Remembering Nuon, the gaming chip that nearly changed the world—but didn’t

Kabuki

It took almost a year of alcohol- and sushi-filled meetings for VM Labs and Toshiba to hammer out an agreement, with Miller flying tirelessly back and forth to work with both his engineers and Toshiba management.

"Now, when we're doing this, here is where the kabuki starts," recalls Ram.

DVD players in the US needed to be in Circuit City or they would struggle to sell in significant volumes. But Circuit City had just partnered with Thomson on the Digital Video Express format, known as DIVX for short (this is not to be confused with the completely different, unrelated video codec, DivX, which came later and is still in use). DIVX was basically DVD with some tweaks that allowed discs to have time limitations; you had to pay an additional fee to get another two days of viewing or to get an unlimited number of viewings.

Circuit City still stocked DVD players, but it tried to push customers to DIVX. "At that point Thomson had put a gun at our head and said, 'Hey, would you guys support DIVX?'" Ram said. "Here was a startup with barely 30 people having to make a momentous decision—which way do you want to go? There was no way in hell our company would have been able to support two competing formats, not with the kind of funding and resourcing that we were at."

VM Labs chose to stick it out with Toshiba. By the end of 1999, DIVX was dead—killed in part because its performance was inferior to DVD and in part because Hollywood was weary of a Betamax versus VHS-style war and chose a side early.

The kabuki didn't end there. Matsushita remained reluctant to adopt the VM Labs chip, so Sony wouldn't budge. And without Thomson US, which pulled out after the DIVX snub, Matsushita wouldn't need to worry about being the odd duck out in Circuit City. The company could continue to play hardball.

"We were trying to convince these guys that we're not a chip company," Ram said. "We're really a platform. What we're going to do is turn your DVD machine into something that's far more strategic. We were trying to sell a vision that the Japanese did not appreciate or share."

They got the vision later, when Blu-ray and HD DVD came around in the mid-2000s. "But it was after I think they read the tea leaves in the market," Ram said. "Unfortunately this was in 1998, when the DVD format had just come out. The fact that we were able to stretch our imagination and say this is where the markets will go at some point in the future was something that their incremental minds could not appreciate. Not every company has a Steve Jobs at its helm who's able to sway its audience. Here was a guy—a self-deprecating Brit engineer—trying to convince the hardened Japanese businessmen that they ought to place their bets on this product."

The Japanese manufacturers were not comfortable with firmware updates. "They didn't want the computer experience to be transferred to consumer electronics," Ram said. And that extended not just to updates but also to error handling—"If something goes wrong there's got to be a way to flash the firmware quickly and restore it to the last best-known state"—and startup times. Toshiba expected things to just work.

"I think for the Japanese it was really kind of welcome to the new world," Ram said. "Software changes the way you need to think, so that was the other big revelation for them. And I was right there sitting between these two cultures.

"You would have these conversations where the Japanese guy would be basically swearing at us and I'd have to figure out a way to translate that to my team. But then when they switch to English they would say it in a very polite way. They'd say, 'Please, Mr. Miller, would you please ensure that you're doing ABC?' It would be with a please and a very polite English expression. Then they'd turn to me in Japanese and say, 'Isn't this guy an idiot for not having done this to the platform? Is this what you'd expect in Japan? If I had a supplier I'd be basically throwing him down the next biggest bridge of Shinjuku [a busy business hub area in Tokyo].'"

Ram had better luck with Samsung. The Korean electronics giant bought in aggressively, demanding that it be first to market with a Nuon-enhanced DVD player. "One of the concerns that Toshiba had that they kept hammering on me," Ram said, "was, 'Look, if you guys launch with Samsung, you're going to spoil the image on this platform because these guys are not known for the quality or vision that we are planning to deliver on it.'"

Meanwhile, Sony made a strategic shift. "Ken Kuturagi [PlayStation's chief architect] looked at what Toshiba was going to do," Ram said. "He looked at what Samsung had announced. And I think there was a big fear within Sony that Nuon would basically pull the rug out from under Sony."

Kuturagi decreed that the PlayStation 2 would have DVD playback functionality. Sony's home entertainment division was furious and fought to stop the move for fear that it could cannibalize sales of Sony-branded DVD players, but they were powerless to stop Kuturagi and his growing computer entertainment division.

"There was also a bit of panic within the Toshiba camp because they wanted to make sure that the launch Toshiba [Nuon] DVD player would have at least a few titles, both game as well as movie titles," Ram said. "Here's a very classic Japanese response—this is a culture where you don't want to take your competitor head on. It's like basically let's all figure out a way to survive in the marketplace." Sony could have its hardcore games, essentially, and Nuon—at least from Toshiba's perspective—could push more for a casual audience.

Hollywood and the valley

The original Nuon vision didn't extend to interactive movie features such as zooming and panning or highlighting an object in a scene to trigger bonus content. But these sorts of features nevertheless became key to the platform strategy. To help woo Hollywood studios, Miller hired Sony Pictures veteran Paul Culberg and another of his former Atari colleagues—James Grunke—in 1999.

"They had a tough time," Miller said. VM Labs was small, maybe 50 people by then, and almost completely unknown. Culberg had the contacts and pull to get meetings and form relationships between VM Labs and the big studios. But while Hollywood liked the technology, it was hesitant to produce Nuon content. "The studios were pretty clear," Ram said. "'We want more manufacturers. We want to see more units. We need to see a lot more in the retail [chains].'"

Miller recalled the Hollywood outreach efforts as an expensive mistake on his part.

"I think in hindsight the interactive movie features were weak," he said. "I mean, from a consumer perspective I wouldn't buy a player for that." Nuon's strength lay elsewhere, and as exciting as the interactive movies tech was to everyone at the company, Miller now believes that the initiative stretched his company too thin and strained finances.

Good decision or not, VM Labs did manage to get multiple studios on board. CBS released a Nuon-enhanced edition of comedy flick Bedazzled, MGM put out its sci-fi oddity The Adventures Of Buckaroo Banzai, and 20th Century Fox sold Dr. Dolittle 2 and Tim Burton's Planet of the Apes remake in Nuon special editions.

But other efforts to build partnerships for entertainment software faltered. Atari veteran Bill Rehbock spearheaded efforts to broker agreements with big-name game companies. Like Hollywood, the big software publishers held back from significant commitments. VM Labs senior account manager for third-party development and director of licensing Scott Hunter recalls that publishers were reluctant "to hook their horse to 'potential.'" A few ports were announced for games such as Myst and Madden NFL, but no big hitters made it to market.

"It was really the smaller developers who jumped on board early and started playing with the development system," Hunter said. The caveats with these smaller developers were two-fold: VM Labs would have to self-publish the games, which incurred yet more expense for the startup, and the titles had little name recognition to sell the system to gamers.

Nuon's biggest game became Jeff Minter's Tempest 3000, which followed up Minter's cult hit Jaguar (and later PC, Saturn, and PlayStation) remake of 1981 arcade classic Tempest with even more insane real-time graphics effects. (See the guide for that title here [PDF]).

Tony Takoushi, a former games journalist and development/publishing veteran (he worked at Sega from 1988 to '94), was itching to do something totally new and original. Minter, a friend, suggested he pitch the idea to VM Labs, which greenlit development on Takoushi's Freefall 3050 AD. It was a strange and disorienting action game about a cop in a world where people lived in the sky.

Takoushi recalls that development was something of a nightmare because his team started making Freefall before VM Labs finished writing the software tools. "We had to switch the 'lead' CPU in the last few weeks from one of the four [MPE] processors to processor 'zero,'" he said. "This wasn't too bad for us... however, for Jeff's Tempest it was massive change as he wrote the game in assembly language and it entailed what I believe was a massive rework."

Close but not close enough

More concerning for game developers was that as launch day neared, marketing plans disappeared. Without big marketing or hype behind them, Takoushi and other Nuon developers struggled to get attention from the press (though those who did try Freefall praised its originality). Sales were distinctly low—fewer than 10,000 units for Freefall.

Kevin Manne, creator of the Nuon-Dome website, remembers this time well. He was one of the Nuon's super fans, a Jaguar diehard who followed Miller and company from Atari and eagerly bought a Nuon for Tempest and Merlin Racing (a sequel to a Diddy Kong Racing-like Jaguar game called Atari Karts). "Over time it became that if you wanted to buy a Nuon game you had to go digging through the DVDs to try and find it," he said. "It just got shoved in there because some employee didn't realize that it was a video game and not a regular DVD."

From a gamer's perspective, Nuon was a tough sell. Its games lineup numbered just eight titles a year after launch. As former VM Labs engineer Scott Cartier pointed out, "It also didn't help that our graphics capabilities were comparable with PS1 and N64 when the console market had moved on to Dreamcast."

Mass production took a while to get rolling. Samsung's first Nuon-enhanced DVD player started trickling out around the end of May 2000, soon followed by Toshiba's model and a full retail release at a price of around $300 to $350. Set-top boxes with Nuon inside started to proliferate more widely at the same time.

Again, Nuon was well received, though it was hardly the revelation it should have been. The hype had moved to other things, the launch titles were running late, and VM Labs was almost out of money.

"The launch experience was like riding a Mach 5 aircraft with all kinds of twists and rolls," said Ram. "And imagine you're not the guy piloting the plane; you're sitting in the back with your helmet on and wondering if you're going to make it through."

"By 2001, I was spending literally 100 percent of my time on funding," said Miller. The company needed cash to stay afloat until the Nuon revenues started to come in, which would take a while because of the licensing model used.

VM Labs was "close" to profitability. Toshiba and Samsung had entered mass production and around a dozen software titles were out. A few more months and the company might have been able to turn a corner. But close wasn't good enough. "We were just out of cash," Miller said. "We couldn't pay people and it wasn't right to have people in the building." Many VM Labs employees continued showing up to work, still believing in the vision. "We had to kind of push people away because nobody wanted to accept it," Miller said.

There was no lifeline because the financial markets had flatlined. The dot-com bust was compounded by the September 11, 2001 terrorist attacks. VM Labs had been trying to close a new funding round and was in talks to be acquired when the tragic incident happened. "After 9/11, the investors literally didn't pick up the phone," Miller said.

To save the company from being picked apart by "vultures," Lefevre soon resigned and got together the money and paperwork to put VM Labs into Chapter 11 bankruptcy. Pixelworks, where Miller now works, tried to buy the technology but was outbid by Genesis Microchip. The 50 or so employees that VM Labs still had followed to Genesis.

Genesis Microchip briefly kept the Nuon rolling along as before. Efforts to get emerging low-cost Chinese manufacturers on board failed, and a deal fell through with Disney in 2003 to have Nuon incorporated into a DVD player for tween and teen audiences. Genesis then cut its losses and dropped the platform part of Nuon.

The Nuon legacy

Nuon stands today as one of the greatest might-have-been computing and entertainment platforms. The Nuon team members interviewed for this story all pointed to funding—they really needed $60 million, not $30 million over the life of VM Labs—and launch delays as the biggest culprits in Nuon's failure. The basic business model works, but it needs big money or positive cashflow to get rolling.

"It took a company like Sony to do it with the PlayStation," Miller said. "You look at how much money went into the PlayStation, numbers bandied around of a billion dollars that they were in the red before they started to get positive."

But VM Labs had more going against it than the size of its bankroll. "The reviews saying someday all DVD players will rock this hard were all well and good," said Lefevre. "But when consumers were walking into Best Buy and all they saw was a wall of DVD players and prices—nobody willing or able to demonstrate the features—the price point was not competitive." More trouble was just around the corner too, as prices dropped rapidly on DVD players when the Chinese manufacturers took over the market from around 2003 onward.

An earlier release (say, late 1998) would have put Nuon in a much stronger position, clear of more powerful game consoles such as the Dreamcast and PlayStation 2 and well positioned to ride the DVD and video on demand waves. "Digital video was I think an ideal Trojan Horse," said Lefevre. "Ours was one of the great potential times to get something that would be really pervasive in homes."

Like many technologies that fail, Nuon was a victim of its time. Hunter succinctly describes what was perhaps its biggest problem, saying, "At that time, a game machine was a game machine and a DVD player was a DVD player." Nuon's vision was somehow too big, too grand for its era in home entertainment.

Now, as Mathieson points out, "There are too many entrenched players with too much to lose by letting any one entity get too powerful." But for a brief moment, a few years around the turn of the millennium, a company that for most of its life had fewer than 30 people very nearly changed the world with a simple idea and a clever bit of technology.

Richard Moss writes about emerging science and technology and shares untold or neglected stories about the people, ideas, cultures, histories, and communities behind video games. He previously contributed to Ars with a history of Tomb Raider-developer Core Design. You can follow him on Twitter @MossRC.

Listing image by Kevin Manne, Nuon-Dome.com