The Atari 7800 ProSystem was Atari's chance at redemption in the video game market. Atari Inc. spent a good part of 1983 interviewing thousands of people on what they wanted and didn't want in a video game console. Atari Inc. was introduced through Warner Communications, to a new firm that was now under contract directly to Warner Communications through their Atari/NY Lab. The company was called General Computer Corporation, a strange new bedfellow in the Warner-Atari relationship who earlier had lost a lawsuit with Atari regarding a "Speed-up" board that GCC had been selling for Atari's Missile Command arcade machines, turning them into "Super Missile Attack".
Art Ng, Steve Golson and several of GCC's Chip Architect Designers with assistance from VLSI would architect and design the GCC1702B "MARIA" Graphics Processor, the heart of the Atari 7800 ProSystem The first MARIA chip was numbered GCC1701. GCC's engineers were big fans of Star Trek, so with the Enterprise being NCC-1701, they made their chip the GCC-1701. The final production chip: Maria II was GCC1702B.
The all new graphics chip called MARIA (Also the codename of the 7800 Project) with almost 100 independent sprites, better color palette onscreen, and other powerful features would not only allow game designers the ability to code new and exciting games, but the chip also allowed an original Atari TIA processor to co-exist side by side with MARIA so that the new console could also play all of the original Atari 2600 games as well.
Then as an added bonus, GCC's programmers would also do almost all of the Atari 2600, 5200 games in 1983-1984 for Atari. Atari's programmers in Sunnyvale were jumping ship to start their own firms. After another batch left to start Imagic, another group threaten to leave Atari. Steve Ross, head of Warner Communications contacted GCC about doing games for Atari. Not only was GCC able to code games for Atari's console, they were doing it in weeks compared to months.
Steve Ross and then all within Warner started to call GCC "The Toaster"
Steve Ross was fond of saying:"...Just pop in the game spec's at GCC and out popped a finished game..."
The Atari 7800 was designed to be flexible and expandable and even had an expansion port for future peripherals to tap into the system bus and video circuitry. One such peripheral was a LaserDisc Interface system. The Atari 7800 ProSystem was the ultimate video game console creation, a console with features everyone wanted. Gone were the complex 5200 type controllers, in came a clean and simple ProController, out went the HUGE size of the 5200 and in came a small and sleek console design.
Within Atari, Inc. from 1983-1984 The Atari 3600 (as the Atari 7800 was called for the first several months of the project) was stated as "Company #1 Priority" and in many Atari Engineering Log Books its noted:
Basically Atari was putting everything and everyone into the 7800 to make it a winner. To make sure the system had every bell and whistle possible, the system was slated to be released with not only a computer keyboard, but also a High Score cartridge (Designed by GCC), and a new add-on module for the Atari 5200 which would have given the Atari 5200 system full Atari 7800/2600 compatibility to ensure its existing base of 5200 owners could immediately take advantage of all the hot new games that the 7800 was capable of producing (Designed by Gary Rubio).
The Computer Keyboard add-on plugged into joystick port #2 with an accompanying cartridges turned the 7800 into a full blown 8-bit computer system. The keyboard even had an Atari SIO (Serial I/O) connector for using Atari XL Computer System peripherals like cassette recorders, printers and even a disk drive. OSS (Optimized Software Systems) wrote OSS/Atari 7800 Basic so that users could do Basic programming on the 7800 with the Computer add-on.
The one truly key feature was the on-board "Out of the Box" Atari VCS 2600 compatibility. Atari also wanted to avoid any chance of another flood of poorly written games for the console, so they had GCC add an encryption key system into its cartridges and console. If the checksum key was valid the MARIA chip would become active and the 7800 was ready to go, if not then the system would stay in 2600 compatibility mode.
When Atari was sold to the Tramiels in July 1984, the Tramiels primary goal was the design and production of its new "RBP" computer system. (Which would be released as the Atari 520ST) According to product scheduling logs from Tom Brightman, the Tramiels were actually focusing on video games as part of their future. The Atari 2100 (which would become the Atari 2600jr) was on the schedule. The Tramiels and Warner Communications were at odds as to who owed GCC payment for all of the work on the "MARIA" chip and the 7800 system. After nearly 9 months the Tramiels were the ones who owned the debt to GCC. Reluctantly Jack Tramiel paid a one time "Go away" amount to GCC, who cashed that check immediately before it bounced (according to a GCC engineer.)
Now the next issue arose... 7800 games. While the Tramiels now owned the 7800 console, they didn't own any games for it. More negotiations with GCC would ensue... finally by late 1985 a deal was made with GCC for nearly a dozen games for the 7800. With 1986 fast approaching, Atari could finally prepare the 7800 for retail sale and it would not be alone, Nintendo and Sega would also have their consoles in the marketplace as well.
It should be noted, that early in the Spring of 1983 Nintendo approached Atari to license and sell their Famicom system under the Atari name since Nintendo didn't feel it could compete against the once mighty video game giant. In August of 1983, Ray Kassar was let go as Atari's CEO, in the upper management shuffle, the Nintendo deal slipped through the cracks.
Becoming impatient, Nintendo decided that they would sell their Famicom in the U.S. on their own and called it The "Nintendo Entertainment System" The NES was test released in 1986.
Atari Corp, since the day the Tramiels had bought Atari in July of 1984 had already planned a strong return into the Video game industry. The Atari "2100" project (In development since 1983) which would become the Atari 2600jr was being readied for release in early 1986. The Atari 7800 after nearly 18 months of legal wrangling between Atari Corp, Warner Communications and GCC along with Atari Corp. paying GCC a $3.2 million settlement for the rights and ownership to the MARIA chip, the Atari 7800 was also readied for a 1986 release.
Atari however found itself in a sudden and rapid disadvantaged position...
Atari Corp. would hit a major brick wall when it came to licensing games. Nintendo had created far reaching exclusive license agreements with many major and even new software companies, blocking Atari from gaining access to games on their console. Sega didn't have this problem for its Master System because it had a large library of arcade titles that had never been ported to the home console market, so it faired better. Atari was stuck with having a large, but aging library of titles and an unfair position in the market due to Nintendo.
Nintendo had the market; lock, stock and barrel. Not to mention Sega with its Master System was also hot in Nintendo's tail, Atari was running third in a race it used to run a far lead in first in the past. Atari would sue Nintendo for unfair business practices. Unfortunately a Judge would rules against Atari on the case and Nintendo continued to lock Atari out of gaining access to many hot new titles which would've substantially benefited the Atari 7800 in sales.