> Nintendo was about to release a next-generation console, the Famicom, in Japan. They wanted to export it to other markets, but didn’t want to do it alone. Nintendo really wanted to license the Famicom to Atari and have Atari distribute it in North America. Atari CEO Ray Kassar was going to sign the deal at CES in June, but delayed due to the spat over the Coleco Adam version of Donkey Kong. Then the deal fell through the cracks after Atari forced out Kassar as Atari CEO on July 7, 1983. Atari’s next CEO, James Morgan, never revisited it.
There's a leaked memo about this deal available here: https://web.archive.org/web/20080327135150/http://www.atarim... . Atari had already paid General Computer to design the 7800 when Nintendo reached out to them about distributing the Famicom. Atari viewed the 7800 hardware as likely being superior to the Famicom, so their strategy was to string out the negotiations for as long as possible until the two systems could be directly compared. The Coleco Adam dispute was probably just a convenient excuse to continue delaying.
When Ray Kassar was forced out due to insider trading (he sold a bunch of Atari stock around half an hour before Atari reported much lower than expected earnings), the business press was generally dismissive of the idea of introducing a new console into an already oversaturated market. The 7800 ended up getting delayed into 1984, then Jack Tramiel bought the company and didn't want to pay General Computer royalties on the consoles or software so they sat in a warehouse until 1986 when Atari finally paid up.
If Atari did end up going with the Famicom instead of the 7800, I imagine it would have ended up delayed and hamstrung the same way the 7800 was. If anything, maybe this would have left space for the Sega Master System to take over in the US.
The other big problem with the 7800 was it was mostly arcade ports. They didn't really do any original games.
People were tired of the 5th home version of Galaga, Pac Man, and Dig Dug (even though the 7800 had decent ports, especially compared to the 2600, which it was also backward-compatible with). Nintendo came out with originals like Super Mario Brothers and Zelda, and then all the third party games...
Almost...
Rescue On Fractalus and Ballblazer*, the first two titles out of LucasArts, were supposed to be lead titles for the platform. And the 7800 was technologically superior to the Famicom. But when has that mattered relative to the game library? See also the Jaguar port of Doom, which was the most faithful adaptation of its generation, written by Carmack himself, on a bizarrely advanced (2 RISCs plus an overclocked 68K) platform born for the dustbin of history because the Tramiels had burned all their karma to the ground messing up the amazing Atari Lynx.
I'm sure there's a timeline where somehow the Nintendo titles ended up on the 7800, looking fantastic, and it all ended with Atari continuing to dominate the console world. But it sure isn't this one. And it probably requires someone other than the Tramiels running Atari (into the ground until it was sold off to a hard drive manufacturer).
*The OG Rocket League
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Yeah the 7800 library was basically a bunch of ports of early 80s arcade games that GCC had done for the initial 1984 release date, then ports of whatever computer or arcade games the Tramiels could get cheap licenses for, done by external contractors. Their strategy with the 7800 was competing with Nintendo on price rather than the quality of the game library. Tramiel led Atari wasn't willing to put a bunch of money and effort into pushing video games forward like Nintendo was, they were mainly focusing their internal efforts on the ST computers.