Video games - Video game crash of 1983

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	Video games - Video game crash of 1983

The video game crash of 1983 was the sudden crash of the video game business 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 console video gaming.

This phenomenon unfolded primarily in the United States and Canada, since the contemporary global market for video game consoles had not yet evolved.

The crash was followed by a gap of three years, during which there was a much smaller market in games for home computers in North America, and no significant development for video game consoles. That gap ended with the success of the Nintendo Entertainment System (NES) that was first introduced in 1985 and would break out in popularity in 1987.

When G4 created a half-hour documentary on the phenomenon in North America, they titled it simply The Crash. 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, most of which ended up in bargain bins. But few games were developed in 1983 for release the following year, resulting in a drought of new video games in 1984.

Causes

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

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.
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 tons of E.T. cartridges in a New Mexico landfill accelerated the change from The Video Game Boom Is Boundless! headlines to The Video Game Boom Is Over! proclamations.
The conclusion by key toy retail chains in 1983 that video games were a passing fad (see Cabbage Patch Kids and Beanie Babies for examples) and that valuable shelf space should be allocated to new items.

The impact 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. The early 1980s saw the introduction of inexpensive computers that could connect to a TV set, and offered color graphics and sound. 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.

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 much easier to copy, since they came on floppy disks or cassette tapes instead of ROM modules.

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 some predatory 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 the chips (notably the 6502 CPU) used in Atari computers and video game machines. A similar situation 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.

The flood of products

Video games, like toys, are sold through stores on a model that is close to one of consignment. If a title does not sell, it is returned to the publisher for credit, and the store gets a different title in return. The process is repeated until the goods are sold. This business model—which persists today—is a key root of the Crash of 1983.

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