Odd stories started to emanate from the Sunnyvale giant about unsold VCS cartridges.  A pattern of bad decisions, including massive expenditure on other, mostly computer related projects, started to plague Atari.  But it was the money spent on film licenses that most publicly hurt the company.  For example, Atari management decided to spend nearly $25 Million for the rights to E.T. - A massive movie, but a disastrous VCS title.   The software was pushed through development by senior management, just like Pac-Man had been - but consumers were more educated, and titles like E.T.  and Raiders of the Lost Ark were making no impressions with the gaming public. 

As legend unkindly has it, and after much pressure from Atari retailers and users, 450,000 E.T. cartridges were loaded on a convoy of "twenty-toners" which trundled their way out to the New Mexico Desert - with the aid of earth moving equipment, they were dumped in a land-fill close to the White Sands nuclear testing grounds...

And what of Nintendo, which became one of the worlds largest dedicated games companies?  Well, the fact that Nintendo approached Atari to market its technology under a licensing agreement is not a myth.  On April 4th 1983, Alan Henricks at Atari received a letter from Mr. Arakawa and Mr. Lincoln of Nintendo America, this letter was the start of high level discussions with Nintendo and Atari.  A couple of days later they came to meet with Ray Kassar to explore whether Atari had any interest in Nintendo's new video game system, which was still very much at the prototype stage.  Atari engineers met with Nintendo a number of times, and further discussions continued, Atari were also busy developing the Maria (or 5200) system with General Computer Corp, and it was noted that because the Nintendo system was of the same spec, and in some cases "superior", that negotiations with Nintendo continue.

Nintendo and Atari were close to signing a licensing agreement, and it is rumoured that the new machine would be called the 3600, based on the Nintendo architecture.  Nintendo would sell the FCS as it was called (Family Computer System) in Japan, and Atari would see the FCS/3600 in all other worldwide territories.  Details, including up front payments, and minimum numbers of units Nintendo had to purchase were drawn up, but unfortunately for Atari, the deal fell through and Atari decided to continue with its 5200 system...

The 5200 was an effort to compete with the CBS ColecoVision, and it did it well technically.   The problem with the 5200 was it's analogue joysticks and the slightly higher price tag - the 5200 was sold boldly in the retail stores, with it's big bright packaging and associated gaming devices (such as a trackball and old-type joystick add-on's), but it wasn't going to be enough to put Atari back on track.  Atari pulled production of the 5200 in February 1984.  Along with the 1200XL fiasco, Atari was feeling the backlash from both consumers and retailers.

1984 - The 7800 VCS was the product which the 5200 should have been.  It was less expensive to manufacture and was made backward compatible to the 2600 VCS, which pleased the 20 Million 2600 owners...  But it would be the last video games system to be launched under the Warner owned Atari.