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Source: ANTIC: The Atari 8-Bit Podcast
Interviewer: Randy Kindig
RK: Hi everyone, and welcome to another in the long-standing series of interviews being published for Antic, the Atari 8-bit podcast. I’m Randy Kindig, and this interview is a follow-up to the recent interview that we published with Manny Gerard of Warner Communications, the company that bought Atari in 1976. This time, the interview is with Marty Payson, also of Warner Communications. Marty began with Warner in 1970, became executive vice president and general counsel in 1982, and in 1987 became a member of the office of the president for Warner. He was with Warner during the Atari days, up to 1984 when it was sold to the Tramiel’s, and was still involved with Atari for some time after that, as you will hear. Marty was not as intimately involved with Atari as was Manny Gerard, but nonetheless, I hope you will find his perspective from the Warner side interesting. This interview was conducted on August 17, 2015.
MP: A long time ago, I was intimately involved with the acquisition of Atari by Warner Communications, and then when it fell apart, I basically commuted for a year and a half or so, for the closing of it, and for the sale to Tramiel, and the game division to Namco. So I was really at the beginning and the end, and the knowledge of it from the New York side, the Warner Communications side. So you can ask your questions. So what would you like me to tell you?
RK: Ok, well I’ve got a list of questions I’d kind of like to run through if that’s okay with you
MP: Okay fine, I’ll see what I can answer. I have no qualms and no reason not to, it’s a long time ago. Memories can fade, but I remember it fairly well
RK: So should I call you Marty, or Martin, or what do you prefer?
RK: Okay, very good. Okay, let’s start out with what your role was at Warner Communications.
MP: I was general counsel of Warner Communications.
RK: This was in the late 70s?
MP: Well, throughout the entire period of Atari was acquired.
RK: So, I know you were, or at least I believe you were, in the office of the president as well. Were you not?
MP: That’s right. At the beginning… probably in 1976 when we acquired… I think I was vice president and general counsel, and when we finally resolved it in ’84, I was probably office of… or ’85, I was office of the president and general counsel, but I was general counsel throughout, and a key member of the senior executive staff at Warner Communications.
RK: Okay. So you worked closely with Manny Gerard, correct?
MP: That is correct. Go ahead.
RK: So I was just going to say… it sounds like the office of the president was really a group of people or a small…
MP: Yes, it was a group of people. When I became a member of the office of the president, after Manny had left the company. But basically Warner had a chairman of the board named Steve Ross, and he created instead of one president, what he called the “office of the president,” three or four executives, of who shared the office as a title, not a physical office. Each one had responsibility for different divisions. One would be over the music division, another over the movie division. Manny was basically instrumental in the acquisition of Atari. Basically the CEO first knew Nolan, then Ray Kassar reported to Manny. The general counsel at Atari was a gentleman named Charles Paul, Skip Paul. He reported to the CEO at Atari, and had what you called a dotted-line to me. And the CFO was Dennis Groff, and he reported again to the CEO there, but he had a dotted-line to the CFO at Warner Communications.
RK: Okay, so you said you are involved with the purchase of Atari?
MP: Correct. So I think... Go ahead
RK: I was just going to say... So what do you recall about the events leading up to the purchase, and what was the…
MP: Well, it was a… they had originally… Pong was out. It was before the 2600. I forget the name of the person, he’s well-known in the Valley, introduced… they were looking for… they needed capital, and they were looking for a company that… to basically provide them capital, and help them grow, and one that they felt that they could work in. They were introduced to Manny and Steve Ross. We struck a handshake, then it led to a formal acquisition of Atari, and I think the original purchase price was something like $26 million, in a combination of cash and stock, but I’m not quite sure. But the number 26 million sticks in my head. It was before… again Pong was out, and they had, in the works, the 2600. I remember its code name was “Stella.” The reason I remember that so well is my mother’s name was Stella.
RK: Ok, interesting!
MP: We handled it… it at all took place in San Francisco, and it all went smoothly. Nolan and his team ran the company for, I don’t know exactly how long… and it’s revenues, when we acquired it, were quite small. It had the arcade business, and it had Pong. Then between ‘76 and ‘82 it grew from maybe 25 or 30 million in revenues, to $2 billion in revenues. Remember, these are approximations, it’s been so many years, but it gives you a flavor of it. It grew like a rocket. It opened the field, and others joined in. So everything… could do no wrong, and everything was going great. I don’t remember why Nolan was replaced, by Ray Kassar, okay but it wasn’t the fall, it was still doing... Nolan had multiple interests. I know at that time, he wanted to form… he formed, like I said pizza… Chuck E. Cheese… at the same time he was running Atari, and that seemed to be a great interest to him, and Warner funded him on that, and replaced him at Atari with Ray Kassar, and then it grew… this was all between ‘76 and, I think it was ‘82. I forget the exact years in which that took place. Everything was going colossally well, until I guess it was November, Thanksgiving week of, I think it was 1983; and the week before Thanksgiving $100 million dollars of games were shipped, the growth was in the 2600, and the games that were feeding it. They shipped $100 million dollars of games, the week before Thanksgiving, and the rest of the year they may have shipped $2 million. The market just died. It was oversold, and at this time other companies were coming in with their own, a lot of games for Atari, but a lot of them competing games. I forget the names of them at that time. But the market was flooded. That was the beginning of the end of Atari. They brought in, Warner Communications replaced Ray Kassar with a fella named Jim Morgan. Jim was an executive at the Phillip Morris Company. He ran it until basically we are ready to sell it and close it. I saw on cable, a few weeks ago, a program on the bearing of E.T. cartridges, are you familiar with what I’m talking about?
RK: Yeah, it’s called “Atari: Game Over?”
MP: Yeah. I was not familiar with, I was familiar with E.T., but I was not familiar with the burying of it. But E.T. was sort of the tipping point, essentially, and I thought… I don’t know about the burying part, but I that film caught, essentially, the problems that determined to create get it out in five or six weeks, which is an impossible time, to make the Christmas market, and Atari, supported by Warner, paid a huge licensing fee to Universal for the E.T. rights, and that was all wasted. That was the beginning of the end.
RK: If you don’t mind, I’d like to go back and explore a little bit more about the purchase of Atari, and that time.
RK: Do you remember any special stories, or events, around the purchase of Atari? Any difficulties, or any particular interesting stories about that?
MP: Well no. It was fairly… from my perspective, the big concern that Warner had, was essentially… they were very young… and providing a lot of cash to, which is very common today, then it wasn’t so common, would they then be motivated to work. There was negotiation over how much they would get cash, and how much they would get, and I forget if it was equity in Atari, or incentive fees, but the whole thrust… portion of the purchase price was somehow conditioned upon their continuing success, and that was probably the principle negotiation. Otherwise it went fairly smoothly. Manny was the major negotiator for Warner Communications, and they had a… they had a very good lawyer. I thought… and he would come in every day, and put in a chart the issues. It was not a hard transaction. It went smoothly. People seemed to like each other, which was important. I don’t remember a lot of great difficulties, but again we’re talking about almost 40 years ago.
RK: Sure. Well Manny told a story about apparently Nolan’s ex-wife got involved during that time, and there was some difficulty.
MP: That could very well be, but I was the guy the “lawyers’ table” not a guy at the “social table.”
MP: So Manny would have experienced that, I wouldn’t have. I dealt with the lawyers, who were quite professional, and they were. No, I don’t know any particular stories about the acquisition that would be memorable. But it was a young company, in fact it was… it became explosive, and I think a lot of the problems with it, was uncontrolled growth, and I’m not pointing finger at either at Atari or Warner, I think it was a combination of both, everyone was very euphoric. It was a money pit, and everyone kept pouring... licensing, and great inventories, and it would go on forever, and obviously didn’t go on forever. Go ahead.
RK: Did you have any direct involvement with Atari after the purchase?
MP: Well… not a lot, not until the problems arose, then I had a great deal of involvement with Atari. For example, I would be involved they a hired the general counsel, Skip Paul. We got along, there was never any problem. The way that Warner was set up, was essentially the divisions would have their own councils, their own legal departments, their own financial departments, and then they would report up. But we would not get involved in the day-to-day business of it. You know things were going smoothly, I remember once, there was a problem with a defective, some machine was defective, and I got a call and I said “well you got to pull it,” and there was no problem. I mean things that could affect the whole corporation would come up to me, if they would affected the division, in an “operating way,” it would not. If it affected the division to fall apart it would. So basically over those years, we would talk, I’d visit, but it was not heavy involvement. But after… well what really began… so the part of the story, I guess it was ’83… where I began to get heavily involved… the stock of Warner Communications was going very high, based upon Atari’s performance. Then when the sales dropped to zip, and we got a forecast of what it would be, Warner Communications, as a public company, had to make an announcement, that we were not going to meet estimated results, by a wide margin. That’s when it really got problematic, because a number of people at Atari started selling their stock, and that created SEC problems, which I was involved with. All of which were ultimately resolved, but it brought on a lot of shareholder suits, and began a point that Warner had a really take control over Atari, it was out of control, and from that point on I spent a lot of time, in fact probably the next two-years of my time, was spent 80% of my time on Atari.
RK: So you say you spent 80% of your time on Atari, doing what sort of things?
MP: Well, first of all dealing with all the litigation that was created. Then basically we put a SWAT team together to essentially try to save it, and then ultimately liquidate it. So Manny was out there full-time, and I was out there most of the time, we were living at the Red Lion Inn, and that was our headquarters. Every day we would go, and find out another problem, and another problem, and another problem, and another problem, and we had to deal with them. Ultimately, we decided we had to sell the company. We split it in two. We didn’t have one buyer. We sold the arcade… the game business to Jack Tramiel, who he was the founder of Commodore. He took it over. In many respects were partners, in that he bought it… really, very quickly, with lots of problems, and we guaranteed… we made certain guarantees, of what things would happen, and wouldn’t happen, in terms of liabilities, and we were cash… we were burning through cash. Creditors were climbing the walls, and Jack was trying to run the company. My job was really to deal with the problems.
RK: So you were still very heavily involved, even after the sale to the Tramiel’s?
MP: Oh yes. In fact, that’s when I was most heavily involved, because it was a “sale,” but it was like a sale on consignment. In other words, we were still responsible for the enormous amounts of collections and liabilities. He took over the operations, and we never told third-parties whose responsibility any particular claim was, we’d… Tramiel and Warner worked together to minimize them, then when we made a claim, we would privately negotiate who’s responsible for it. There was a ton of litigation out there. Then we had two big lawsuits over licensing fees; one from Disney, and one from Universal. Universal for E.T., and Disney for their characters, which we never really sold, but we had a guarantee to them. They went to court and we fought it off, until we could afford to pay it. We sort of set up a… I set up set up a “moral code,” that suppliers who give us hard-goods, and who needed to make a payroll, the money we had, would to go to them first, basically a hundred cents on the dollar. Those had what I would call, not legally, but “soft claims,” for licensing fees and things that they weren’t out-of-pocket for, we would hold them off, and eventually settle them all out. But that was about two years of work. Then Tramiel got the company going, and he listed it on the American Stock Exchange as a public company, and that was the end of my role. We had succeeded in, from a financial point of view, a resuscitating, but it really never grew. The other piece of Atari, the arcade games, was sold to Namco. We retained an interest in it, but basically Namco had a large claim against the company, for all its licensing for all its’ games, and some of the great games came from Namco. So we settled with Namco by turning the arcade game over to Namco. We stayed on the board, and I was on the board of the arcade division for about a year or two, and then everything was resolved, and Warner survived, and we went on. But it was such a big mess, it was threatening Warner. It took about two years to clean it up, from Warner’s perspective, and move on. In the meantime, obviously, Namco revived, came in… we weren’t the only game company at that time to really flounder, most of them did except for Nintendo. Nintendo really came in on the ashes of everybody else, and they did a good job.
RK: So, Marty, were you aware of the Atari 8-bit line of computers that they released?
MP: Yes. We were. In fact with Mike daughter was a computer major at Brandeis. She spent one summer as a counselor at the computer camp.
RK: Oh really?
MP: Right. She could tell you about that, and we also had the computer in our house. Clearly you know two home computers, well home computers at that time, it was Apple and Atari.
RK: Yeah, well, before Commodore came out with theirs.
MP: Yes, and then Commodore came out. Commodore. Those were the three companies. But most people don’t associate… outside of the Valley say… Atari with computers, because it never really a big business.
RK: So you had one in your home for a while, you say?
MP: Yes we did, we should have sent it to the Smithsonian! Yes we did. It was a clumsy instrument, but I didn’t know anything about computers. My daughter did it. Yes. That was from a Warner perspective, okay, that was not a big problem, because it was not a huge investment versus... the huge investment came from the quantities of games that were manufactured and not sold, and the licensing agreements that… Atari entered into… then games were shipped, and I learned something very clear. It doesn’t matter what the paper says, if you want to stay in business, you don’t get paid until they out of the retailer’s shelves, from places like Toys “R” Us. So they all came… huge quantities came back.. so that’s where, from a macro point-of-view, huge devastation took place.
RK: And that was something that Atari wasn’t used to.
MP: Right, so we had a whole team of people out there. I wasn’t… we must of had about… from Warner personnel, plus outside people, who we may have retained, I can think of at least 10 or 12 of us spent at least six-months, full-time, living out there. Then we had all these leases we had to negotiate… consolidate, get out of leases. It was a major turnaround. Atari had just built, or had built for them, a huge building… but the developer that had let us have… worked with us, and was able to move it to somebody else, without damage to us. So it was basically a total liquidation.
RK: So I’m curious, how much direct contact did you have with Nolan, and with the Tramiel’s, and with Jack in particular I guess.
MP: Well with Jack, a lot. With Jack and Sam, tremendous. While I was out there, just about every day. Then we continued until basically he went public, and basically from that we became friends, I knew him. He would come to New York we would see... Yes, I had a great deal of work with Jack. He had a lawyer named Lee Shriver. A really very capable man. He practiced law, essentially with his daughter, and we had a large firm working for us, and he was very shrewd. Shrewd in a good way. I had great admiration for him, and he had a good sense of fairness on it. So the guy would have almost daily contact with Jack, Sam, and Lee Shriver, on the problems. Hardly a day went by that we didn’t spend the day meeting and say “what do we get done today, and what do we have to do tomorrow?” He was a tough man, and he… I liked him. I grew to like him a lot, actually. He was a self-made man. He thought… he couldn’t believe, essentially, the lack of controls they had at Atari, he said people were walking off the stuff all the time. So the moment they came in, basically any check that went out of Atari, had to signed by either Jack or Sam. No-one else, above some nominal amount. He ran the business by getting control over it. Basically what I don’t envision today, because I lost track of it, essentially, is what ultimately happened to it, why he wasn’t able to continue with it.
RK: So when did you leave Warner, and why?
MP: Oh I left… We became Time Warner. I became vice chairman and general counsel of Time Warner. I was the first general counsel of Time Warner. Then I gave that up, and followed the role of vice chairman with that portfolio basically. I did lots of things. Steve Ross was the chairman of the company. He was the man I worked for, for over 20 years, he died of prostate cance. When he died I retired. That was in December 1992. 22, 23 years ago. So I was in… I was a significant figure in a central part of Warner and Time Warner, almost from the time I started with that title, until the time I left.
RK: Yeah sounds like you are there quite a while.
MP: Yeah I was there 22 years
RK: So do you have fond memories of working for Warner, and working with Atari?
MP: Oh absolutely. We had great times, we had tough times. But there was an article in todays… the front page of today’s New York Times, on Amazon, it’s work culture. We were totally the opposite. We were believed to work hard, but you are entitled to… we were collegial… we helped each other we didn’t… one person didn’t gain by somebody else’s disadvantage. It was a wonderful company. We had Warner Bros. records, Elektra records, Atlantic, Warner Bros. films, television, cable. It was a great company, and that we merged it with Time Inc., and it became Time Warner. Ten Steve died, and that was when I left… But I enjoyed… it was a great career. Who went on to be a chief lawyer for a company in movies, music, publishing and cable and all these things?
RK: Sounds like a lot of fun to me !
MP: Well it was, it was serious, but it I was a kid from Brooklyn, and all of a sudden I was in immersed in all of these very exciting businesses… We created the videogame business with Atari. We created MTV through the cable division. We created Nickelodeon. For a while we had the Cosmos soccer team, which is still is a good still strong brand known worldwide. We reinvigorated Warner Bros. from a defunct studio, to a top studio, and built a great record company. Of course the record industry is not so great anymore, but we took it from a smaller label… a couple labels… to an international worldwide company. So it was very exciting.
RK: Do you still keep in touch with any of the ex-Atari people or?
MP: The only Atari person I keep up with the Steve Mayer. I keep up with Steve, and from time-to-time with Dennis Groth. You know who Dennis was?
RK: I don’t think so, no.
MP: Dennis was the chief financial officer, who came in, at the time that Ray and Skip Paul came in. He then left and took his Atari money, and founded a very nice winery up in Napa… Groth Vineyards. I keep in touch with him from time-to-time. But the Atari people no. Every once in a while I read about Nolan. He’s a very creative fella. But we were never close. We didn’t have much of a… I wasn’t involved to a large degree with Nolan, let’s put it that way. Whether or not it would have been different had Nolan stayed, who could tell?
RK: Right. I mean we asked him that question, we recently interviewed him, and he has his own thoughts about it, but, you know, who knows, right?
MP: Yeah, who knows? I really don’t have an opinion on that. I just say: “Que sera sera.” It was… it will be what it will be. He’s enormously creative. Has this been helpful to you?
RK: It has. Is there any other questions I should have asked you, that you feel like, in particular, that involve Atari?
MP: No, I used to… my son, who is now 49, was a teenager when we started all of this. Manny used to get him the working cartridges, for the Atari games, before they were sold officially, to get his opinion. We had fun with Atari. It was a shame. It was a shame. I think it should be studied, actually, in business schools. It was mishandled. By that I don’t mean just Atari management, I think Warner… that was not our best hour. But lessons can be learned. When you grow so fast, controls are very important. They didn’t have them, and we didn’t force them. I don’t think there’s any ones malevolence. I think it’s just certain amount of hubris, was attached to the growth, by everyone.
RK: Do you still have that computer? That Atari?
MP: No, no, no. My daughter… she went out she was out in California she worked at the camp, she still works with computers.
RK: One other thing, I guess. Is there anything you would like to say to the Atari community that’s still out there, and still cares about Atari? Anything you’d like to say to them?
MP: Well. Not particularly. But, every once in a while I see somebody walking around with an Atari shirt, and I get a big smile. Brand loyalty. I’m intrigued by the fact that it’s 30-years, and it still has a culture. It still has a following. Every once in a while I’ll say to someone “we started the videogame industry with Atari, the brand that still has recognition.”
RK: Yeah, it sure does, it has a lot of recognition. Vintage gaming and vintage computers have kind of taken off here a little bit, they’re fairly popular. Even young people know who Atari is.
MP: I was at a party in New Jersey… I’ll call it a pinball parlor, but it was an arcade, and they had all those old games all of them, Atari games, Namco games… and it’s another world, and I it still continues and I was sort of flabbergasted, still reminiscing about it. Now, you’re not really interested in the arcade part of it?
RK: No, not particularly. Our listeners are mainly interested in the computer line.
MP: When you say that, do you include in the computers the home games or not? Because that’s really where the big…
RK: Well some of them, like the 5200 and the 7800. The 2600m we don’t really cover, because that was really the game machine, but in general we’re just looking…
MP: Okay, but what you just said, the “just the game machine,” but that was a learning tool for computers.
RK: Right, you’re right, it sure was.
MP: It was an early computer, it was a game. Now the level of sophistication is enormous, but the 2600 helped bring on the home computer age. They had the coordination. It was the beginning. Anyway, if you think of anything you want to ask me, as it comes up, feel free to do so, you know how to contact me. I assume those old Atari… the original Atari people… stay in touch with each other. They all alive?
RK: Yeah, yeah, everybody but part of that group. Oh, Steve Bristow, he died. Less than a year ago.
MP: Oh he died? No I didn’t know that. He was a very nice man. They were all nice, there was no... They were fun, I’ll say that. When I read the Walter Isaacson book about Steve Jobs, I had not known that Steve Jobs had worked at Atari. That was very early stages. That was before Warner. If you want to call me another time, be free, but again, it’s a long time ago.
RK: Sure. Well, I appreciate it very much, Marty, you’ve been great.
MP: You’re entirely welcome.
RK: I’ll let you know when it gets published, so you can listen to it if you want to.
MP: I would like that, yes.
RK: Okay, thank you.