Released October 1977 in the USA at a price of US$199.99, the Atari Video Computer System (VCS) was the first successful video game console to use interchangeable cartridges rather than having one or more games built into internal ROM chips. The system came bundled with a Combat cartridge, 2 joysticks, the Paddle controller, power cable and RF modulator. About 6 additional games were available for purchase.
The system was developed by Atari's Cyan Engineering - a group of engineers formed in 1975 to research next-generation video game systems. They had developed a working prototype named "Stella" which, unlike earlier machines (that used custom logic to play a limited amount of games), was a combination of a complete CPU (an MOS Technologies 6507, a cut-down version of their 6502 microprocessor) combined with a display and sound chip, which they named TIA (Television Interface Adaptor). The 6507 processor included less memory pins than the 6502 (13 instead of 16) so it could fit into a smaller 28-pin package. This was an important factor in the cost of the system and because of the high cost of memory at the time, the small 4KB memory space was not going to be all used anyway. Atari got a deal on 24-pin connectors for the cartridge socket and therefore limited the games to 2K.
The design for the VCS was not originally going to be cartridge-based, but they realised they could place games onto cartridges essentially for the price of the connector and packaging after seeing the "fake" cartridge system used in the Magnavox Odyssey.
In August 1976, Fairchild unexpectedly released their own cartridge-based system, the VES (Video Entertainment System), beating atari to it. Atari's Stella was not yet ready for production - they needed to get a move on with it before other companies copied Fairchild and oversaturated the market with such consoles (much like the copycat efforts that occurred after the released of the Pong system). Atari did not have the cash-flow to speed up the production of Stella. Head of Atari, Nolan Bushnell, sold the company the Warner Communications in 1976 for US$28 million with the promise that Stella would be completed as soon as possible.
Chip designer, Jay Miner, was hired to help in the development and managed to condense the entire TIA into one single chip. After debugging, the system was ready to be shipped. By this time, the development had cost about US$100 million.
Atari named the system the Video Computer System (VCS) in direct competition with the VES, which Fairchild renamed to the "Channel F" after learning of Atari's naming. 1977, when the VCS was released, was not a good time for video game systems as the market experienced a crash after it had been previously oversaturated with Pong clones. People had had enough of video games and did not take much notice of the VCS. As a result, Atari sold only 250 000 VCS systems that year and 550 000 in 1978, leading to further debt and the requirement for more support from Warner. This led to disagreements between Nolan Bushnell and Warner's president Steve Ross, causing Bushnell to leave the company in 1978 in the hands of Ray Kassar.
It wasn't until later that year and into the following year that the VCS began to gain massive popularity as gamers started to realise this system had far greater potential than Pong systems and programmers learned how to push the system's hardware capabilities. Fairchild had already given up by this point, leaving Atari with virtually no competition in the market. Over 1 million consoles were sold in 1979 and the VCS (which had, by now, been renamed 2600) was the most popular Christmas present that year.
The system's popularity continued to grow after the release of Taito's arcade hit "Space Invaders" on the system in May 1980, generating sales of a further 1 million units. Atari grossed more than US$2 billion in profits in 1980 and over the next 2 years the 2600 continued to sell well with almost 8 million units sold in 1982.
During this time, Atari grew larger and expanded its R & D divisions until they were one of the largest in Silicon Valley. Much of their R & D budget was spent on obscure projects, many of which were never released. One of these, which was released, was the Master Module, which allowed "online" play. Retailing for US$49.99, the module allowed gamers to download games through their telephone line for a hook-up fee of US$15 and US10 cents per game or US$1.00 per hour.
Atari also attempted to bring out newer consoles with little success, however, their 8-bit home computers sold fairly well. Warner were still happy nonetheless. The 2600 continued to sell extremely well and Atari was generating more than half of the company's income.
Many of Atari's programmers became disgruntled with the company for not crediting them for their game development work. Some programmers began hiding their names or initials within the games ( known as an "easter egg") but many of them left to form their own companies. Activision, formed in 1980, would be one of the more well-known of these companies, producing games for the 2600 that often grew more popular than those Atari's own games. Atari's attempts to block third party games in court failed, resulting in more companies, such as Coleco and Imagic, getting in on the act too.
In 1983, the video game market in the USA experienced another crash. There were many factors that may have contributed to the crash including the belief of many people that home computers would take the place of video game consoles. Another contributing factor is likely to have been the public disappointment in some of the Atari 2600's game titles of the time. One of these disappointments was the arcade port of "Pac-Man", which was almost nothing like the original. Unsold stock of this cartridge reportedly filled the land fill in New Mexico along with other unsold disappointments such as "E.T. The Video Game".
During the 1983 crash, Atari was losing up to US$10 000 per day due to its growth in previous years. Warner sold the company to Commodore International in 1984.
Commodore founder, Jack Tramiel, wanted to focus more on home computers and released a smaller, cost-reduced version of the 2600 in 1986. A resurgence in game development from both Atari and third party developers kept the system alive for another few years. The 2600 continued to sell in North America and Europe up until 1989 and until the early 1990s in Asia and Australia, where HES continued to release third party titles.
In the Atari 2600's lifetime, it is estimated that 25 million systems were shipped and its video game library numbers around 900 games. It was also the subject of a number of clone systems - even decades after the system was released a number of plug and play TV games were made that simulate the 2600's electronics and includes a number of ROMs built in. The 2600 is still a popular for hobbyist developers who continue to make new games.