Atari Shock – The Video Game Market Crash of 1983
1982. The game developer Atari is huge. By introducing swappable game cartridges with its VCS console and riding high on the back of a license of Taito’s Space Invaders, Atari had helped make home console gaming massive. This is the story of how it all came crashing down. This is the story of the Atari Shock.
Heading for a Breakdown
Shock is perhaps the wrong word to use. As early as December 1982, analysts had been forecasting a crash in the videogame market. $100 million was spent in advertising over Christmas 1982 in an attempt to buoy consumer interest. However, the industry did not address the cause of why it was floundering.
The biggest reason was market saturation. Since the success of the Atari VCS everyone had gone for a slice of the gaming pie. Consoles were in abundance. Everyone who could launch a game console did. The Colecovision was a console by a company known for manufacturing swimming pools. Toy manufacturer Mattel had the Intellivison, Magnavox had the Odyssey, plus hundreds of others by less well known brands. Toy stores had so many games consoles on offer they struggled to find floor space for them.
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As well as consoles, games were also in abundance. Despite lower hardware production costs, manufacturers had kept prices high. In this saturated economy, games themselves had also become stale with many being a rip off from other successful formats. Would you pay top dollar for another Pac Man clone or a variation on Breakout? It is unlikely.
Third Party Development
Game designers also believed they were being treated financially unfairly. As such many of them had split off to write their own third party games. This was the case with Activision, who had originally been a group of Atari game developers. Upon finding out that one game had made 60 million in sales and they would not get a royalty, they formed their own company. Despite legal battles over third party development, Activison ended up being able to continue if they paid royalties to Atari. The door was now open.
Third party development meant even more games, but not often of a better quality. Examples of development companies or departments of dubious quality games that sprung up and vanished at this time are numerous. Fisher Price, manufacturer of baby toys, even had its own game development division called US Games. They entered the market in 1982 with titles such as Eggomania (games to do with eggs again) and Squeezebox. They were gone by the start of 1983. These companies often flooded shelves with poor quality, licensed games from TV and Movies. Developers Data Age were just about to sew up a tie in with rock band Journey before they filed for bankruptcy. Purina cat food had a tie in game for the Atari. Games were simply expensive, numerous and poor quality.
E.T. The Extra Terrestrial
It was not only third party developers guilty of this crime. The most famous case is the infamous E.T. The Extra Terrestrial game, developed by Atari. Created in five and a half weeks due to a late licensing deal that cost a reported $21 million. Atari had expected the game to sell as many units as Pac-Man. Initially, the game proved a success but as word of mouth spread about its poor gameplay, it began to languish on shelves. Often given the moniker of 'the worst game ever' it resulted in 728,000 Atari cartridges (E.T. and other games) being destroyed in a landfill in the Alamogordo desert.
The final nail in the coffin was that by the end of 1983, a big contender loomed on the horizon. That was the home computer. Not only could these systems play games, they could provide office services, educational tools and much more than a standard games console.
One company out to dominate the market was Commodore. In 1982 Commodore began a price war, slashing the cost of their Commodore 64 and even offering rebates. This aggressive tactic put many other home computer manufacturers out of business. In lowering their prices, soon home computers were the same price as a video game system. The Commodore would go on to become the biggest selling home computer of all time, annihilating the sales of both rival home computers and games consoles alike. With more memory, faster processors and easier game distribution methods, home computers became a better option.
In 1983 Atari recorded a 180 million loss in its third quarter and 536 million for that year. Although they would carry on into the nineties they had lost consumer faith and would never truly recover from the Atari Shock. Stores vendors reported a 50% loss in video game sales that same year. Many companies either went bust or withdrew from the video game industry all together. Many of the third-party developers went the same way or quickly made the switch to home computer development.
Rise of Nintendo
However, in Japan the video game industry had remained solid. In the year of the video game crash, Nintendo would release its Family Computer (Famicom) games console in Japan. Despite being a roaring success, it would take until 1986 for it to fully arrive on US shelves.
Originally, it was to be Atari who would distribute the Famicom in the US. A legal battle over Coleco's use of Donkey Kong meant that Nintendo eventually went alone. But in the years between 1983 and 1986, due to the Atari Shock the console market in the US had all but disappeared. Nintendo faced a huge risk and they knew it.
Nintendo Entertainment System
To compensate, their Famicom system was redesigned. It was given a front loading bay for cartridges, designed to resemble a video cassette recorder. From a marketing standpoint, they named the console an 'entertainment system' instead of 'video game' system. The console unit became a 'control deck' with video games being named 'game paks'. The introduction of a Nintendo seal of approval on games and the introduction of iconic, standardised NES box art also helped differentiate games from the brightly coloured clones that had plagued shelves two year previously. If Nintendo could find a way to distance the NES from anything associated with the Atari Shock, it did.
It would be this stroke of marketing genius and redesign that would revive the fortunes of the console industry in the US after the Atari Shock. The NES helped restore console gaming in the eyes of the Western public. As the nineties dawned, with the entry of Sega into the fray, console gaming would begin to regain its position as a dominant force in home entertainment.
This article could not have been written without the following:
Pictures courtesy of Wikimedia and www.mobygames.com