Useful Notes: The Great Video Game Crash of 1983
"The enormous let-down of such a hugely anticipated game as E.T. merely caused the scales to fall from the eyes of the buying public. 'Hey, all these overpriced bleepy games with pixels the size of post-it notes are actually kind of shit!' Yes, seems obvious to us, but cut them some slack: it was the 80s. They still thought Bananarama was good."In the early 1980s, the American video game industry entered its second generation and was making money hand over fist. Arcades popped up across the country, the Atari 2600 dominated competitors in the home market, and Pac-Man Fever (no relation to the same-named trope) held America in its iron grip. But in 1983, something went terribly wrong. Dozens of game manufacturers and console producers went out of business. Production of new games stalled out. The American console market as a whole dried up for two years and when it returned, Japanese companies dominated as old American stalwarts tried to play catch-up. So, what happened? The story of The Great Video Game Crash of 1983 truly begins with the downfall of Atari, a company forever linked to the Crash:
- Atari refused to give game designers authorial credit or royalty for their work. That led to a culture of dissent where many of its programmers started their own companies to make games for the 2600 (of which the most successful is Activision). Atari lost its legal attempts to prevent the use of its cartridge format, which allowed the most creative people in the industry to directly compete with Atari's own efforts.
- Atari's business strategy—sell its consoles as cheaply as possible while relying on game sales for its profit margin—made the situation worse. The strategy worked when Atari had a home-market monopoly on Space Invaders and Asteroids, but when competing companies produced either better or cheaper-yet-comparable work, Atari's profits suffered.
- The company produced a number of overhyped but underdone games in late 1982, including the home port of Pac-Man and the adaptation of blockbuster film ET The Extra Terrestrial. Those two games, both Christmas Rushed, soon earned a reputation as two of the worst games ever made. Atari also overproduced copies of these two (and many others) in the hopes that they would become system-sellers. While initial sales were brisk - indeed, record-breaking in the case of Pac-Man - word quickly spread of their poor quality, and the sheer volume in which the cartridges were produced overwhelmed the initial positive sales figures. Stores either returned the unsellable products in droves or relegated them to clearance sections. The situation was so bad Atari ultimately took millions of dollars' worth of worthless cartridges (together with defective consoles and accessories) and buried them all in a landfill in Alamogordo, New Mexico.
- December 7, 1982 is the closest thing the gaming industry has for a "Black Tuesday": during a shareholder meeting, Atari projected a 10-15% profit increase—way below the 50% people predicted Atari would announce. The stock of Warner Communications (Atari's parent company) dropped 33% on the next day, and a mini-scandal erupted when people discovered that the president of Atari had sold 5,000 shares of the company only a half-hour before he made that fateful announcement.
- A glut of companies attempting to cash in on Atari's success gave consumers too many choices which meant no one system could succeed in the long term because very few consumers would buy more than one. The glut of home systems included (amongst others) the Bally Astrocade, Colecovision, Coleco Gemini, Emerson Arcadia 2001, Magnavox Odyssey and Odyssey², Mattel Intellivision, Vectrex, Sears Tele-Games, and Fairchild Channel F-System II. Many of these featured indistinguishable libraries in part because Atari, Coleco, and Mattel released games for each other's consoles. (The current trope image shows the exact problem left to consumers looking to determine just what system to buy.) Consumers largely waited to see which console dominated and by the time everyone figured out that nobody would, companies had started going out of business.
- A similar problem occurred with software development. Companies could produce games for these systems without much cost; since they figured all video games would sell regardless of quality, poor titles from dozens of hastily-created upstarts flooded the market. Non-video game companies (like Quaker Oats) produced thinly-disguised commercials for their products, such as Chase the Chuck Wagon (Purina) and The Kool-Aid Man. As the Crash started, these companies died off first.
- As console makers and game developers went out of business, retailers had to deal with their own problem: a stockroom full of unsold products that they couldn't return. Stores offered massive discounts on this hardware in an attempt to salvage something from the Crash, which caused the market for higher-priced new games to shrink in the face of large amounts of budget-priced crap. Speaking of crap...
- Consumers had no real way to discern good games from bad ones. The Internet existed as a military and academic research project at this time and video game magazines didn't really appear on newsstands, so most buyers had only screenshots and box text to tell them anything at all about the game. Since these almost always lied to to get people to buy the game, consumers soon felt once-bitten twice-shy. A few stores had demo stations set up for potential consumers, but those didn't really help.
- The personal computer market made its first competitively-priced entry into American society. PCs had software libraries which catered to the early gaming crowd, but their educational and office software gave them the edge. Certain computers (such as the Commodore 64) ended up priced and marketed to compete with game consoles. Commodore and other companies marketed these machines to Education Mamas who were worried their kids would be shut out of good colleges and the job market if they weren't "computer literate."
- A media backlash that painted video games as a fad played up all the company bankruptcies as proof of the industry's inevitable demise.