NORTH AMERICAN VIDEO GAME CRASH OF 1983

(Redirected from Video game crash of 1983)


The 'North American video game crash of 1983' (also referred to, especially within North America, as simply "'the video game crash of 1983'") was the crash of the US video game industry 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 American console video gaming.
The crash lasted for two years, during which there were many expressed doubts about the long-term viability of video game consoles. The market was revitalized in part due to the success of the Nintendo Entertainment System (NES) (along with its landmark title Super Mario Bros.) which was first introduced in Japan in 1983 (as ''Famicom'') and then in North America in 1985, and which would become extremely popular by 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, and this overproduction resulted in a saturated market without the consumer interest it needed.

Contents

Background

Preface and cause

Price war

Immediate effect on the industry

Long-term effect on the industry

References

Notes

External links

Background

In Europe, the early years of personal computing (1981–1985) were trumpeted by 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?”^[1] 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, but with much lower prices for computer games than console games.
By 1982 computers like the Commodore 64 and Sinclair ZX Spectrum had launched in Europe and were selling extremely well there, dominating the European games market and growing throughout 1983/1984. The significantly lower price of computer games (some of which cost just 1% of the price of a computer) strengthened this domination and helped quickly create a mass computer games market. By the time the 1983/1984 North American console crash happened, the European video games industry was mostly computer-based with most games made by European publishers, and was thus almost completely unaffected by the crash.
A similar home computer marketing campaign occurred in the US without the same effect, and instead the personal computer industry grew because of the console crash.
In Japan, the gaming world was separate from the North American or European markets, in terms of both hardware and software; thus, events to do with the American or European games industry had no effect on the Japanese consumer. The Japanese preferred homegrown gaming platforms such as the Nintendo Famicom console, Sega SG-1000 console, and MSX computer, all of which launched during 1983 and all of which saw growth throughout 1983/1984, a period when the US industry was shrinking and collapsing.

Preface and cause

The American video game console crash of 1983 was caused by a combination of factors:

★ The second generation of consoles was the first to be sustained by large libraries of interchangeable software. Interest in consoles has historically sagged after 5 years, and in 1983, Atari's market leader, the 2600, was celebrating its fifth birthday. Without established precedent, the industry was not prepared to take consoles to the next generation, and the long-term delay of Atari's own 7800 consoles left them with little to captivate consumers hungry for the next big thing.

★ A flood of consoles on the US market giving consumers too many choices. At the time of the US crash, there was a plethora of consoles on the market: Atari 2600, Atari 5200, Bally Astrocade, Colecovision, Coleco Gemini, Emerson Arcadia 2001, Fairchild Channel F System II, Magnavox Odyssey2, Mattel Intellivision (and its just-released update with several peripherals, Intellivision II), Sears Tele-Games systems (which included 2600 and Intellivision clones), Tandyvision, VTech CreatiVision, and Vectrex. Each one of these consoles had its own library of games, and many had (in some cases 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.^[2]

★ A flood of poor titles from hastily financed startups, combined with weak high-profile Atari 2600 games such as the game based on the hit movie ''ET'' and an infamous port of the popular arcade game ''Pac-Man''. These games were also notoriously overproduced. In the case of E.T., Atari even produced more units than it had sold consoles in anticipation of its success

★ The news media sensationalized both the boom days of 1980 and the problems of 1982–83. In particular, the story of Atari burying millions of ''ET'' cartridges in a New Mexico landfill^[3] shifted the outlook of the video game market in the eyes of many media outlets.
Up until the early 1980s, personal computers had primarily been sold in specialty computer stores at a cost of more than US$1,000, which, factoring in inflation, is over US$2,500 as of 2007. 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:
Since these and other 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 sometimes 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 or even primarily).
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.

Screenshot of the Atari 2600 version of ''Pac-Man''.

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 (TI), Coleco, or Atari, as Commodore’s MOS Technology, Inc. subsidiary actually manufactured many of its own chips (notably the 6502 CPU). Some companies had to get their chips from this subsidiary, leading to a similar situation that 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 calculators. Other companies, such as Atari (who used the 6502 in Atari computers and video game consoles), were able to set up deals to allow manufacturing with their own third party companies.
The first sign of the coming disaster started with games with perceived high quality: 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. 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 (as division ''US Games'') 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.
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 was to 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 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 products. 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 examples of games companies made in the hopes of taking advantage of the video game boom. While heavily advertised and marketed, the games were perceived to be of poor quality 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 ''ET'' 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.^[4] 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.

Price war

At the same time as the gaming shakeout, a home-computer price war was occurring that proved disastrous for some contenders in the industry. As David Ahl recounted:
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.

Immediate effect on the industry

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 (the ill-fated Quaker Oats games unit), quickly folded.
Unable to return the unsold games to defunct publishers after Christmas 1982, toy stores marked down the titles and placed them in discount bins and sale tables. Where the typical game of 1982 cost US$34.95 — about US$75 in 2007 when adjusted for inflation — the discount bins quickly settled on the price of US$4.95 per game. By June 1983 the market for US$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.
A massive industry shakeout resulted. Magnavox and Coleco 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^[5] 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.
Additionally, 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. This led to many retailers refusing to have anything to do with video games for several years, and was the most notable wall that Nintendo ran up against when trying to market US-branded Famicom in the US. This directly prompted Nintendo to make such changes as calling the system an “Entertainment System” rather than “console,” using terms like “control deck” and “Game Pak,” as well as include a toy robot called ROB to convince toy retailers to allow it in their stores.

Long-term effect on the industry

The American video game 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 by 1987, the leading player was Nintendo’s NES, with a resurgent Atari battling Sega (a Japanese company originally founded by an American, David Rosen) for the number two spot. Atari never truly recovered; it never managed to match the success of its 2600 console, 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. Nintendo—and all the manufacturers who followed—controlled game distribution by implementing licensing restrictions and a security lockout system. Would-be renegade publishers could not publish for each others’ lines—as Atari, Coleco and Mattel had done—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 publishers—notably Tengen (Atari), Color Dreams, and Camerica—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 even with fewer “cartridge-based” consoles on the market than in the 8/16-bit era. Replacing the security chips in most modern consoles are specially-encoded optical discs that cannot be copied by most users and can only be read by a particular console under normal circumstances.
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. Most of the Nintendo platform-control measures were adopted by later manufacturers like Sega, Sony and Microsoft.

References

★ 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.

Notes

1. Commodore Vic20 commercial
2. Pac-Man Finally Meets His Match
3. Five Million E.T. Pieces
4. Atari Takes a Bath on E.T.
5. 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.

External links

★ Article at The Dot Eaters, a chronicle of the Great Videogame 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 1-887472-25-8

★ Classic Gaming Expo site Biographies and history of the era

★ Official IntelliVision History Site by the original programmers

★ 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)