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Atari, founded in 1972, launched the video game industry with its…

Atari, founded in 1972, launched the video game industry with its big hit, Pong. As Atari grew during its first 5 years, Atari co-founder and avid Disney fan Nolan Bushnell recognized the value of the Pong arcade game:

 “In the case of Pong, it [the arcade version] was such a hit that you’d sell it for a $1,000. And in its lifetime, it’d make $30,000. It didn’t take a rocket scientist to say, ‘Hey, I’m on the wrong side of this equation. I shouldn’t just be selling the machines. I should be operating the machines.’ “

 Nolan Bushnell

In 1977, Bushnell left Atari and opened the first Chuck E. Cheese’s Pizza Time Theater, which today goes by the name Chuck E. Cheese’s (or CEC for short). As a result of Bushnell’s keen interest in Disney, he decided to incorporate mechanized animal characters into CEC. The result was the iconic mouse, Chuck E. Cheese, whose name was purposefully chosen because it is hard to say without smiling.

Figure. Chuck E. Cheese’s Marketing


The typical CEC store is a brick and mortar entertainment area that targets kids between the ages of 3 and 12, providing a variety of arcade-type games, mechanized animal “shows” that included Chuck E. Cheese and his other animatronic friends, as well as food (mainly pizza) and refreshments. The establishments serve alcohol for parents and are known for hosting large group birthday parties for kids.

An early commentator characterized CEC as “a whirling combination of garish lights and nonstop electronic noise that is quite unlike any other pizza parlor or video game arcade. It is part Star Wars, part Disneyland, and part social phenomenon.”

 Another said, “I think [my kid] has more fun there than he did when we went to Disneyland last year! Not everyone can afford to go to a resort or theme park…but I think just about everyone can go to Chuck-E-Cheese.”  

See the two figures below for images of the inside of a typical CEC store.

Figure. Games Inside Chuck E. Cheese’s


Figure. Animatronics Show in Chuck E. Cheese’s


By the end of 2016CEC had revenues of approximately $923 million, across 747 stores in the US. Roughly 55% of its revenue came from coin-operated arcade games and merchandise, with the rest coming from food and beverage sales. CEC costs at the end of 2016 totaled $713.95 million. Major costs include labor, rent, food supplies, the fixed costs of the arcade machines, and other store operating costs; in 2016 labor made up the largest share of costs at approximately 35%, while rent made up 13%. In 2014 CEC acquired its biggest competitor Peter Piper Pizza, making it the market leader in the kid-focused dining/entertainment space.


In contrast to the relatively high revenues of CEC, by the end of 2015, Atari, now owned by a French video game company, had revenues of only $9 million. Atari is currently seeking to make a comeback in the console business, however, by releasing its first console in over 20 years: the Atari VCS, which was released in June 2021. The comeback has been largely unsuccessful, however, with a recent headline reading “Atari’s first console in 28 Years is all style and no substance.” 


Given the information above, and from what you know from the cases, please answer the following question:


The year is 2015. The Wii U has flopped and Nintendo is deciding what to next. As a way to buffer their revenue from the volatile video game industry, the Nintendo CEO is considering entering the brick and mortar, kid-based arcade/entertainment industry. His idea is to replace Chuck E. Cheese with Nintendos famous characters like Mario, Luigi, Pikachu, and Zelda, and replace the generic arcade games with Nintendo-based arcade games. The spaces would be called Mario’s Playhouse.


At the same time, a Disney executive, spurred by the idea of capturing the market that can’t afford to travel to Disney, as well as the high interest in “character dining” at their theme parks, pitched the idea of acquiring CEC and replacing Chuck E. Cheese with its iconic cast of characters (Mickey Mouse, Jack Sparrow, Cinderella, etc.) in an attempt to “Bring Disneyland closer to home.” The executive also highlighted that, if it made sense, Disney could deploy its own movie-based video games (made following the successful release of a Disney film) in lieu of the older games currently employed by CEC.



Who would be willing to pay more to acquire CEC: Nintendo or Disney? Why?

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