The North American video game crash of 1983 (sometimes known as the Atari Débâcle or the video game crash of 1983 and 1984 because it was in that year that the full effects of the crash became apparent to consumers) brought an abrupt end to what is considered the second generation of console video gaming in the English-speaking world. It almost destroyed the then-fledgling industry and led to the bankruptcy of several companies producing home computers and video game consoles in North America. It lasted about two years, and many business analysts of the time expressed doubts about the long-term viability of video game consoles. The video-game industry was revitalized a few years later, mostly due to the widespread success of the Nintendo Entertainment System (NES), which was released in North America in 1985 and became extremely popular by 1987.
There were several reasons for the crash, but the main cause was supersaturation of the market with dozens of consoles and hundreds of mostly low-quality games. Hundreds of games were in development for 1983 release alone, and this overproduction resulted in a saturated market.
Causes
The American video game console crash of 1983 was caused by a combination of factors. Although some were more important than others, all played a role in saturating, and then imploding, the video game industry.
Flood of consoles and games
The second generation of video game consoles was the first era to be sustained by large libraries of interchangeable software. Without an established precedent, the industry was not prepared to take consoles to the next generation. Also, the US market was flooded with dozens of consoles, giving consumers far too many choices. At the time of the US crash, there were numerous consoles on the market, including the Atari 2600, the Atari 5200, the Bally Astrocade, the ColecoVision, the Coleco Gemini (a 2600 clone), the Emerson Arcadia 2001, the Fairchild Channel F System II, the Magnavox Odyssey 2 , the Mattel Intellivision (and its just-released update with several peripherals, the Intellivision II), the Sears Tele-Games systems (which included both 2600 and Intellivision clones), the TandyvisioN (an Intellivision clone for Radio Shack), and the Vectrex. Each one of these consoles had its own library of games, and many had large third-party libraries. Likewise, many of these same companies announced yet another generation of consoles for 1984, such as the Odyssey3, and Atari 7800. Adding to the industry's woes was a glut of poor titles from hastily financed startup companies. These games, combined with weak high-profile Atari 2600 games, such as the video game version of the hit movie E.T. the Extra-Terrestrial and an infamous port of the popular arcade game Pac-Man , seriously damaged the reputation of the industry. Finally, Atari's market-leading 2600, now in its sixth year, was starting to approach saturation; most who wanted a system had now purchased one, and there was not yet a strong next-generation console available to take the place of the 2600.
Competition from personal computers
Until the late 1970s, personal computers had primarily been sold in specialty computer stores at a cost of more than USD $1,000 ($3300 in 2009 dollars). However, by the early 1980s, many companies released PCs that could connect to a TV set and offered color graphics and improved sound. The first of these systems were the Atari 400 and 800, but many competing models vied for consumer attention. By 1982, the TI 99/4A and the Atari 400 were both at $349 USD ($800 in 2009 dollars), Radio Shack's Color Computer sold at $379 USD ($800 in 2009 dollars), and Commodore had just reduced the price of the Commodore VIC-20 to $199 USD and the C64 to $499 USD ($400 from $1100 in 2009 dollars).
Because these and other home computers generally had more memory available, and better graphic and sound capabilities 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 often much easier to copy, since they came on floppy disks or cassette tapes instead of ROM modules (though many of them continued to use ROM modules extensively). The use of a writable storage medium also allowed players to save games in progress, a feature useful for the increased complexity of computer games, and one not available on the consoles of the era.
In a strategy that directly affected its home computer arch-rival Atari, Commodore explicitly targeted video game players in its advertising by offering trade-ins toward the purchase of a Commodore 64 and suggesting that college-bound children would need to own computers, not video games.
Loss of publishing control
Activision was co-founded by Atari programmers 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, and the developers felt that they should receive the same recognition that musicians, directors, and actors got from Warner’s other divisions. After Activision went into business, 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, encouraging companies as ill-prepared as Quaker Oats (with their US Games division) to rush to open video-game divisions, hoping to impress both stockholders and consumers. Companies lured away each other’s programmers or used reverse engineering to learn how to make games for proprietary systems. Atari even hired several programmers from Mattel's Intellivision development studio, prompting a lawsuit by Mattel against Atari that included charges of industrial espionage.
Despite the lessons learned by Atari in the loss of its programmers to Activision, Mattel continued to try to avoid crediting game designers. Rather than reveal the names of Intellivision game designers, Mattel instead required that a 1981 TV Guide interview with them change their names to protect their collective identities. ColecoVision designers worked in similar obscurity, feeding more departures to upstart competitors.
Unlike Nintendo, Sega, Sony, or Microsoft in later decades, the hardware manufacturers in this era lost exclusive control of their platforms’ supply of games. With it, they also lost the ability to make sure that the toy stores were never overloaded with products. Activision, Atari and Mattel all had experienced programmers, but many of the new companies - rushing to join the market - did not have enough experience and talent to create the games. Titles such as Chase the Chuck Wagon (about dogs eating food, bankrolled by the dog food company Purina), Skeet Shoot , and Lost Luggage were examples of games that companies made in the hopes of taking advantage of the video-game boom. While heavily advertised and marketed, these games were perceived to be of poor quality and did not catch on as hoped, further damaging the industry. As a counterpoint, two of the most successful video game franchises were started in this period: Super Mario Bros. and Pac-Man .
Atari, Pac-Man, and E.T.
In 1981, Atari attempted to take advantage of the craze following the arcade game Pac-Man by releasing a version for their Atari 2600. However, development was rushed so as to have the game out in time for the 1981 holiday season. Although the game managed to sell well in terms of absolute numbers, Atari had grossly overestimated the number of sales it would generate. Critics and gamers universally panned the game as being nothing like the lively, colorful original. In the end, Atari only sold a little over half of the total cartridges they produced. The production cost overruns combined with the costs incurred with a big marketing campaign for the game resulted in huge losses for Atari.
The following year, Atari issued its widely advertised ET game. Once again, it again manufactured millions of units in anticipation of a major hit. Unfortunately, Atari did not heed the lessons learned from the Pac-Man debacle. Concerned about making the holiday season, Atari rushed the game to market after less than 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 ET as the first great bomb of the video game age. The end result was an excessive number of unsold and returned units. Combined with the high costs for the movie license, ET became another financial disaster for Atari.
Fallout effects
Immediate
The release of so many new games in 1982 completely flooded the market and most stores did not have, or decided not to allocate, sufficient space to carry all the new games and consoles. Inside Mattel, one Intellivision sales executive explained the problem: "Two years of products have been pushed into the channel in one year, and there’s no way to re-balance the system." As stores tried to return the surplus games to the new publishers, the publishers had neither new products nor cash to refund the retailers' money. Many publishers, including Games By Apollo and US Games (the ill-fated Quaker Oats games unit), quickly folded.
Unable to return the unsold games to defunct publishers after
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