An attempt by Atari, the nation's largest video games and personal computer company, to set up exclusive Atari distributorships has produced a court challenge that could determine the future structure of the rapidly growing game and computer software market.
Parker Brothers, the company that makes the "Monopoly" board game, charged Monday that Atari has "monopolized interstate trade and commerce in the video game software markets" in violation of federal antitrust laws.
Judge Albert V. Bryan Jr. issued a temporary restraining order in Alexandria Monday that prohibits Atari from continuing to press its distributors to sign exclusive contracts. A court hearing on the case is set for Friday.
The suit underscores the high stakes in the burgeoning game cartridge and software market that is expected to grow into a $5 billion business by 1985.
The Atari move toward exclusivity is seen by industry analysts as an effort by the California company to consolidate its position as the leading games company in the business and to gain greater control in establishing prices and marketing approaches with retailers. "Atari is kingpin of the industry," says Lee Isgur, a research analyst at Paine, Webber. "For most distributors, the Atari product line will be the most attractive line to have."
Parker Brothers maintains in its complaint that Atari "has had monopoly power in the video game software markets" since 1977 when it launched its video game system. If Atari isn't a monopoly already, it is trying to become one, claims Parker Brothers, which recently lost its own monopoly over the use of the word "Monopoly."
"There is a dangerous probability that the foregoing attempt to monopolize will be successful and that Atari will achieve monopoly power," according to papers filed in court.
However, even Atari has been buffeted by the competitive forces in the industry. The company saw its share of the video games cartridge market drop from 75 percent to 40 percent in less than two years, and Warner Communications Inc., Atari's parent company, suffered a billion-dollar drop in the value of its stock late last year when Atari sales failed to meet expectations.
Parker Brothers--which says it has 4 percent of the games cartridge market, led by such hits as a Star Wars cartridge and Frogger, based on a popular arcade game--charges that Atari's quest for exclusivity violates the Sherman and Clayton antitrust laws. The company further claims to have suffered $15 million in cancelled orders from distributors that agreed to go along with Atari's offer and has asked the court to order Atari to pay triple damages for allegedly violating antitrust laws.
Paine Webber's Isgur says that wholesale distributors place games cartridges in 10,000 to 15,000 retail stores around the country. This represents about half of Atari's cartridge sales.
Isgur says the rest is accounted for by sales through major chains such as Toys 'R Us, K mart and Sears. Parker Brothers says that the distributors Atari is seeking exclusivity with account for 49 percent of the company's volume sold through distributors and 31 percent of its total sales volume.
Schwartz Brothers, a Washington area record distributor and operator of the Harmony Huts record stores, recently formed a software subsidiary to sell games and programs in the same way it sells records.
B. Dalton, the Minneapolis-based bookstore chain, is testing computer software sales in several stores. Several companies--most notably Softsel in California--have entered the market with the intent of solely distributing computer games and software. However, it is not clear yet which path of distribution will dominate the industry.