October in Los Angeles, for three or four weeks, Los Angeles beca the city it pretended to be all year round, clean, golden, and beautiful.
Duke Hauser was in his office at seven-thirty on a Monday morning.
The Variety magazine was on his desk, still warm from the courier's bag, and the numbers on the front page were great numbers, The French Connection opening weekend had arrived and the figures were staggering.
Duke read them twice, not because he doubt them but because the pleasure of watching a bet pay off.
William Friedkin's gritty thriller about a New York narcotics detective chasing a French heroin smuggler had opened and the critics had gone incandescent.
Pauline Kael, had called it "the most exciting Arican film since Bonnie and Clyde."
Roger Ebert had given it four stars and boasted about his love for the car chase.
Duke set the report down and allowed himself a mont. Just a mont. He leaned back in his chair, looked at the ceiling, and felt the particular, quiet satisfaction of a man who had prepared a machine and watched it run.
The 1971 slate was Duke long term preparations finally paying off.
Shaft had already grossed $6 million against a $500,000 budget.
Willy Wonka was performing exactly as predicted, a modest theatrical, but the Quaker Oats licensing deal and the erging rchandise pipeline were generating revenue that didn't show up on the box-office charts.
Sweet Sweetback continued to throw off cash like a broken hydrant.
And now The French Connection was positioned to dominate the fall season and potentially sweep the Oscars.
This was the leverage he needed. The Lehman Brothers refinancing was scheduled for November, and every film on the slate was a card he could lay on the table when the bankers asked why they should restructure Paramount's debt on favorable terms.
The intercom buzzed.
"Mr. Hauser? Mr. Valenti is here. He doesn't have an appointnt."
Duke's eyebrows rose fractionally.
Jack Valenti the politically connected head of the MPAA, didn't need an appointnt.
If Valenti was here unannounced, it ant he had sothing that couldn't wait for scheduling.
"Send him in."
The door opened, and Jack Valenti entered.
"Duke!" Valenti spread his arms as if greeting a friend. "The man of the hour. The man of every hour, from what I'm reading."
"Jack." Duke rose and shook his hand. "To what do I owe the pleasure?"
"Can't a man visit the most successful studio head of the year in Hollywood without an ulterior motive?"
"He can. But he doesn't."
Valenti laughed, a genuine, warm sound that filled the office. He settled into the visitor's chair.
"I wanted to ask," Valenti said, "if you enjoyed your White House visit."
Duke smiled.
The invitation to the Oval Office, the Hacksaw Ridge photo opportunity, the ninety minutes of presidential access, Valenti had orchestrated it.
He'd been the bridge between the Nixon administration's desire for positive Hollywood optics and Duke's need for political armor.
It was the kind of favor that couldn't be acknowledged publicly but that created a debt both n understood.
"I enjoyed it very much, Jack. The President was gracious. The team appreciated the recognition."
"And the private conversation?"
"Was productive. I now believe the President understands the value of Arican innovation in the technology sector."
"Good. I told them you were the right man to talk to. Not one of these hippie directors who'd show up and lecture the President about Cambodia. A patriot businessman." Valenti's smile widened. "I trust you used the opportunity wisely?"
"I ntioned that certain elents of the regulatory bureaucracy were creating unnecessary headwinds for erging Arican technology companies. The President seed sympathetic."
"He would be. Nixon hates the FTC almost as much as he hates the Washington Post." Valenti reached into his jacket pocket and produced a silver cigarette case. "Mind if I smoke?"
"Go ahead."
Valenti lit a cigarette with a slim gold lighter, took a long drag, and exhaled a thin stream of smoke toward the ceiling.
"I want to talk to you about sothing that's been brought to my attention," Valenti said. "By Lew Wasserman."
The na landed in the room like a stone dropped into still water.
Lew Wasserman, the chairman of MCA/Universal.
"What's on Lew's mind?" Duke asked, keeping his voice neutral.
"Arcade cabinets in movie theater lobbies."
Duke's expression didn't change. Not a flicker.
"Lew has been hearing reports," Valenti continued, "that video ga machines are appearing in the lobbies of so theaters in the cities. High-end venues. The kind of theaters where people go to see serious films, not to pump quarters into a blinking box."
"And Lew doesn't approve."
"Lew thinks it degrades the theatrical experience. And frankly, Duke, he's not wrong. The man has spent fifty years building the mystique of the moviegoing experience, the velvet ropes, the coming attractions, the sense that walking into a theater is an event. Arcade machines in the lobby undermines all of that."
Duke leaned back. He could feel the shape of the trap. And he could see, with perfect clarity, the exit.
"Jack, I need to be very clear about sothing. Atari has no initiative to place machines in movie theater lobbies. None."
"We've focused our deploynt on restaurants, hotels, bowling alleys, and family entertainnt venues. We have not approached a single theater chain, and we have no plans to."
Valenti studied him. "Then who's putting the machines in the lobbies?"
"I'd suggest you ask Steve Ross."
A beat of silence. Valenti's cigarette paused halfway to his lips.
"Kinney holds a ten-year license to our arcade patents," Duke continued, his voice as smooth and level as a lake at dawn. "They're on the process of manufacturing their own cabinets through Midway and placing them in venues they control, which includes, I believe, a significant number of New York theaters."
"If there are arcade machines in theater lobbies, those machines bear the Kinney brand, not the Atari brand. The placent decisions are Kinney's, not ours."
Valenti took a slow drag on his cigarette, processing.
"Well," Valenti said. "That puts a different color on things."
"It does. And I'd appreciate it if you'd convey to Lew that Paramount shares his commitnt to the sanctity of the theatrical experience. We're in the movie business, Jack. The last thing we want is to give audiences a reason not to sit down and watch our films."
Valenti smiled. "I'll pass that along."
What Duke did not say, was the deeper truth. He had wanted Ross to put machines in theater lobbies.
He had known, when he structured the Kinney license, that Ross would eventually push into every venue he controlled, including theaters. And he had known that the Hollywood old guard would react with exactly this kind of outrage.
Let Ross absorb the blowback. Let Ross be the one who 'degraded' the theatrical experience.
Let Ross take the heat from Wasserman and Valenti and every traditionalist who viewed arcade machines as an affront to the dignity of cinema.
And when the dust settled, when the concept was normalized, when audiences had grown accustod to spending a few quarters in the lobby before the lights went down, Duke would be positioned to expand Atari's own theater placents with none of the reputational cost.
It was, he reflected, the smartest move.
Valenti should have left then. The theater issue was resolved, the political credit for the White House visit had been acknowledged, and the social contract of the conversation had been fulfilled.
But Valenti didn't stand. He didn't reach for his coat. Instead, he took another drag on his cigarette, and he looked at Duke again.
"There's one more thing," Valenti said. "And this one isn't about theater lobbies."
Duke waited.
"The FTC investigation into Atari. The preliminary inquiry."
"I have already addressed it. Open patent pool, five percent royalty, non-discriminatory terms. Lloyd Rich presented the settlent frawork last month. The Commission is reviewing it."
"I know. I've seen the filing. It's good work, Rich is one of the best in the business. But I want to talk to you about how the investigation started. Specifically, who triggered it."
Duke's expression remained neutral. "The FTC doesn't typically disclose its informants."
"No. They don't. But I'm not the FTC, Duke. I'm the head of the MPAA, and I talk to people on both sides of every aisle in Washington. People talk to because it's useful for them, and I listen because it's useful for ."
"And what I've been told, by a source I trust completely is that the anonymous dostic complaints that triggered the investigation didn't just co from small manufacturers like Amutronics."
Valenti leaned forward. "The primary informant was Steve Ross."
The office was silent for a mont.
Duke didn't speak imdiately. He let the information settle, turning it over in his mind.
Steve Ross. The man who had shaken Duke's hand in this very office. The man who had sold DC Comics and the Looney Tunes catalogue for what he believed was a steal.
"Why?" Duke said. The word contained a genuine perplexity that he didn't bother to mask. "Ross had the only license. Before the pool, he was the sole competitor. The FTC investigation forced to open the market, which ans more competition for him. Why would he hurt his own position?"
Valenti stubbed out his cigarette in the crystal ashtray on a small table. "Because the FTC investigation was never about you, Duke. It was about him."
"Explain."
"Kinney National Services is under federal investigation. Not by the FTC, by the FBI and the Departnt of Justice. The investigation has been ongoing for approximately one or two years, and it concerns the company's financial relationships with organized cri. Specifically, money laundering."
"Kinney's original businesses, the parking lots, the cleaning contractors, the funeral hos, those businesses have deep, long-standing connections to organized cri families on the East Coast. Ross didn't invent those connections."
"He inherited them when he took over the company. But he's maintained them, and he's used them. The parking lots generate enormous amounts of cash. The cleaning company generates enormous amounts of cash. The shoe company, Circle Floor, all of them. Cash-heavy businesses with loose oversight and plenty of room to wash money."
"And the arcade machines?"
Valenti nodded slowly. "The arcade machines are the newest laundry. Think about it. A coin-operated machine in a bar generates revenue that's almost impossible to audit accurately. You say the machine took in two hundred dollars this week? Who's going to verify that?"
"Send an auditor to sit in a bar and count quarters? The machines are perfect cash-absorption vehicles."
"And the 'grey market' machines, the ones in gambling dens and private clubs, those are even better, because those venues don't have to report everything. Your Black box machines are a staple in the underworld of New York."
Duke felt a cold clarity descend over him from understanding, with sudden precision, the danger he was in.
The grey-market machines. The "Black Box" revenue stream that Jaffe had set up through a shell company to fund Atari's R&D. Cash-heavy, loosely regulated, deliberately separated from the Paramount brand.
Duke had created that system to harvest revenue from the margins of the arcade market.
What he hadn't anticipated was that soone else, soone with deeper connections to the underworld and a more urgent need for cash-washing infrastructure would see those sa machines and use them for an entirely different purpose.
"Ross tipped off the FTC about the patents," Valenti continued, "because he needed a distraction. The FBI is closing in on Kinney's financial structure, and Ross needs the federal governnt's attention pointed sowhere else."
"By triggering an antitrust investigation into the most visible company in the arcade sector, he created a diversion. 'Look at Atari's patents. Look at the monopoly.' You probably were also getting investigated by the FBI for the Black Box machines while the FTC conducted their research."
"A smokescreen," Duke said.
"A smokescreen. And it worked. The FTC inquiry consud ti on you. And it gave Ross ti to restructure Kinney's most exposed operations before the FBI could close on them."
Duke stood and walked to the window. "I need to speak with a lawyer."
"Jack," Duke said, turning from the window. "If Kinney goes down, if the FBI investigation results in indictnts, or asset seizures, or forced divestitures, what happens to their entertainnt assets? Warner Bros. The music division. The cable interests."
Valenti could see where Duke's mind was going, and he was neither surprised nor disapproving.
"Those assets would need to be divested. And i think all the Mayor Studios would benefit from getting Warner into the hands of a new owner. Of course, at prices that reflected the urgency of the seller rather than the value of the assets."
"Pennies on the dollar."
"That's one way to describe it."
Duke nodded. "Thank you, Jack. This is valuable information."
"I thought it might be." Valenti stood and buttoned his jacket. "Duke, I don't need to tell you to be careful. But I will anyway, be careful. The people Ross is connected to don't play by Hollywood rules."
"I understand."
"Do you? Because understanding and 'understanding' are two different things."
"I understand, Jack. I'm going to do what I always do."
Valenti studied him for a mont, then nodded. "That's the right answer. I'm going to get lunch now, Goodbye Duke."
"It was a pleasure, Jack. And thank you for everything."
Valenti walked out, leaving behind the faint scent of cigarette smoke..
___
The Pan Am 747 leveled off at thirty-seven thousand feet.
The first-class cabin was configured in the wide, extravagant style of early-70s international air travel, deep seats, actual legroom, linen napkins, and a bar that served real drinks in real glassware.
Duke was surprised by how easy and comfortable flying was in this era.
He and Nolan Bushnell occupied adjacent seats, the space between them covered in docunts, market reports, patent summaries, production cost analyses, and a manila folder marked "NAKAMURA / CONFIDENTIAL" that contained everything Duke's research team had been able to assemble about the founder of Namco.
"Tell about him," Duke said.
Bushnell shifted in his seat, adjusting his Hawaiian shirt and pulled the Nakamura folder toward him.
"Masaya Nakamura. Born 1925. Started the company in 1955 with a single chanical horse ride on the roof of a departnt store in Tokyo. Two coin-operated kiddie rides. That's how Namco began. Two horses on a rooftop."
"From rooftop horses to electronic entertainnt," Duke said. "I like him already."
"You'll like him more when you et him. He's... Duke, he's a lot like you. Not in style, Nakamura is the most polite, most disciplined, most composed human being I've ever t. But the way his mind works, the long-term thinking, the patience, the ability to see where the market is going before it gets there."
"How's his English?"
"He understands more than he lets on. He'll use a translator in formal etings because that's protocol, and because it gives him extra ti to think about his responses. But when you're having a casual conversation, you'll catch him reacting to your words before the translator speaks. He's listening to everything."
"Good. I like that."
"One thing you need to understand," Bushnell continued, his voice taking on a more serious quality. "Nakamura isn't going to be motivated by the sa things that motivate Steve Ross or Lew Wasserman or any of the Western executives you're used to dealing with. He doesn't care about short-term profit. He doesn't care about market share as an end in itself. What he cares about is legacy. Building sothing that endures. Sothing that his grandchildren will be proud of."
"So I don't walk in with a spreadsheet."
"You show him where this industry is going. Show him that partnering with Atari is a chance to be part of sothing historic. He'll respond to that."
Duke nodded. He pulled out a legal pad and began sketching the deal structure he'd been refining for weeks.
"Here's where I'm landing on terms," Duke said. "Fifty-one/forty-nine. Atari holds the majority. Non-negotiable."
"He's going to push back on that."
"I know. And I'm prepared to give ground on other things, revenue splits, territory, operational autonomy. But the controlling interest stays with us. When the console wars begin, I need to be able to make decisions for Atari-Japan without convening a board eting in Tokyo."
"What about the buyout clause?"
"Ten-year option. After the first decade, Atari has the right, but not the obligation to acquire Namco's forty-nine percent at a price determined by an independent valuation. If the venture succeeds the way I think it will, that buyout price will be substantial. But it locks in our ability to consolidate when the ti is right."
"And if Nakamura doesn't want to sell in ten years?"
"He doesn't have to. The option is ours, not his. If the partnership is working beautifully and both sides are happy, we let it ride. But if the strategic landscape shifts, if we need full control to compete against whatever Sony or Panasonic or whoever else enters the market, we have the chanism to act."
Bushnell studied the legal pad, "It's fair. It's more than fair, actually. Nakamura gets to use the Atari brand, Atari technology, and access to the most lucrative entertainnt technology in the world."
"In exchange, he gives up a controlling stake and a long-dated buyout option. He's going to see the value."
"He'd better. Because the alternative, for both of us is watching Taito and Sega eat the Asian market while we fight over patent infringent in court."
They talked for another hour, refining the terms, anticipating objections.
By the ti they arrived, Duke streched his arms. He was finally in Japan.
Namco's headquarters occupied a modern, four-story building in Tokyo.
The exterior was clean concrete and glass, unadorned, functional. The interior was immaculate. The floors glead. Every surface was free of clutter, every line was straight, and every person they passed moved quietly.
It was, Duke reflected, the absolute opposite of the Atari lab in El Gato, where the floors were covered in cable bundles and the air slled like burnt solder and the engineers wore whatever shirt they had available and argued loudly.
They were shown to a conference room on the top floor. The room was spare and elegant, a long, low table of dark wood, floor cushions for seating, and a single scroll painting of a mountain landscape on the far wall.
Masaya Nakamura entered precisely on ti.
He was wearing close-cropped silver hair. He wore a dark suit, immaculately pressed, with a white shirt and a navy tie. No jewelry. No affectation. Just the clothes and the man inside them.
He was accompanied by two associates, a translator, a young woman, and a senior engineer who Bushnell recognized and greeted warmly.
The formalities were observed. Bows were exchanged. Tea was served. Business cards were presented with both hands and received with both hands, examined with genuine attention, and placed on the table in front of each participant with the care accorded to important docunts.
Duke waited. He'd been briefed on the rhythm of Japanese business etings, and he found it sohwat tedious but neccesary.
They talked about the weather. They talked about Nakamura's recent visit to a new amusent park in Osaka, whether Duke had gone to the the parks in Japan. They talked about the quality of the tea, which was excellent.
And then, Nakamura shifted the conversation.
"Bushnell-san tells you have a vision for the future of electronic entertainnt," Nakamura said, through the translator.
"I do," Duke said. "And I believe that vision can only be realized through partnership."
He began to speak. Not from notes, he'd morized his presentation on the flight, knowing that reading from prepared remarks would signal either insecurity or disrespect, neither of which he intended.
He spoke directly to Nakamura, making eye contact, keeping his voice asured and his language clear, knowing that the translator would handle the nuances but that Nakamura himself was catching every sentence.
"Nakamura-san, the arcade industry is growing faster than any entertainnt sector in the world. In the United States, Atari has placed over twenty thousand machines and secured contracts with the largest hotel chains, restaurant franchises, and entertainnt venues in the country."
"The demand is extraordinary. But the demand is not limited to Arica. It's global. And the market that is growing fastest, the market with the most potential and the most imdiate threat is here in Japan."
He paused, allowing the translator to catch up.
"Right now, the Japanese market is fragnted. Taito, Sega, and dozens of smaller manufacturers are producing unauthorized clones of Atari technology. These clones are inferior, the build quality is inconsistent, the gaplay is imprecise, the reliability is poor. But they are cheap, and they are available, and because Atari has no manufacturing presence in Japan, the operators have no alternative."
Nakamura nodded. His expression was neutral, but Duke could see so flickers of recognition.
"I am here to offer an alternative," Duke continued. "A joint venture. Atari and Namco. A new entity, Atari Japan that manufactures genuine Atari hardware using Namco's manufacturing expertise, quality control systems, and distribution networks."
"Products that carry the Atari na, et the Atari standard, and are backed by Atari's patent portfolio."
He let that settle.
"The clones will not survive," Duke said. "Not because we will destroy them with lawyers although we will pursue legal avenues. They will not survive because they cannot compete with a genuine, high-quality, officially warranted Atari product at a competitive price point."
Nakamura spoke. The translator relayed, "And the terms of this venture?"
"Fifty-one percent Atari. Forty-nine percent Namco. Atari provides the technology, the patents, and the global brand. Namco provides the manufacturing capability, the supply chain, and the local market knowledge."
"Operational decisions are made jointly, with a managent committee that includes representatives from both partners. But ultimate strategic control rests with the majority holder."
A silence. Nakamura's expression didn't change.
"The territory?" Nakamura asked.
"Exclusive distribution rights for the entire Asian market. Japan, South Korea, Hong Kong, Taiwan, Singapore, the Philippines, Thailand, Indonesia. Every arcade machine sold in Asia carries the Atari-Japan brand and is manufactured by the joint venture."
Another pause. Then Nakamura spoke at greater length, the translator working to keep pace.
"I am interested in your proposal. But I have a question. Why Namco? You could partner with Sega. They are larger. You could partner with Taito. They have more manufacturing capacity. Why do you co to ?"
Duke had been waiting for this question. He'd been waiting for it because it was the question he would have asked, in Nakamura's position.
"Because I am not looking for the largest company or the most efficient factory," Duke said. "I want to build Atari Japan with the people who i believe in long-term. And from your company's work you can see the quality and though behind each decision."
The translator spoke. Nakamura listened. And then Masaya Nakamura smiled.
Nakamura spoke. The translator paused, then relayed, "He says that he appreciates your respect for the work. He says that two horses on a rooftop and a ga in a bar are not so different. Both begin with a simple question, How do we make soone happy?"
"That's exactly right," Duke said.
They talked for another two hours. The terms were refined, adjusted, debated. Nakamura pushed back on the 51/49 split.
Duke held firm on the controlling stake but yielded on operational autonomy, agreeing that Namco would manage the day-to-day manufacturing and distribution operations with minimal interference from California.
The buyout clause was discussed at length.
Nakamura understood its implications and accepted them with the pragmatism of a businessman who recognized that ten years was a long ti and that the world might look very different when the option ca due, but an option was added that Atari would grant them access to patents if the buyout clause was activated.
By the ti they finished, the afternoon light was slanting through the conference room windows. The tea had been refilled three tis.
Nakamura stood. Duke stood. They faced each other across the table.
Nakamura bowed. Duke bowed in return, matching the duration but not the depth, and when they straightened, Nakamura extended his hand.
They shook.
"Atari-Japan," Nakamura said in English without the translator.
"Atari-Japan," Duke said.
They left Namco's headquarters as the Tokyo evening was beginning to descend, the neon starting to flicker to life.
He still had things to do in this Japan trip.
___
First ti writing Corporate Politics with the Kinney stuff
(The FBI, DOJ, and FTC were actually investigating Kinney during this ti in 1971)
User Comments
0 comments from readers