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Useful Notes: The Great Video Game Crash of 1983
aka: The Great Video Game Crashof 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."
Zero Punctuation on ET The Extra Terrestrial for Atari

In the early 1980s, the American video game industry entered its second generation and made 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:

With its customer base eroded by inferior technology, Atari racked up nearly half a billion dollars' worth of losses by the end of 1983 (roughly $1.4B going by the 2012 value). Atari didn't stand alone in its troubles, however, because its competitors also faced hard times:

  • 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.

The Crash killed the American home console market for two years: video game sales dropped from $3B in 1982 ($7.13B in 2012 dollars) to as low as $100M ($213M in 2012 dollars) in 1985, which caused a majority of game companies to go out of business.

When the market returned to prominence in 1985, it largely rode on the success of the Nintendo Entertainment System, at which point the console's native Japan overtook America as a leader in the video game industry, which meant the Crash never came close to killing video games as a medium (think of the Crash as a condensed version of the type of American business hubris that led to the financial meltdowns of 1929 and 2008).

The home gaming market suffered a huge blow from the temporary death of the dedicated console, but the growing PC base (especially the Commodore 64) provided a viable replacement for game production by the small number of companies left alive. While the American arcade scene began its slow descent into obscurity, arcade games still stood near the height of their popularity. Minor arcade classics like Paperboy, Punch-Out!!, Space Ace, Karate Champ, and Gauntlet saw release during this period — and many of them would end up ported to home consoles (with varying degrees of success) after that market's revival.

Early home microcomputers (predominantly the Sinclair ZX Spectrum and the C64) dominated the European gaming market. An outrageous number of one-person coders wrote and released games for the far cheaper tape-distribution system, which helped those machines flourish and become the backbone of Europe's gaming industry for the next decade. These "bedroom coders" received status labels ranging from "cult hero" (Jeff Minter, Matthew Smith et al) to "legend" (Bell and Braben, the Oliver Twins) from their fans — but that didn't prevent a number of talented developers from making enough stupid decisions to snatch defeat from the jaws of victory (Imagine Software — see here for info, with a big example of an Orwellian Editor as a bonus). Even with the missteps, the European gaming industry remained solid. (Nevertheless, there was a similar crash in the UK in terms of the computer hardware itself in 1984, meaning a lot of the less popular machines like the Dragon 32 and Jupiter Ace got discontinued entirely and forcing Sinclair and Acorn to be taken over by other companies).

The Crash had little discernible effect on the Japanese market, too. Though the home of a massive arcade base that grew out of Pachinko parlors and Mahjong dens, Japan didn't adopt home gaming consoles at first; people deemed American imports as curiosities at best. The massive discounts at which Japan forced people to sell computer technology after the Crash provided the perfect storm for domestic development — and the release of both the Famicom console and the MSX computer in 1983 didn't hurt, either. Both systems dominated the Japanese gaming industry for the rest of the decade, though the latter would soon fall to increased PC competition. (Near the start of 1983, Atari had entered into the early stages of negotiating rights for the Famicom's US release. The Crash eventually ended those plans, but oh What Could Have Been...)

Nintendo exported the Famicom two years later as the "Nintendo Entertainment System" and achieved near-monopoly status because of the American console market's weakened state. Nintendo's "Seal of Quality" system and a cartridge design that no one could manufacture without Nintendo's approval provided a degree of protection against the low-quality shovelware that plagued the Atari. To assuage concerns of American shopkeepers burned by the Crash, Nintendo designed the NES with a front-loading cartridge slot to make it look more like a VCR and bundled its largest NES set with the Robot Operating Buddy (R.O.B.) and Zapper light gun peripherals (which looked much more like conventional toys). The former only worked with two games, and the latter didn't fare much better in the long run.

Toy stores saw through the plan, but success in test markets and a brilliant advertising strategy landed the NES space on store shelves across the country. Nintendo also had the perfect game to bundle with the NES for its 1985 American debut: a fat Italian plumber, best known for antagonizing a giant ape, ventures across a land overrun by turtles and walking mushrooms in order to save a princess from the grasp of a dragon-turtle villain.

The crazy idea proved Crazy Enough to Work — and it ushered in a new era of gaming as a result.
The Golden Age of Video GamesUsefulNotes/The History Of Video GamesThe 8-bit Era of Console Video Games

alternative title(s): The Great Video Game Crash Of 1983
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