Video game crash of 1983
The video game crash of 1983 was a large-scale recession in the video game industry that occurred from 1983 to 1985 in the United States. The crash was attributed to several factors, including market saturation in the number of video game consoles and available games, many of which were of poor quality. Waning interest in console games in favor of personal computers also played a role. Home video game revenue peaked at around $3.2 billion in 1983, then fell to around $100 million, a drop of almost 97%. The crash abruptly ended what is retrospectively considered the second generation of console video gaming in North America. To a lesser extent, the arcade video game market also weakened as the golden age of arcade video games came to an end.
Lasting about two years, the crash shook a then-booming video game industry and led to the bankruptcy of several companies producing home computers and video game consoles. Analysts of the time expressed doubts about the long-term viability of video game consoles and software.
The North American video game console industry recovered a few years later, mostly due to the widespread success of Nintendo's Western branding for its Famicom console, the Nintendo Entertainment System, released in October 1985. The NES was designed to avoid the missteps that caused the 1983 crash and the stigma associated with video games at that time.
Causes and factors
Flooded console market
The Atari VCS was not the first home system with swappable game cartridges, but by 1980 it was the most popular second-generation console by a wide margin. Launched in 1977 just ahead of the collapse of the market for home Pong console clones, the Atari VCS experienced modest sales for its first few years. In 1980, Atari's licensed version of Space Invaders from Taito became the console's killer application; sales of the VCS quadrupled, and the game was the first title to sell more than a million copies. Spurred by the success of the Atari VCS, other consoles were introduced, both from Atari and other companies: Odyssey², Intellivision, ColecoVision, Atari 5200, and Vectrex. Notably, Coleco sold an add-on allowing Atari VCS games to be played on the ColecoVision, as well as bundling the console with a licensed home version of Nintendo's arcade hit Donkey Kong. In 1982, the ColecoVision held roughly 17% of the hardware market, compared to the VCS's 58%. This was the first real threat to Atari's dominance of the home console market.Each new console had its own library of games produced exclusively by the console maker, while the Atari VCS also had a large selection of titles produced by third-party developers. In 1982, analysts marked trends of saturation, mentioning that the amount of new software coming in would only allow a few big hits, that retailers had devoted too much floor space to systems, and that price drops for home computers could result in an industry shakeup. Atari had a large inventory after significant portions of the 1982 orders were returned.
In addition, the rapid growth of the video game industry led to an increased demand, which the manufacturers over-projected. In 1983, an analyst for Goldman Sachs stated the demand for video games was up 100% from the previous year, but the manufacturing output had increased by 175%, creating a significant surplus. Atari CEO Raymond Kassar recognized in 1982 that the industry's saturation point was imminent. However, Kassar expected this to occur when about half of American households had a video game console. The crash occurred when about 15 million machines had been sold, which soundly under-shot Kassar's estimate. Michael Katz, the president of Atari's electronic division, stated that the console market was too saturated as 30 million consoles were sold by 1982, out of the 35 million households with children between the ages of six and sixteen.
Loss of publishing control
Prior to 1979, there were no third-party developers, with console manufacturers like Atari publishing all the games for their respective platforms. This changed in 1979, when Activision was founded by four former Atari video game programmers who left the company because they felt that Atari's developers should receive the same recognition and accolades as the actors, directors, and musicians working for other subsidiaries of Warner Communications. Already being quite familiar with the Atari VCS, the four programmers developed their own games and cartridge manufacturing processes. Atari quickly sued to block sales of Activision's products but failed to secure a restraining order, and they ultimately settled the case in 1982. While the settlement stipulated that Activision pay royalties to Atari, this case ultimately legitimized the viability of third-party game developers. Activision's games were as popular as Atari's, with Pitfall! selling over four million units.Prior to 1982, Activision was one of only a handful of third parties publishing games for the Atari VCS. By 1982, Activision's success emboldened numerous other competitors to penetrate the market. However, Activision co-founder David Crane observed that several of these companies were supported by venture capitalists attempting to emulate the success of Activision. Without the experience and skill of Activision's team, these inexperienced competitors mostly created games of poor quality, which Crane notably described as "the worst games you can imagine". While Activision's success could be attributed to the team's existing familiarity with the Atari VCS, other publishers had no such advantage.
The rapid growth of the third-party game industry was easily illustrated by the number of vendors present at the semi-annual Consumer Electronics Show. According to Crane, the number of third-party developers jumped from 3 to 30 between two consecutive events. At the Summer 1982 CES, there were 17 companies, including MCA Inc. and Fox Video Games, announcing a combined 90 new Atari games. By 1983, an estimated 100 companies were attempting to leverage the CES into a foothold in the market. AtariAge documented 158 different vendors that had developed for the Atari VCS. In June 1982, the Atari games on the market numbered just 100, which grew to over 400 by December. Experts predicted a glut in 1983, with only 10% of games producing 75% of sales.
BYTE stated in December, "in 1982 few games broke new ground in either design or format... If the public really likes an idea, it is milked for all its worth, and numerous clones of a different color soon crowd the shelves. That is, until the public stops buying or something better comes along. Companies who believe that microcomputer games are the hula hoop of the 1980s only want to play Quick Profit." Bill Kunkel said in January 1983 that companies had "licensed everything that moves, walks, crawls, or tunnels beneath the earth. You have to wonder how tenuous the connection will be between the game and the movie Marathon Man. What are you going to do, present a video game root canal?" By September 1983, the Phoenix stated that 2600 cartridges were "no longer a growth industry". Activision, Atari, and Mattel all had experienced programmers, but many of the new companies rushing to join the market did not have the expertise or talent to create quality games. Titles such as the Kaboom!-like Lost Luggage, rock band tie-in Journey Escape, and plate-spinning game Dishaster, were examples of titles made in the hopes of taking advantage of the video-game boom, but later proved unsuccessful with retailers and potential customers.
The flood of new games was released into a limited competitive space. According to Activision's Jim Levy, they had projected that the total cartridge market in 1982 would be around 60 million, anticipating Activision would be able to secure between 12% and 15% of that market for their production numbers. However, with at least 50 different companies in the new marketspace, and each having produced between one and two million cartridges, along with Atari's own estimated 60 million cartridges in 1982, there was over 200% production of the actual demand for cartridges in 1982, which contributed to the stockpiling of unsold inventory during the crash.
Competition from home computers
Inexpensive home computers had been first introduced in 1977. By 1979, Atari unveiled the 400 and 800 computers, built around a chipset originally meant for use in a game console, and which retailed for the same price as their respective names. In 1981, IBM introduced the first IBM Personal Computer with a $1,565 base price. By 1982, new desktop computer designs were commonly providing better color graphics and sound than game consoles and personal computer sales were booming. The TI-99/4A and the Atari 400 were both at $349, the TRS-80 Color Computer sold at $379, and Commodore International had just reduced the price of the VIC-20 to $199 and the Commodore 64 to $499.Because computers generally had more memory and faster processors than a console, they permitted more sophisticated games. A 1984 compendium of reviews of Atari 8-bit software used 198 pages for games, compared to 167 for all other software types. Home computers could also be used for tasks such as word processing and home accounting. Games were easier to distribute, since they could be sold on floppy disks or cassette tapes instead of ROM cartridges. This opened the field to a cottage industry of third-party software developers. Writeable storage media allowed players to save games in progress, a useful feature for increasingly complex games which was not available on the consoles of the era.
In 1982, a price war that began between Commodore and Texas Instruments led to home computers becoming as inexpensive as video-game consoles; after Commodore cut the retail price of the C64 to $300 in June 1983, some stores began selling it for as little as $199. Dan Gutman, founder in 1982 of Video Games Player magazine in an article in 1987, recalled in 1983 that "People asked themselves, 'Why should I buy a video game system when I can buy a computer that will play games and do so much more?'" The Boston Phoenix stated in September 1983 about the cancellation of the Intellivision III, "Who was going to pay $200-plus for a machine that could only play games?" Commodore explicitly targeted video game players. Spokesman William Shatner asked in VIC-20 commercials "Why buy just a video game from Atari or Intellivision?", stating that "unlike games, it has a real computer keyboard" yet "plays great games too". Commodore's ownership of chip fabricator MOS Technology allowed manufacture of integrated circuits in-house, so the VIC-20 and C64 sold for much lower prices than competing home computers. In addition, both Commodore computers were designed to utilize the ubiquitous Atari controllers so they could tap into the existing controller market.
"I've been in retailing 30 years and I have never seen any category of goods get on a self-destruct pattern like this", a Service Merchandise executive told The New York Times in June 1983. The price war was so severe that in September Coleco CEO Arnold Greenberg welcomed rumors of an IBM 'Peanut' home computer because although IBM was a competitor, it "is a company that knows how to make money". "I look back a year or two in the videogame field, or the home-computer field", Greenberg added, "how much better everyone was, when most people were making money, rather than very few". Companies reduced production in the middle of the year because of weak demand even as prices remained low, causing shortages as sales suddenly rose during the Christmas season; only the Commodore 64 was widely available, with an estimated more than 500,000 computers sold during Christmas. The 99/4A was such a disaster for TI, that the company's stock immediately rose by 25% after the company discontinued it and exited the home-computer market in late 1983. JCPenney announced in December 1983 that it would soon no longer sell home computers, because of the combination of low supply and low prices. Radio Shack avoided drastic price cuts for its home computers and remained profitable in 1983.
By that year, Gutman wrote, "Video games were officially dead and computers were hot". He renamed his magazine Computer Games in October 1983, but "I noticed that the word games became a dirty word in the press. We started replacing it with simulations as often as possible". Soon "The computer slump began... Suddenly, everyone was saying that the home computer was a fad, just another hula hoop". Computer Games published its last issue in late 1984. In 1988, Computer Gaming World founder Russell Sipe noted that "the arcade game crash of 1984 took down the majority of the computer game magazines with it." He stated that, by "the winter of 1984, only a few computer game magazines remained", and by mid-1985, Computer Gaming World "was the only 4-color computer game magazine left".