Video game crash of 1983
The
video game crash of 1983 was the sudden
crash of the
video game business and the
bankruptcy of a number of companies producing
home computers and
video game consoles in
North America in late
1983 and early
1984. It brought an end to what is considered the second generation of console video gaming.
This phenomenon unfolded primarily in the
United States and
Canada, since the contemporary global market for video game consoles had not yet evolved.
The crash was followed by a gap of three years, during which there was a much smaller market in games for home computers in North America, and no significant development for video game consoles. That gap ended with the success of the
Nintendo Entertainment System (NES) that was first introduced in Japan in
1983 (as
Famicom) and then in the United states in
1985 and would break out in popularity in
1987.
This period is sometimes referred to as the "video game crash of 1984," because that was the year the full effects of the crash became obvious to consumers. Hundreds of games were in development for 1983 release, most of which ended up in bargain bins. But few games were developed in 1983 for release the following year, resulting in a drought of new video games in 1984.
The video game crash of 1983 was caused by a combination of factors:
* Very aggressive
marketing of inexpensive
home computers, especially the
Commodore 64, with the theme "Why buy your child a video game and distract them from school when you can buy them a home computer that will prepare them for college?" Marketing research for both sides tracked the change as millions of consumers shifted their
intention to buy choices from game consoles to low-end computers that retailed for similar prices.
* A flood of poor titles from hastily financed
startups, combined with weak high-profile
Atari 2600 games based on the hit movie
E.T. and the red-hot
arcade game Pac-Man.
* The
news media sensationalized both the boom days of 1980 and the problems of 1982–83. In particular, the story of Atari burying thousands of
E.T. cartridges in a
New Mexico landfill shifted the outlook of the video game market in the eyes of many media outlets.
* The conclusion by key toy retail chains in 1983 that video games were a passing
fad (see
Cabbage Patch Kids and
Beanie Babies for examples) and that valuable shelf space should be allocated to new items.
The impact of home computers
Up until the early
1980s,
personal computers had primarily been sold in specialty computer stores at a cost of more than 1,000
USD, which is over $3000 in 2006 American dollars. The early 1980s saw the introduction of inexpensive computers that could connect to a
TV set, and offered color
graphics and sound. The first of these systems were the
Atari 400 and 800, but many competing models vied for consumer attention. As the pioneering computer-book author and journalist
David H. Ahl recounted in 1984:
In the spring of 1982, the TI 99/4A was priced at $349, 16K Atari 400 at $349, and Radio Shack Color Computer at $379, while Commodore had just reduced the price of the VIC-20 to $199 and the C64 to $499.[Ahl, David H. (November 1984). "The first decade of personal computing." Creative Computing, vol. 10, no. 11: p. 30.]
Since these and other computers generally had more
memory availableâ€"and better graphic and sound capabilitiesâ€"than a console, they permitted more sophisticated games and could also be used for tasks such as
word processing and home
accounting. Also, their games were much easier to copy, since they came on
floppy disks or
cassette tapes instead of
ROM modules.
Commodore explicitly targeted video game consoles in its
advertising, offered trade-ins toward the purchase of a Commodore 64, and suggested that college-bound children would need to own computers, not video games. Research by
Atari and
Mattel confirmed that these television ads badly damaged both their machines' images and sales.
Unlike most other computer manufacturers, Commodore also sold the machines in the same outlets as video game consoles:
discount,
department and
toy stores. Commodore's
vertical integration allowed it to engage in
aggressive discount pricing; its margins were much higher than those of
Texas Instruments,
Coleco, or
Atari, as Commodore's
MOS Technology, Inc. subsidiary actually manufactured many of the
chips (notably the
6502 CPU) used in Atari computers and video game machines. A similar situation had occurred in the
calculator market in the early
1970s, when companies found themselves buying chips from Texas Instruments but also having to compete with TI's calculators.
The flood of products
Video games, like toys, are sold through stores on a model that is close to one of
consignment. If a title does not sell, it is returned to the publisher for credit, and the store gets a different title in return. The process is repeated until the goods are sold. This business model—which persists today—is a key root of the Crash of 1983.
The first chapter of the coming disaster was actually written with high-quality games:
Activision was co-founded by four Atari game designers who left the company in
1979 because Atari did not allow credits to appear on the games and did not pay employees a royalty based on sales. At the time, Atari was owned by Warner Communications. The developers felt that they should receive the same recognition that musicians, directors, and actors get from Warner's other divisions.
Atari quickly sued to block sales of Activision's products, but never won a
restraining order and ultimately lost the case in
1982.
This court case legitimized third-party development, and companies as ill-prepared as
Quaker Oats rushed to open video game divisions, hoping to impress both
Wall Street and consumers. Companies lured away each others' programmers or used
reverse engineering to learn how to make games for proprietary systems. Atari hired several
Intellivision programmers, prompting a lawsuit by Mattel against Atari that included charges of
industrial espionage. Rather than give credit to the
Intellivision game designers, Mattel instead required that a term of a 1981
TV Guide interview with them was to change their names to protect their collective identities.
Unlike
Microsoft,
Nintendo, or
Sony in later decades, the hardware manufacturers had lost the exclusive control of their platform's supply of games. With it they had lost the ability to make sure that the toy stores were never overloaded with product. Activision, Atari and Mattel had experienced programmers, but many of the new companies rushing to join the market did not have experienced talent to create the games. Titles such as
Chase the Chuck Wagon,
Skeet Shoot, and
Lost Luggage were less-than-stellar examples of games companies made in the hopes of taking advantage of the video game boom. While heavily advertised and marketed, the games were poor and did not catch on as hoped.
The established video game companies also played a role in the crash. For example, when Atari issued its widely advertised
E.T. game, it manufactured millions of units in anticipation of a major hit. Unfortunately, the game had been rushed to market after only six weeks of development time,.
The game's poor reputation spread quickly by
word of mouth, and the story was picked up by newscasts that trumpeted
E.T. as the first great
bomb of the video game age.
Retailers' loss of faith
The rush to market of so many substandard games in
1982 flooded the retail channel. Inside Mattel, one Intellivision sales executive explained the problem by saying, "Two years of products have been pushed into the channel in one year, and there's no way to re-balance the system." When stores went to return goods to these new publishers, the publishers had neither new products nor cash to refund the retailers' money. Many publishers, including
Games by Apollo and
US Games, and the ill-fated Quaker Oats games unit, quickly folded.
Unable to return the unsold games to defunct publishers after Christmas in 1982, toy stores marked down the titles and placed them in discount bins and sale tables. Where the typical game of
1982 cost $34.95â€"about $71 in
2005 U.S. dollars when adjusted for inflationâ€"the discount bins quickly settled on the price of $4.95 per game. By June 1983 the market for $34.95 games had plummeted, being replaced by the market of rushed, low-budget games. Consumers' trips to the store often began and ended at the discount bin, the uninformed customer seeing cheaper games as more appealing regardless of quality. After some time, the consumers began to tire of the substandard quality of the cheaper games, and rather than pay the high prices for the dwindling number of high-budget games, they quit gaming entirely.
Worse yet, the toy retailers which controlled consumers' access to games had concluded that video games were a
fad, the fad was over, and that the shelf space should be reassigned to different products.
A massive industry shakeout resulted. Console manufacturers Mattel,
[Mattel returned to the market briefly with its acquisition of The Learning Company in 2000, only to divest it to the Gores Group less than two years later.] Magnavox, and
Coleco all abandoned the video game business.
Imagic withdrew its
IPO the day before its stock was to go public, and later collapsed. While the largest of the third-party cartridge makers,
Activision, survived for several more years
[Activision eventually faded as well; its name and assets were purchased by a new management team led by Bobby Kotick who built a new, highly successful, but otherwise unrelated company based on the old brand. This company still exists, and is considered one of the major video game publishers.] on personal-computer platforms (thanks to their then-legal ability to average their income and recover millions in past tax payments from the
IRS), most of the smaller software development houses supporting the Atari 2600 closed.
Some game enthusiasts consider 1983 a peak time in the history of
arcade games, the home video game consoles' bigger, stand-alone brethren located in
diners,
shopping malls, and
video arcades. Notably, this was the year the hugely successful
Dragon's Lair was introduced, the first
laserdisc video-game, which incorporated full-motion video animation. But coin-op games were caught up in the public perception that "the video game fad is over," and their sales dropped off sharply as well.
A savage price war
At the same time as the gaming shakeout, a home-computer price war was occuring that proved disastrous for some contenders in the industry. As David Ahl recounted:
In January 1983, [Jack Tramiel, the head of Commodore] slashes the price of the Vic to $139 and the C64 to $400. TI reacts a month later with a rebate that lowers the street price of the 99/4A to $149. Tramiel turns around and cuts the price of the Vic to under $100, forcing TI to announce a further cut in the price of the 99/4A to $100 to take effect in June. On June 10, 1983, TI announced the largest loss in their corporate history and three months later withdrew from the home computer market. Tramiel, still looking for market share, slashed the price of the C64 to $200 and virtually walked away with the holiday buying season for the second year in a row.
Besides TI, casualties included the
Coleco Adam, the
Timex-Sinclair line, and a number of other smaller players. Atari nearly went bankrupt and in 1984 was sold off by its parent company
Warner Communications (now part of
Time Warner). The purchaser was, ironically, Jack Tramiel. Commodore's
board of directors, keen on taking the company into a direction away from home computing, had forced him out; even the winner of the home computer war found it a
Pyrrhic victory.
The crash had two long-lasting results. First, dominance in the home console market shifted from the
United States to
Japan. When the video game market recovered in
1987, the leading player was Nintendo's
NES, with a resurgent Atari battling
Sega (actually founded by an American, Martin Bromely) for the number two spot. Atari never truly recovered, and finally stopped producing game systems in
1996 after the failure of the
Atari Jaguar.
A second, highly visible result of the crash was the institution of measures to control
third-party development of software. Secrecy against industrial espionage had failed to stop rival companies from reverse engineering the Mattel and Atari systems, and hiring away their trained game programmers. Nintendoâ€"and all the manufacturers who followedâ€"controlled game distribution by implementing licensing restrictions and the implementation of a security lockout system. Would-be renegade publishers could not publish for each others' linesâ€"as Atari, Coleco and Mattel had doneâ€"because in order for the cartridge to work in the console, the cartridge must contain the appropriate key chip for the lock inside the console and the publisher must acknowledge their license to Nintendo in the copyright notices. If no key chip was present or if the key chip did not match the lock inside the console, the game would not work. Although
Accolade achieved a technical victory in one court case against
Sega, challenging this control, even it ultimately yielded and signed the Sega licensing agreement. Several publishersâ€"notably
Tengen (Atari),
Color Dreams, and
Camericaâ€"challenged Nintendo's control system during the 8-bit era. The concepts of such a control system remain in use on every major video game console produced today.
Nintendo reserved the lion's share of NES game revenue for itself by limiting most third-party publishers to only five games per year on its systems. It also required all cartridges to be manufactured by Nintendo, and to be paid for in full before they were manufactured. Cartridges could not be returned to Nintendo, so publishers assumed all the risk.
[As a result, some publishers lost more money due to distress sales of remaining inventory at the end of the NES era than they ever earned in profits from sales of the games.] Nintendo portrayed these measures as intended to protect the public against poor-quality games, and placed a
golden seal of approval on all games released for the system. Although most of the Nintendo platform-control measures were adopted by later manufacturers like Sega, Sony and Microsoft, the others never used such strong measures to hold a larger share of the games market for themselves.
The hardware manufacturers of 2005 routinely receive $9 U.S. or more for every licensed software product sold by authorised third party publishers, and defend their legal rights aggressively. This allows console manufacturers to cash in on the success of third-party publishers, and it also gives the console manufacturers control over shoddily produced, pornographic, or otherwise controversial third-party games such as
Custer's Revenge that could taint the console's reputation.
A lesser effect of the crash that lasted through the end of the 1980s until a new generation of console hardware had arrived: Surviving game development and publishing companies began targeting home computer platforms in absence of a strong console to target.
Electronic Arts, for example, was founded in 1982 and began shipping titles in 1983; it avoided being caught in the crash because of its business plan to develop only to computers. The computer game market was worldwide, but proved to be particularly strong in the
United Kingdom.
* DeMaria, Rusel & Wilson, Johnny L. (2003).
High Score!: The Illustrated History of Electronic Games (2nd ed.). New York: McGraw-Hill/Osborne. ISBN 0-07-222428-2.
*
Article at The Dot Eaters, a chronicle of the Great Videogame Crash
*
Intellivision site Includes extensive history of the era and the crash
*
The Golden Age of Video Game Arcades (a 200-page story contained within Twin Galaxies' Official Video Game & Pinball Book of World Records) by Walter Day (1998), ISBN 1887472-25-8
*
Classic Gaming Expo site Biographies and history of the era
*
The History of Computer Games: The Atari Years Written by Chris Crawford, a game designer at Atari during the crash
*
Detailed C64 Chronology Events & Game release dates (1982-1990)
