Capítulo 36: Chapter 36: Cash, but No Cows
"What?"
This fact surprised Ethan.
"Why?"
Ethan couldn't comprehend.
The furrowed brow suggested an attitude of 'whoever stops me from making money will pay with their life!'
Nolan chuckled at Ethan's excitement, extinguishing his cigarette. "Okay~ Okay~ Ethan~ don't get too worked up~"
Pressing his hands down, Nolan explained, "Ethan, honestly, if possible, I'd like the sales time to be longer. But that's not feasible because as you move eastward, the cost of selling becomes greater than the actual profit of the product."
"Do you know Ray Kroc? The founder of McDonald's! He created a standardized kitchen and established a food supply chain! Even with that, they need to find multiple suppliers in North America to provide standardized products for their restaurants."
"No matter what kind of company, to expand business nationwide, you must have multiple factories across the country. Because factories within a single region cannot handle nationwide distribution."
Pausing, Nolan pointed to the map behind him. "But here's the issue with Atari. We only have one factory, or to put it more accurately, currently, only Sega and Magnavox have multiple branches nationwide."
"With this setup, problems arise. Take the route you traveled before as an example, from our California base to Houston, Texas, the round trip is approximately eighteen hundred miles, taking a week."
"We don't even count fuel costs; a round trip with two hundred gallons of gas is just a few hundred dollars. Personnel expenses can be negligible; even if we provide a daily allowance of ten dollars for each person, three people for a week would only be a little over two hundred."
"But I have to calculate the labor cost of production personnel."
With a smile, Nolan looked at Ethan, pointing his thumb towards his office. "We, at Atari, have over a hundred employees. It's because of them that we can consistently produce circuit boards, and their weekly salaries total twelve thousand dollars. In other words, when you take a hundred or even two hundred circuit boards to Texas, the profit from your trip only covers our normal personnel expenses at Atari. Meanwhile, Don and I benefit from the sales, which is the real source of our share."
"As for why we don't have other factories?"
Nolan paused here, a look of helplessness on his face.
"Ethan, I think I don't need to answer that, right?"
"All insiders know that electronic arcade games really don't make much money."
"If we could really make crazy profits and fully compensate Magnavox, how could Professor Ralph Baer agree to a settlement? The professor actually knows, or everyone knows, that electronic arcade games are just for show!"
"Because the real money-makers in this industry are the merchants who buy arcade machines!"
Nolan's explanation left Ethan reflective.
In his previous life, electronic games were globally recognized as cash cows. Whenever a global financial crisis hit, anyone involved in electronic games managed to weather it.
Pig farms thrived on games, going from the era of three major portal websites to 2023. Big gaming companies thrived on electronic games, with Goose Factory drawing billions in cash flow, not to mention Nintendo, which consistently held top-performing stocks in the national pension fund. Sony, despite bankruptcy rumors every year, always bounced back, thanks to games.
But making money in electronic games didn't mean making money in electronic arcade games.
In the electronic arcade industry, it was a one-time deal. Game companies sold arcade machines to various merchants, earning meager profits. The real income kings were the merchants because they made money from players.
When it came to opening a direct channel for game companies to collect money from players, the electronic game industry seemed glamorous.
And how to open that channel?
Professor Ralph Baer had already told the world.
That was by making home consoles.
Only by truly selling electronic games to players could electronic games become cash cows!
But home consoles, well...
Personal computers had just come out~
When Ethan thought about all this, he put away his dissatisfaction and smiled. "Nolan, I understand what you mean. It's all about cost-effectiveness principles."
At the same time, he asked, "But if we don't sell, are we just giving up on the market in the East? Remember, people in New York, Chicago, and Boston are very wealthy!"
"Take 'Snake Game' over there, and we could easily make two million!"
"Oh, Ethan, this is actually what I want to talk to you about next!" Nolan eagerly rubbed his hands and smiled. "In the past week, game producers in the central and eastern parts of the United States have been approaching me, wanting to collaborate with Atari."
"I think the collaboration is feasible, but as for the details..."
Nolan didn't finish his sentence but took out a document from the drawer and pushed it in front of Ethan.
Opening it, Ethan saw that the first page was filled with company names and their collaboration proposals.
A game company from New York proposed obtaining the production license for 'Snake Game.' In return, they were willing to give Atari an eight percent cut of the net profit for each machine.
A game company from Miami expressed interest in the game's motherboard license. In return, for every game board sold, they would provide Atari with a fixed, ten-dollar fee.
Since Ethan had directly handed over the 'Snake Game' license to Atari for one year during the contract signing, Nolan Bushnell didn't need to show him this kind of thing under normal circumstances.
Because, regardless of how Nolan sold 'Snake Game' to the East Coast, or whichever collaborator he signed a contract with, Ethan would get a cut based on Atari's selling price and the final accounted shipment quantity. Even if other companies sold it for a thousand dollars, he would still get a cut based on Atari's twelve hundred dollars. But this quote now made him realize how much people in this era looked down on creativity.
"An eight percent profit cut for each whole machine, and they think they can get the license with a ten-dollar offer per unit?"
Ethan tossed the document on the table. "These people are truly thinking beautifully while being ugly!"
"Ha-ha!" Nolan Bushnell burst into laughter.
He shrugged and said, "Well, there's no other way. If it weren't for our settlement with Magnavox and them suing all the copycats in the market again, they would probably continue to plagiarize."
Yes, if Magnavox didn't transform into Disney, vowing to give all infringers a beating, the sales of "Snake Game" wouldn't be as smooth as it is now.
Only when a heavy blow lands on these copycats will they understand what pain is!
But getting beaten doesn't mean they've learned their lesson!
After making quick money, who genuinely wants to pay licensing fees, right?
"So, you're not thinking of negotiating this matter with me, are you?"
Ethan tapped the table and asked, "To be honest, after reading the conditions on this, I feel like my blood pressure has gone up."
"Yeah, brother, my feeling is the same as yours. I find these guys quite amusing!" Nolan sarcastically remarked.
Then, changing the topic, he said, "But, among so many companies, there are still two that seem sincere."
"One is Midway Games, and the other is Chicago Coin."
Nolan picked up the file Ethan tossed to him, quickly skimmed through it, and pushed the information about those two companies in front of him.
With a glance, Ethan understood the relevant information.
Midway Games, founded in 1958, Chicago Coin, founded in 1932, both were originally in the traditional coin-operated arcade business, with rich market channels and some experience in electronic arcade production.
As for how Atari knew about their experience? Quite simple! Both of these companies had made knockoffs of the ping pong game and were currently sitting on the defendant's bench thanks to Magnavox!
With Magnavox's endorsement, everyone knew they made money!
Perhaps because these two companies were both in Chicago and had some previous connections, they jointly proposed the collaboration. They were willing to jointly secure the distribution rights of "Snake Game" in the thirty-two states of the US East Central region that Atari was reluctant to touch. For each unit sold, they could offer a ten percent commission on the whole machine, and for each game board, they were willing to pay a fixed fee of thirty dollars.
If that were all, Nolan wouldn't say they were sincere.
What truly surprised Ethan was the way they calculated the commission and fixed fees.
These two companies stated that since the arcade machine of "Snake Game" couldn't be used for gambling, and their existing customers weren't treated the same way as new electronic companies, they wouldn't follow the same approach. Previously, in their rush to capture the market, when releasing a bootleg version of "Pong," they set the price of a game console at eight hundred dollars, slightly lower than Atari's one thousand dollars. So, with the price not easily raised, taking away eighty dollars per unit was already their limit. If they raised the price further, they wouldn't even be able to cover the workers' wages.
The situation was the same for the game boards. They wanted to secure "Snake Game" because they aimed to devour the market share of electronic arcade machines. Therefore, their price for the replacement game board was only two hundred and forty dollars. With material costs at one hundred and fifty dollars and replacement costs at thirty dollars, their gross profit was only sixty dollars. After giving Atari thirty dollars, the remaining thirty dollars could barely cover the company's normal expenses.
So, they knew their offer might not meet Atari's expectations, but they still hoped to get the authorization.
To be honest, Ethan didn't really believe what they were saying.
Capitalists not seeking profits?
Are you doing charity here?
But this detailed plan made him feel at ease.
How should I put it?
It's like someone opening up and telling you, "I know your product is good; if possible, please let me be a part of it."
The implicit yearning expressed in their words made Ethan secretly happy.
Of course.
After the satisfaction, he didn't express his own opinion.
Tossing the file back, he smiled and said, "Nolan, Atari is yours."
"This is your company."
"As a partner in a single project, I will only fulfill the obligations in the contract and won't interfere with your company's operations."
"You know, I'm only interested in this for now..."
Ethan raised his right hand, rubbing his thumb, index finger, and middle finger together.
"Okay! Okay! Okay!" Ethan's gesture made Nolan burst into laughter.
"A commission, right? I get it!"
"Give me two weeks, and I'll transfer the first phase of the commission to you."
"And what about the reward for the replacement board?" Ethan asked with a sly smile.
This question made Nolan shake his head with a smile.
He pulled out the company's checkbook from the drawer and wrote a check for $5124.
"Here you go!"
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