Why videogames are back with a bang
By STAFF Kate Ballen, Alan Farnham, Stuart Gannes, Cynthia Hutton, Andrew Kupfer

(FORTUNE Magazine) – Nintendo, manufacturer of a sophisticated $100 videogame system, seems to have conquered two of the toy business's most bothersome problems: marked seasonality, in which sales stagnate for three-quarters of the year and then pile up before Christmas, and the vagaries of selling exclusively to children. Retail sales of the machines and game cartridges reached $800 million last year, and they have held strong in January and February. The Japanese company thinks revenues will top $1.3 billion in 1988. Says American Securities analyst David Leibowitz: ''These games are light-years ahead of what was sold in the early 1980s in terms of graphics, story lines, and sound effects.'' As a result, he says, they appeal strongly to adults as well as children. Two hit games are powering Nintendo's popularity: Mike Tyson's Punch Out and The Legend of Zelda. Both cartridges sold a million copies in less than six months. The chance to market cartridges to Nintendo's growing base of users is attracting U.S. game manufacturers, including Hasbro, Activision, and privately held Broderbund. But U.S. toymakers are cautious about the rebuilt videogame market. Memories of the industry's rapid rise and fall remain frighteningly fresh. Four years ago Atari had to bury truckloads of unsold game cartridges in a New Mexico landfill. Nintendo is playing safe too. Instead of encouraging developers to crank out as many games as possible, the company licenses only a half dozen new titles a year, hoping to keep quality high, and lets retailers exchange laggards for best-sellers. So far the strategy looks like a winner.