Causes
The worldwide video game console crash
of 1983 was caused by a combination of factors, though with
different factors in several markets:
- In Europe, the boom 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?” 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. At the same time, a strong culture of playing and
writing video games for these personal computers arose in
Europe, making the European crash more of a platform shift
than a total collapse of the industry.
- A similar marketing campaign
occurred in the U.S. without the same effect, where instead
the personal computer industry grew because of the crash and
is not seen as directly causing it.
- A flood of consoles on the market
giving consumers too many choices. At the time of the U.S.
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 slew of peripherals,
Intellivision II),
Sears Tele-Games systems (which included 2600 and
Intellivision clones),
Tandyvision,
and
Vectrex.
Each one of these had their own library of games, and many
had (in some cases large) 3rd party libraries. Likewise,
many of these same companies announced yet another
generation of consoles for 1984, such as the
Odyssey3,
and
Atari 7800.
- A flood of poor titles from
hastily financed
startups,
combined with weak high-profile
Atari 2600
games based on the hit movie
E.T.
and the red-hot
arcade game
Pac-Man.
- The
news media
sensationalized both the boom days of 1980 and the problems
of 1982–83. In particular, the story of Atari burying
thousands of E.T. cartridges in a
New Mexico
landfill
shifted the outlook of the video game market in the eyes of
many media outlets.
Effect of home computers
Up until the early
1980s,
personal computers
had primarily been sold in specialty computer stores at a cost
of more than $1,000
USD,
which is over $2,500 in 2006 American dollars. 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:
In the spring of 1982, the
TI 99/4A
was priced at $349, 16K
Atari 400
at $349, and
Radio Shack
Color Computer
at $379, while Commodore had just reduced the price of the
VIC-20
to $199 and the
C64
to $499.[3]
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, as well).
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.
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,
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’s 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 flood of products
The first chapter of the coming
disaster was written with games with perceived high quality:
Activision
was co-founded by Atari
programmers
David Crane,
Larry Kaplan,
Alan Miller
and
Bob Whitehead,
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 Crane, Kaplan, Miller and Whitehead to Activision,
Mattel continued to try to avoid crediting game designers.
Rather than reveal the names of
Intellivision game designers
Gabriel Baum,
Don Daglow,
Rick Levine,
Mike Minkoff,
John Sohl
and others, Mattel instead required that a 1981
TV Guide
interview with them was to change their names to protect their
collective identities. Colecovision designers like
Paul Jaquys
worked in similar obscurity, feeding more departures to upstart
competitors.
Unlike
Microsoft,
Nintendo,
or
Sony 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 E.T. 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. The game’s poor reputation
spread quickly by
word of mouth,
and the story was picked up by newscasts that trumpeted E.T.
as the first great
bomb of
the video game age.
A savage 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:
In January 1983,
Jack Tramiel,
the head of Commodore slashes the price of the Vic to $139
and the C64 to $400. TI reacts a month later with a rebate
that lowers the street price of the 99/4A to $149. Tramiel
turns around and cuts the price of the Vic to under $100,
forcing TI to announce a further cut in the price of the
99/4A to $100 to take effect in June. On June 10, 1983, TI
announced the largest loss in their corporate history and
three months later withdrew from the home computer market.
Tramiel, still looking for market share, slashed the price
of the C64 to $200 and virtually walked away with the
holiday buying season for the second year in a row.[3]
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 in 1982, toy stores marked
down the titles and placed them in discount bins and sale
tables. Where the typical game of
1982 cost
$34.95—about $73 in
2006 U.S.
dollars when adjusted for inflation—the discount bins quickly
settled on the price of $4.95 per game. By June 1983 the market
for $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.
Console manufacturer Mattel returned to the market briefly with
its acquisition of
The Learning Company
in
2000,
only to divest it to the
Gores Group
less than two years later.
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
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 lead 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 U.S. branded
Famicom
in the U.S. This directly prompted Nintendo to name the console
an "Entertainment System" to distance itself from video game
consoles, and include a toy robot called
R.O.B. to
convince toy retailers to allow it in their stores.
Long-term
effect on the industry
The 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 in
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, 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 the
implementation of 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.
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. Although most of the
Nintendo platform-control measures were adopted by later
manufacturers like Sega, Sony and Microsoft, the others never
used such strong measures to hold a larger share of the games
market for themselves, which later forced Nintendo to follow
suit.
The hardware manufacturers of 2005
routinely receive $9 U.S. or more for every licensed software
product sold by authorized third party publishers, and defend
their legal rights aggressively. This allows console
manufacturers to cash in on the success of third-party
publishers, and it also gives the console manufacturers control
over shoddily produced, pornographic, or otherwise controversial
third-party games such as
Custer’s Revenge
that could taint the console’s reputation.
A lesser effect of the crash that
lasted through the end of the 1980s until a new generation of
console hardware had arrived: Surviving game development and
publishing companies began targeting home computer platforms in
the absence of a strong console to target.
Electronic Arts,
for example, was founded in 1982 and began shipping titles in
1983; it avoided being caught in the crash because of its
business plan to develop only to computers. The computer game
market was worldwide, but proved to be particularly strong in
the
United Kingdom.
