Community submission: Are we headed for another industry crash?

11 min read



By Daniel Keevy

The period in North America from 1983-1985 is commonly referred to as the ‘North American Video Game Crash.’ While gaming had experienced crashes before, such as the 1977 crash caused by too many Pong clones, the 1983 crash stands above the previous and subsequent crashes.

Responsible for the rise of the third generation of gaming and the rise of Japan as the preeminent designers of videogames; the ultimate result of the crash was the dissolution of Atari, the rise of patent and copyright and the establishment of computer gaming. Can we determine whether this crash could possibly happen again, by examining the root causes of the crash and applying them to the modern-day industry?

The 1983 crash was felt only in the console industry; PC gaming actually benefited from the crash. This was, however, in an era where console gaming and pc gaming had separate developers. In the modern day paradigm very few publishers and developers only focus on a single aspect of the market. The modern-day equivalent of PC gaming (in the 80’s) would be independent developers and those unwilling or unable to work with the massive publishing houses.


Briefly, it can be argued that the 1983 crash was mostly caused by Atari and that the crash was focused solely on console gaming. The foundation for the crash was the Atari 2600 which also has the unique distinction of being the cornerstone of console gaming. Released in 1977, the 2600 was worth around $ 2 Billion in 1982. Succeeding because Atari quickly purchased the licenses for successful franchises as well as allowed for the use of pre-programmed cartridges, the 2600 became the face of gaming in the 1980’s to the point where Atari was synonymous with the entire industry.

However, the entire ecosystem was unsustainable. While every big franchise was throwing wads of cash at Atari to develop games for their license, Atari itself was collapsing under the weight of all that business. The best example of this, as many older gamers can attest, was E.T for the Atari. Created in less than a year, in 1982, E.T was rushed through because the Hollywood studio controlling the license demanded the game be released by the Christmas rush. While it cannot be said that this disaster was the sole cause of the crash, it illustrated all the issues facing console gaming at the time.


Released in the 1982 holiday season, E.T was considered one of the most anticipated games of the year; Newsweek went so far as to proclaim the acquisition of film rights a “massive coup of Atari” and speculated that the rise of film licensed video games would add even more revenue into the market. While many copies of the game were ordered by distributors, several distributors cancelled their orders and Atari themselves cancelled several orders with retailers due to exclusivity contracts. This created an untenable situation where Atari expected impressive profit while not properly accounting for the economic downturn. This created a situation whereby Atari had inventory of around 4 million cartridges, while only selling around 1.5 million cartridges. While the game was a failure among critics, it is difficult to determine how much of an impact this had on the economic failure. A well-known urban legend is that Atari crushed and buried the unsold copies of E.T in a landfill located somewhere in New Mexico, USA.

The failure to launch by E.T illustrates two of the main causes of the 1983 crash; high profile failures and a lack of publisher control and oversight. E.T was released before the game was properly tested, because the organisations bankrolling the project insisted it be ready for the holidays. The final cause was flooding of the market. While the Atari 2600 was the cornerstone of console gaming and the leading light in the 2nd generation, there was a saturation of other consoles, such as the Bally Astrocade, ColecoVision, Coleco Gemini, Fairchild F System, Mattel Intellivision and the Atari 5200. These were joined by the Odyssey 3 and the Atari 7800 in 1984. All these consoles had an extensive library of games, as well as several 3rd party developers. The market was completely flooded, not only with proper launch titles but also several failures and many unsold copies of games. Pac-Man was available on all these consoles, but the Atari Pac-Man was a piss-poor port of the arcade classic with glaring colours and broken gameplay.

All this created an indefensible economic position. When retailers and distributors attempted to return unsold copies of games and unsold consoles they were informed that both the game publishers and the console developers did not have the necessary funds available to refund them for their purchases. This had a two-pronged effect; firstly distributors and retailers ordered far less stock from the gaming companies leading to a higher stockpile, and it forced the retailers to sell the games for as little as possible in order to recoup sales. It resulted in several companies withdrawing their intellectual property and many to abandon the industry completely. The only notable survivor of this crash was Activision, who only survived because they migrated to the PC market and had savvy accountants who exploited several tax loopholes.

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Last Updated: April 2, 2013

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