarios and more accurately predict demand will help make better decisions in production planning, inventory management, and demand forecasting. Companies can use demand forecasting models to produce a more accurate number of copies, avoiding the excess inventory that ultimately must be dealt with. By implementing these practices, companies can avoid becoming a cautionary tale and ensure that their supply chain is efficient and effective, leading to overall success.
At GAINS, we help customers make all the right decisions — at speed and scale — to right-size inventory, strengthen performance, and fulfill customer promises. The GAINS Supply Chain Performance Optimization Platform helps businesses large and small “Move Forward Faster” with greater agility, resilience, confidence, and sustainability. The GAINS AI-driven cloud platform delivers continuous cost and profit optimization via ML, proven algorithms, and actionable analytics for global manufacturing, distribution, retail, and service parts/maintenance operations.
Learn more about how your company can benefit from our Supply Chain Planning Solution.