: Cash, No Cows

Chapter 36: Cash, No Cows

"What?"

This fact surprised Ethan greatly.

"Why?"

Ethan didn't understand.

His furrowed brow gave off an air of "Anyone who tries to stop me from making money will die!"

Nolan laughed at his excited reaction, stubbed out his cigarette, and said, "Okay, okay, Ethan, don't get so excited!"

He pressed his hands down and said, "Ethan, to be honest, if possible, I would also like to sell the goods for as long as possible, but that's not possible, because if we go further east, the cost of selling the goods will exceed the profit of the products themselves."

"You should know Ray Kroc, right? He's the father of McDonald's! He created the standardized kitchen! He built the food supply chain system! But even so, they still need to find multiple suppliers in North America to provide standardized products for their restaurants."

"No matter what kind of company it is, if you want to expand your business throughout the entire country, you must have multiple factories throughout the country, because a factory in a single region cannot provide nationwide distribution."

At this point, Nolan paused, then pointed to the map behind him and said, "But we at Atari only have one factory, or rather, so far only Sega and Milo have multiple branches across the United States."

"That's where the trouble begins. Take the route you ran before, for example. It starts from California and goes to Houston and Austin in Texas. The total distance is about 1,800 miles. A round trip would take about a week."

"We don't even consider the cost of fuel. A round trip of 200 gallons of fuel would only cost a few hundred dollars. Personnel expenses are also negligible. Even if each of us receives a daily food and lodging allowance of ten dollars, three people would only receive a little over two hundred dollars a week."

"But I have to calculate the labor costs of the production staff."

Nolan Bushnell looked at Ethan with a smile, pointing his left thumb out of his office.

"We at Atari have over a hundred employees. It is because of their existence that we can continuously produce circuit boards. Each of them earns a weekly salary of $12,000. In other words, when you take a hundred or even two hundred circuit boards to Texas, your profit from that trip can only cover our normal personnel expenses at Atari. Meanwhile, the sales revenue that Tang and I generate is the real source of our profit sharing."

"As for why we didn't set up other branch factories?"

Nolan paused at this point.

A look of helplessness appeared on his face.

"Ethan, I don't think I need to answer that, do I?"

"Everyone in the industry knows that electronic arcade machines don't make much money."

"If we could really make a huge profit and fully compensate Milrova, why would Professor Ralph Bell possibly agree to a settlement? The professor knows, or rather everyone knows, that electronic arcade machines are just a pretty face!"

"Because the ones who actually make money in this industry are the merchants who buy the arcade machines!"

Nolan Bushnell's little calculation made Ethan somewhat reflective.

In his previous life, video games were a globally recognized cash cow. Whenever a global financial crisis struck, every video game company survived.

NetEase has relied on games to survive from the era of the three major portal websites all the way to 2023. Tencent also relied on video games to outlast BA and other major video game companies. miHoYo has even absorbed billions of dollars in cash flow. As for Nintendo and Sony, needless to say, the former has always been a high-performing stock held by the Liben National Pension Fund for many years, while the latter has been rumored to be bankrupt every year, but it has always been pulled back by games.

However, making money from video games does not mean that making money from electronic arcades.

The arcade industry is a one-off business. Game companies sell arcade machines to various merchants and earn meager profits, while the merchants are the real revenue kings because they make money from the players.

When game companies establish a channel to collect money directly from players, the video game industry appears glamorous on the surface.

How can this channel be established?

Professor Ralph Bell has already told the whole world.

That means making home consoles.

Only when video games are actually sold to players can they become cash cows!

But the console...

Personal computers had only just come out!

When Ethan thought about all this, he suppressed his resentment and laughed, "Nolan, I understand what you mean, it's the cost-benefit principle, right?"

At the same time, he asked, "But if we don't sell, are we just going to abandon the market on the east side? You know, the people in New York, Chicago, and Boston are incredibly wealthy!"

"If we bring 'Snake Game' over there, we can easily make another two million!"

"Oh, Ethan, this is actually what I wanted to tell you next!" Nolan Bushnell rubbed his hands together eagerly and said with a smile, "In fact, for the past week or so, game developers in the central and eastern United States have been contacting me, wanting to cooperate with Atari."

"I think this collaboration is feasible, but as for the details..."

Nolan didn't finish his sentence. Instead, he took a document out of the drawer and pushed it in front of Ethan.

Ethan opened the book and saw that the first page was filled with company names and their cooperation plans.

A New York-based game company has expressed interest in acquiring the production license for "Snake Game".

For this, they are willing to pay 8% of the net profit of each machine.

A Miami-based gaming company has expressed interest in licensing the motherboard for Snake Game.

In return, they would give Atari a fixed reward of ten dollars for every gaming motherboard sold.

Since Ethan had directly granted Atari the license for "Snake Game" for a one-year term when signing the contract, Nolan Bushnell wouldn't have needed to show him this kind of thing if things had gone through the normal process.

Because no matter how Nolan sold *Snake Game* to the East Coast, no matter which partner Nolan chose or what kind of cooperation agreement he signed, Ethan would still receive a cut based on the Atari price and the final reported shipment volume. Even if other companies sold it for $1,000, he would still receive $1,200 from Atari. But this offer made him realize just how much people in this era looked down on creativity.

"An 8% profit margin on each unit, and you think you can get the license for ten dollars a unit?"

Ethan slammed the files on the table. "These people are really ugly but have wild dreams!"

"Pfft!" Nolan Bushnell burst out laughing.

He shrugged and said, "There's nothing we can do. If Mirohua hadn't sued all the plagiarists on the market after we reached a settlement with them, they probably would have continued copying."

Yes, if Mirova hadn't transformed into Disney and vowed to deliver a crushing blow to all infringers, the sales of "Snake Game" would never have been as successful as they are now.

Only when the iron fist strikes these plagiarists will they know what pain is!

Getting beaten up doesn't mean they've become sensible!

After making quick money, who really wants to pay licensing fees?

"So, you don't actually want to discuss this with me, do you?"

Ethan tapped the table and asked, "To be honest, after seeing these conditions, I feel my blood pressure rising."

"Yeah, bro, I feel the same way. I think these guys are hilarious!" Nolan retorted.

Then, changing the subject, he said, "However, among so many companies, there are still two that are truly sincere."

"One is Midway Games, and the other is Chicago Coin."

Nolan picked up the documents Ethan had thrown at him again, glanced through them briefly, and then pushed the information on the two companies in front of him.

With a quick glance, Ethan also learned about the relevant information.

Midway Games, founded in 1958, and Chicago Coin, founded in 1932, both previously worked on traditional coin-operated arcade machines, possessing extensive market channels and considerable experience in the production of electronic arcade machines.

How did Atari come to know about experience?

Very simple!

Both of these companies have made counterfeit billiard games and are currently sitting in the dock at Milroyal!

With Mirova's endorsement, even a ghost would know they've made money!

Perhaps because both companies are based in Chicago and had some prior connections, their cooperation proposal was jointly put forward. They were willing to jointly acquire the distribution rights for Snake in 32 states in the eastern and central United States, which Atari was unwilling to deal with. On the console, they were willing to pay a 10% commission on the price of each unit, while on the game motherboard, they were willing to pay a fixed fee of $30 per motherboard.

If that were all, Nolan wouldn't say they were sincere.

What really surprised Ethan was that they wrote down the calculation standards for commissions and fixed fees.

The two companies stated that because the Snake Game arcade machine is not gamble-friendly and does not overlap with their traditional businesses, their existing customers will not be treated the same way they would treat emerging electronics companies.

In order to seize the market, when they released the knock-off version of "Pong", they directly set the price of a game console at $800, which is different from Atari's $1,000. So, if the price is not easy to increase, taking $80 from a whole machine is already their limit. If they increase it any more, they will not be able to afford to pay their workers' wages.

The situation is the same for gaming motherboards. They want to take over "Snkae Game" because they want to seize the market share of electronic arcade machines. Therefore, the price of their replacement motherboards is only $240. With material costs of $150 and replacement costs of $30, their gross profit is only $60. They give $30 to Atari, and the remaining $30 can only maintain the company's normal expenses.

Therefore, they knew their offer might not meet Atari's expectations, but they still hoped to obtain the license.

To be honest, Ethan didn't really believe what they were saying.

Do capitalists not pursue profit?

Are you doing charity here?

But he found the detailed plan very pleasing to the eye.

How so?

It feels like someone is telling you from the bottom of their heart, "I know your product is good. If possible, please let me make it."

The yearning revealed between the lines secretly pleased Ethan.

Of course.

After he had his fun, he didn't express his opinion.

He tossed the file back, smiling, and said, "Nolan, Atari is yours."

"This is your company."

"As a partner in a single project, I will only fulfill my contractual obligations. How could I interfere with your company's operations?"

"You know, this is the only thing I'm interested in right now..."

Ethan raised his right hand and rubbed his thumb, index finger, and middle finger together.

"Okay! Okay! Okay!" Ethan's explicit suggestion made Nolan burst into laughter.

"Splitting the profits, right? I understand!"

"Give me two weeks, and I will transfer the first phase's share to you."

"And what's the reward for replacing the board?" Ethan asked with a smile.

This question made Nolan smile and shake his head.

He took out the company's checkbook from the drawer and wrote a check for $5124.

Here you go!

Note: ① The world's first commercially available home video game console, Odyssey, had no CPU; it relied purely on the charm of physical photoelectric reactions. I don't know how Ralph Bell managed to simulate the photoelectric feedback of over a dozen games on a single machine, all within the size of a briefcase. The US Patent and Copyright Office has his patent drawings, which I can't understand, but they deeply impressed me. ② Midway Games is a very impressive company; they made Mortal Kombat. ③ The arcade industry is the worst sector in the entire video game industry, a view widely accepted within the industry. The most famous example is Nintendo. Nintendo's then-president, Hiroshi Yamauchi, once considered making and distributing arcade machines himself, but abandoned the idea after less than two years. He realized that arcade machines were a real estate art form; the real customers were entertainment venue owners. Game companies couldn't make money from players. Therefore, when Yamauchi realized this, he abandoned the arcade market, preferring to license production to others rather than invest in manpower, and shifted his R&D focus to home video game consoles. Furthermore, Sega and Atari also attempted to dominate the arcade market, but ultimately remained confined to a niche, becoming marketing centers. It was precisely because they couldn't make money that game companies in reality went on a spending spree to develop home consoles; no one was willing to give the lion's share of profits to middlemen. This is also why Ralph Bell is respected in the gaming industry; he could have started making arcade machines, but he didn't, because he realized it wasn't a sustainable business model.

(End of this chapter)