Editing Video game crash of 1983 (section)

== Causes and factors ==
=== Flooded console market ===
[[File:Atari-2600-Wood-4Sw-Set.jpg|thumb|Atari VCS, also known as the Atari 2600, the most popular console prior to the crash|alt=]]

The Atari VCS (renamed the Atari 2600 in late 1982) was not the first home system with swappable [[game cartridge]]s, but by 1980 it was the most popular [[second generation of video game consoles|second-generation console]] by a wide margin. Launched in 1977 just ahead of [[Video game crash of 1977|the collapse of the market]] for home ''[[Pong]]'' console clones, the Atari VCS experienced modest sales for its first few years. In 1980, Atari's licensed version of ''[[Space Invaders]]'' from [[Taito]] became the console's [[killer application]]; sales of the VCS quadrupled, and the game was the first title to sell more than a million copies.<ref name="ultimate chp12">{{cite book |title=Ultimate History of Video Games |first=Steven |last=Kent | author-link = Steven L. Kent |page=190 |publisher=[[Three Rivers Press]] |isbn=0-7615-3643-4 |year=2001 |url=https://archive.org/details/ultimatehistoryofvideogamesrevisited/ |chapter=Chapter 12: The Battle for the Home |chapter-url=https://archive.org/details/ultimatehistoryofvideogamesrevisited/page/n193/mode/2up}}</ref><ref>{{cite book |last=Weiss |first=Brett |title=Classic home video games, 1972–1984: a complete reference guide |year=2007 |publisher=[[McFarland & Company|McFarland]] |location=Jefferson, N.C. |isbn=978-0-7864-3226-4 |page=108}}</ref> Spurred by the success of the Atari VCS, other consoles were introduced, both from Atari and other companies: [[Magnavox Odyssey²|Odyssey²]], [[Intellivision]], [[ColecoVision]], [[Atari 5200]], and [[Vectrex]]. Notably, Coleco sold an add-on allowing Atari VCS games to be played on its ColecoVision, as well as bundling the console with a licensed home version of Nintendo's arcade hit ''[[Donkey Kong (arcade game)|Donkey Kong]]''. In 1982, the ColecoVision held roughly 17% of the hardware market, compared to Atari VCS' 58%. This was the first real threat to Atari's dominance of the home console market.<ref name="ieee history">{{cite journal | title = Innovation and Competition in Standard-Based Industries: A Historical Analysis of the U.S. Home Video Game Market | first1 = Scott | last1= Gallager | first2 = Seung | last2 =Ho Park | date = February 2002 | journal = IEEE Transactions on Engineering Management | volume = 49 | issue = 1 | pages = 67–82 | doi = 10.1109/17.985749 }}</ref>

Each new console had its own library of games produced exclusively by the console maker, while the Atari VCS also had a large selection of titles produced by third-party developers. In 1982, analysts marked trends of saturation, mentioning that the amount of new software coming in would only allow a few big hits, that retailers had devoted too much floor space to systems, and that price drops for home computers could result in an industry shakeup.<ref>{{cite news |last=Jones |first=Robert S. |date=December 12, 1982 |title=Home Video Games Are Coming Under a Strong Attack |newspaper=[[The Gainesville Sun|Gainesville Sun]] |url=https://news.google.com/newspapers?nid=1320&dat=19821212&id=L2tWAAAAIBAJ&sjid=q-kDAAAAIBAJ&pg=1609,4274079&hl=en |via=Google Books |page=21F |access-date=July 26, 2016 |archive-date=June 25, 2020 |archive-url=https://web.archive.org/web/20200625171614/https://news.google.com/newspapers?nid=1320&dat=19821212&id=L2tWAAAAIBAJ&sjid=q-kDAAAAIBAJ&pg=1609,4274079&hl=en |url-status=live }}</ref> Atari had a large inventory after significant portions of the 1982 orders were returned.<ref name=":1">{{Cite journal |last1=Gallagher |first1=S. |last2=Seung Ho Park |date=February 2002 |title=Innovation and competition in standard-based industries: a historical analysis of the US home video game market |url=https://ieeexplore.ieee.org/document/985749 |journal=IEEE Transactions on Engineering Management |volume=49 |issue=1 |pages=67–82 |doi=10.1109/17.985749}}</ref>

In addition, the rapid growth of the video game industry led to an increased demand, which the manufacturers over-projected. In 1983, an analyst for [[Goldman Sachs]] stated the demand for video games was up 100% from the previous year, but the manufacturing output had increased by 175%, creating a significant surplus. Atari CEO [[Raymond Kassar]] recognized in 1982 that the industry's saturation point was imminent. However, Kassar expected this to occur when about half of American households had a video game console. The crash occurred when about 15 million machines had been sold, which soundly under-shot Kassar's estimate.<ref name="nytimes 19832"/> Michael Katz, the president of Atari's electronic division, stated that the console market was too saturated as 30 million consoles were sold by 1982, out of the 35 million households with children between the ages of six and sixteen.{{sfn|Provenzo|1991|p=11}}

=== Loss of publishing control ===
Prior to 1979, there were no [[third-party developer]]s, with console manufacturers like Atari publishing all the games for their respective platforms. This changed with the formation of [[Activision]] in 1979. Activision was founded by four former Atari [[Game programmer|video game programmers]] who left the company because they felt that Atari's developers should receive the same recognition and accolades (specifically in the form of sales-based royalties and public-facing credits) as the actors, directors, and musicians working for other subsidiaries of [[Warner Communications]] (Atari's parent company at the time). Already being quite familiar with the Atari VCS, the four programmers developed their own games and cartridge manufacturing processes. Atari quickly sued to block sales of Activision's products but failed to secure a [[restraining order]], and they ultimately settled the case in 1982. While the settlement stipulated that Activision pay royalties to Atari, this case ultimately legitimized the viability of third-party game developers. Activision's games were as popular as Atari's, with ''[[Pitfall!]]'' (released in 1982) selling over 4 million units.

Prior to 1982, Activision was one of only a handful of third parties publishing games for the Atari VCS. By 1982, Activision's success emboldened numerous other competitors to penetrate the market. However, Activision's founder [[David Crane (programmer)|David Crane]] observed that several of these companies were supported by venture capitalists attempting to emulate the success of Activision. Without the experience and skill of Activision's team, these inexperienced competitors mostly created [[shovelware|games of poor quality]].<ref name="Gamasutra Activision2">{{cite web|last=Fleming|first=Jeffrey|title=The History Of Activision|url=https://www.gamedeveloper.com/business/the-history-of-activision|url-status=live|archive-url=https://web.archive.org/web/20161220122651/http://www.gamasutra.com/view/feature/1537/the_history_of_activision.php?print=1|archive-date=December 20, 2016|access-date=December 30, 2016|work=Gamasutra}}</ref> Crane notably described these as "the worst games you can imagine".<ref name="aa201605092">{{cite web|author=Adrian|date=May 9, 2016|title=INTERVIEW{{snd}}DAVID CRANE (ATARI/ACTIVISION/SKYWORKS)|url=http://www.arcadeattack.co.uk/david-crane/|url-status=live|archive-url=https://web.archive.org/web/20160509160135/http://www.arcadeattack.co.uk/david-crane/|archive-date=May 9, 2016|access-date=May 10, 2016|work=Arcade Attack}}</ref> While Activision's success could be attributed to the team's existing familiarity with the Atari VCS, other publishers had no such advantage.

The rapid growth of the third-party game industry was easily illustrated by the number of vendors present at the semi-annual [[Consumer Electronics Show]] (CES). According to Crane, the number of third-party developers jumped from 3 to 30 between two consecutive events.<ref name="aa201605092" /> At the Summer 1982 CES,<ref name="nytimes 19832">{{cite news|last=Kleinfield|first=N.R.|date=October 17, 1983|title=Video Games Industry Comes Down To Earth|url=https://www.nytimes.com/1983/10/17/business/video-games-industry-comes-down-to-earth.html|access-date=September 21, 2018|newspaper=[[The New York Times]]|url-access=limited|archive-date=September 13, 2018|archive-url=https://web.archive.org/web/20180913223742/https://www.nytimes.com/1983/10/17/business/video-games-industry-comes-down-to-earth.html|url-status=live}}</ref> there were 17 companies, including [[MCA Inc.]] and [[20th Century Fox|Fox Video Games]], announcing a combined 90 new Atari games.<ref name="goodman1983spring2">{{Cite magazine|last=Goodman|first=Danny|author-link=Danny Goodman|date=Spring 1983|title=Home Video Games: Video Games Update|url=http://www.atarimagazines.com/cva/v1n1/vgupdate.php|url-status=live|magazine=Creative Computing Video & Arcade Games|page=32|archive-url=https://web.archive.org/web/20171107020633/http://www.atarimagazines.com/cva/v1n1/vgupdate.php|archive-date=November 7, 2017}}</ref> By 1983, an estimated 100 companies were attempting to leverage the CES into a foothold in the market. ''[[AtariAge]]'' documented 158 different vendors that had developed for the Atari VCS.<ref name="helsinki2">{{cite conference|last=Ernkvist|first=Mirko|year=2006|title=Down Many Times, but Still Playing the Game: Creative Destruction and Industry Crashes in the Early Video Game Industry 1971–1986|url=http://www.helsinki.fi/iehc2006/papers2/Ernkvist.pdf|conference=XIV International Economic History Congress|location=Helsinki|access-date=September 11, 2020|archive-date=August 10, 2020|archive-url=https://web.archive.org/web/20200810104521/http://www.helsinki.fi/iehc2006/papers2/Ernkvist.pdf|url-status=live}}</ref> In June 1982, the Atari games on the market numbered just 100 which by December, grew to over 400. Experts predicted a glut in 1983, with only 10% of games producing 75% of sales.<ref name="mj198212262">{{cite news|date=December 26, 1982|title=Stream of video games is endless|pages=Business 1|work=Milwaukee Journal|url=https://news.google.com/newspapers?id=nwsdAAAAIBAJ&pg=3635%2C1989311|access-date=January 10, 2015|archive-date=March 12, 2016|archive-url=https://web.archive.org/web/20160312093025/https://news.google.com/newspapers?id=nwsdAAAAIBAJ&sjid=QX8EAAAAIBAJ&pg=3635%2C1989311|url-status=dead}}</ref>

''[[BYTE]]'' stated in December, "in 1982 few games broke new ground in either design or format ... If the public really likes an idea, it is milked for all its worth, and numerous clones of a different color soon crowd the shelves. That is, until the public stops buying or something better comes along. Companies who believe that microcomputer games are the [[hula hoop]] of the 1980s only want to play Quick Profit."<ref name="clark1982122">{{cite news|author=Clark, Pamela|date=December 1982|title=The Play's the Thing|pages=6|work=BYTE|url=https://archive.org/stream/byte-magazine-1982-12/1982_12_BYTE_07-12_Game_Plan_1982#page/n7/mode/2up|access-date=October 19, 2013}}</ref> [[Bill Kunkel (journalist)|Bill Kunkel]] said in January 1983 that companies had "licensed everything that moves, walks, crawls, or tunnels beneath the earth. You have to wonder how tenuous the connection will be between the game and the movie ''[[Marathon Man (film)|Marathon Man]]''. What are you going to do, present a video game root canal?"<ref name="harmetz198301152">{{cite news|last=Harmetz|first=Aljean|date=January 15, 1983|title=New Faces, More Profits For Video Games|page=18|newspaper=Times-Union|url=https://news.google.com/newspapers?id=jnhcAAAAIBAJ&pg=4201,2482231|access-date=February 28, 2012|archive-date=August 1, 2019|archive-url=https://web.archive.org/web/20190801133617/https://news.google.com/newspapers?id=jnhcAAAAIBAJ&sjid=a1cNAAAAIBAJ&pg=4201,2482231|url-status=live}}</ref> By September 1983, the ''Phoenix'' stated that 2600 cartridges were "no longer a growth industry".{{r|mitchell19830906}} Activision, Atari, and Mattel all had experienced programmers, but many of the new companies rushing to join the market did not have the expertise or talent to create quality games. Titles such as the ''[[Kaboom! (video game)|Kaboom!]]''-like ''[[Lost Luggage (video game)|Lost Luggage]]'', rock band tie-in ''[[Journey Escape]]'', and plate-spinning game ''[[Dishaster]]'', were examples of games made in the hopes of taking advantage of the video-game boom, but later proved unsuccessful with retailers and potential customers.

The flood of new games was released into a limited competitive space. According to Activision's Jim Levy, they had projected that the total cartridge market in 1982 would be around 60 million, anticipating Activision would be able to secure between 12% and 15% of that market for their production numbers. However, with at least 50 different companies in the new marketspace, and each having produced between one and two million cartridges, along with Atari's own estimated 60 million cartridges in 1982, there was over 200% production of the actual demand for cartridges in 1982, which contributed to the stockpiling of unsold inventory during the crash.<ref name="high score activision crash"/>

=== Competition from home computers ===
{{see also|History of personal computers}}
[[File:Commodore-64-Computer-FL.jpg|thumb|right|The [[Commodore 64]] survived the crash and became one of the best-selling computers of all time.]]

Inexpensive home computers had been first introduced in 1977. By 1979, Atari, Inc. unveiled the [[Atari 8-bit computers|Atari 400 and 800]] computers, built around a chipset originally meant for use in a game console, and which retailed for the same price as their respective names. In 1981, [[IBM]] introduced the first [[IBM Personal Computer]] with a $1,565 base price<ref name="ibmpc25">{{cite web|url=http://www-03.ibm.com/ibm/history/exhibits/pc25/pc25_birth.html|title=IBM Archives: The birth of the IBM PC|date=January 23, 2003|url-status=dead|archive-url=https://web.archive.org/web/20140102212336/http://www-03.ibm.com/ibm/history/exhibits/pc25/pc25_birth.html|archive-date=January 2, 2014}}</ref> ({{Inflation|US|1565|1981|fmt=eq}}), while [[Sinclair Research]] introduced its low-end [[ZX81]] microcomputer for [[Pound sterling|£]]70 ({{Inflation|UK|70|1981|fmt=eq|cursign=£}}). By 1982, new desktop computer designs were commonly providing better color graphics and sound than game consoles and personal computer sales were booming. The [[TI-99/4A]] and the Atari 400 were both at $349 ({{Inflation|US|349|1982|fmt=eq}}), the [[TRS-80 Color Computer]] sold at $379 ({{Inflation|US|379|1982|fmt=eq}}), and [[Commodore International]] had just reduced the price of the [[VIC-20]] to $199 ({{Inflation|US|199|1982|fmt=eq}}) and the [[Commodore 64]] to $499 ({{Inflation|US|499|1982|fmt=eq}}).<ref name="Ahl">Ahl, David H. (1984 November). [http://www.atarimagazines.com/creative/v10n11/30_The_first_decade_of_perso.php The first decade of personal computing] {{webarchive|url=https://web.archive.org/web/20161210124312/http://www.atarimagazines.com/creative/v10n11/30_The_first_decade_of_perso.php |date=December 10, 2016 }}. ''Creative Computing'', vol. 10, no. 11: p. 30.</ref><ref>{{cite web|url=http://www.westegg.com/inflation/infl.cgi|title=The Inflation Calculator|url-status=live|archive-url=https://web.archive.org/web/20180326173743/https://westegg.com/inflation/infl.cgi|archive-date=March 26, 2018}}</ref>

Because computers generally had more [[Computer storage|memory]] and faster [[central processing unit|processors]] than a console, they permitted more sophisticated games. A 1984 compendium of reviews of Atari 8-bit software used 198 pages for games compared to 167 for all other software types.<ref name="aw1984">{{cite book |url=https://archive.org/stream/Atari_Software_1984#page/n3/mode/2up |title=The Addison-Wesley Book of Atari Software 1984 |publisher=Addison-Wesley |author1=Stanton, Jeffrey |author2=Wells, Robert P. |author3=Rochowansky, Sandra |author4=Mellin, Michael |year=1984 |pages=TOC |isbn=020116454X}}</ref> Home computers could also be used for tasks such as [[word processing]] and home accounting. Games were easier to distribute, since they could be sold on [[floppy disk]]s or [[cassette tape]]s instead of [[Read-only memory|ROM]] cartridges. This opened the field to a [[cottage industry]] of third-party software developers. Writeable storage media allowed players to save games in progress, a useful feature for increasingly complex games which was not available on the consoles of the era.

In 1982, a price war that began between Commodore and Texas Instruments led to home computers becoming as inexpensive as video-game consoles;<ref name="pollack19830619">{{cite news |url=https://www.nytimes.com/1983/06/19/business/the-coming-crisis-in-home-computers.html?pagewanted=all |title=The Coming Crisis in Home Computers |work=The New York Times |date=June 19, 1983 |access-date=January 19, 2015 |author=Pollack, Andrew |url-status=live |archive-url=https://web.archive.org/web/20150120040951/http://www.nytimes.com/1983/06/19/business/the-coming-crisis-in-home-computers.html?pagewanted=all |archive-date=January 20, 2015 |url-access=limited}}</ref> after Commodore cut the retail price of the C64 to $300 in June 1983, some stores began selling it for as little as $199.{{r|mitchell19830906}} [[Dan Gutman]], founder in 1982 of ''Video Games Player'' magazine in an article in 1987, recalled in 1983 that "People asked themselves, 'Why should I buy a video game system when I can buy a computer that will play games and do so much more?'"{{r|gutman198712}} ''[[The Boston Phoenix]]'' stated in September 1983 about the cancellation of the [[Intellivision III]], "Who was going to pay $200-plus for a machine that could only play games?"<ref name="mitchell19830906">{{cite news |url=https://news.google.com/newspapers?id=gn0hAAAAIBAJ&pg=5584%2C3561802 |title=A summer-CES report |work=Boston Phoenix |date=September 6, 1983 |access-date=January 10, 2015 |author=Mitchell, Peter W. |pages=4 |archive-date=February 9, 2021 |archive-url=https://web.archive.org/web/20210209104106/https://news.google.com/newspapers?id=gn0hAAAAIBAJ&pg=5584%2C3561802 |url-status=live }}</ref> Commodore explicitly targeted video game players. Spokesman [[William Shatner]] asked in VIC-20 commercials "Why buy just a video game from Atari or Intellivision?", stating that "unlike games, it has a real computer keyboard" yet "plays great games too".<ref name="cbmtvad">{{Cite AV media |url=https://www.youtube.com/watch?v=UK9VU1aJvTI |title=Commodore VIC-20 ad with William Shatner |date=June 9, 2010 |url-status=live |archive-url=https://web.archive.org/web/20170406170423/https://www.youtube.com/watch?v=UK9VU1aJvTI |archive-date=April 6, 2017 }}</ref> Commodore's ownership of chip fabricator [[MOS Technology]] allowed manufacture of [[integrated circuit]]s [[Vertical integration|in-house]], so the VIC-20 and C64 sold for much lower prices than competing home computers. In addition, both Commodore computers were designed to utilize the [[Atari joystick port|ubiquitous Atari controllers]] so they could tap into the existing controller market.

"I've been in retailing 30 years and I have never seen any category of goods get on a self-destruct pattern like this", a [[Service Merchandise]] executive told ''The New York Times'' in June 1983.{{r|pollack19830619}} The price war was so severe that in September Coleco CEO [[Arnold Greenberg (Coleco)|Arnold Greenberg]] welcomed rumors of an [[IBM PCjr|IBM 'Peanut']] home computer because although IBM was a competitor, it "is a company that knows how to make money". "I look back a year or two in the videogame field, or the home-computer field", Greenberg added, "how much better everyone was, when most people were making money, rather than very few".<ref name="coleco19830928b">{{Cite AV media |url=https://www.youtube.com/watch?v=gg_I9TGYM-w |title=Coleco Presents The Adam Computer System |date=May 3, 2016 |publisher=YouTube |orig-year=1983-09-28 |time=1:06:55 |quote=IBM is just not another strong company making a positive statement about the home-computer field's future. IBM is a company that knows how to make money. IBM is a company that knows how to make money in hardware, and makes more money in software. What IBM can bring to the home-computer field is something that the field collectively needs, particularly now: A respect for profitability. A capability to earn money. That is precisely what the field needs ... I look back a year or two in the videogame field, or the home-computer field, how much better everyone was, when most people were making money, rather than very few were making money. |url-status=live |archive-url=https://web.archive.org/web/20170103132547/https://www.youtube.com/watch?v=gg_I9TGYM-w |archive-date=January 3, 2017 }}</ref> Companies reduced production in the middle of the year because of weak demand even as prices remained low, causing shortages as sales suddenly rose during the Christmas season;<ref name="rosenberg19831208">{{Cite news |title=Home Computer? Maybe Next Year |last=Rosenberg |first=Ronald |date=December 8, 1983 |work=[[The Boston Globe]]}}</ref> only the Commodore 64 was widely available, with an estimated more than 500,000 computers sold during Christmas.<ref name="nyt19831210">{{Cite news |url=https://www.nytimes.com/1983/12/10/business/under-1983-christmas-tree-expect-the-home-computer.html |title=Under 1983 Christmas Tree, Expect the Home Computer |date=December 10, 1983 |work=The New York Times |access-date=July 2, 2017 |language=en-US |issn=0362-4331 |url-status=live |archive-url=https://web.archive.org/web/20171107112231/http://www.nytimes.com/1983/12/10/business/under-1983-christmas-tree-expect-the-home-computer.html |archive-date=November 7, 2017 |url-access=limited}}</ref> The 99/4A was such a disaster for TI, that the company's stock immediately rose by 25% after the company discontinued it and exited the home-computer market in late 1983.<ref name="ap19831101">{{Cite news |title=IBM's Peanut Begins New Computer Phase |date=November 1, 1983 |work=The Boston Globe |agency=Associated Press}}</ref><ref name="maceti19831121">{{cite news | url=https://books.google.com/books?id=uy8EAAAAMBAJ&pg=PA22 | title=TI retires from home-computer market | access-date=February 25, 2011 | author=Mace, Scott | date=November 21, 1983 | work=InfoWorld | pages=22, 27}}</ref> [[JCPenney]] announced in December 1983 that it would soon no longer sell home computers, because of the combination of low supply and low prices.<ref name="bg19831217">{{Cite news |title=Penney Shelves its Computers |date=December 17, 1983 |work=The Boston Globe}}</ref> [[Radio Shack]] avoided drastic price cuts for its home computers and remained profitable in 1983.<ref name="ahl198411">{{cite web | url=http://www.atarimagazines.com/creative/v10n11/292_Tandy_Radio_Shack_enters_.php | title=Tandy Radio Shack enters the magic world of computers | accessdate=February 26, 2011 | author=Ahl, David | date=November 1984 | work=[[Creative Computing]] | page=292}}</ref>

By that year, Gutman wrote, "Video games were officially dead and computers were hot". He renamed his magazine ''Computer Games'' in October 1983, but "I noticed that the word ''games'' became a dirty word in the press. We started replacing it with ''simulations'' as often as possible". Soon "The computer slump began ... Suddenly, everyone was saying that the home computer was a fad, just another hula hoop". ''Computer Games'' published its last issue in late 1984.<ref name="gutman198712">{{cite magazine |url=https://archive.org/stream/COMPUTEs_Apple_Applications_Vol._5_No._2_Issue_6_1987-12_COMPUTE_Publications_US#page/n65/mode/2up |title=The Fall And Rise of Computer Games |magazine=Compute!'s Apple Applications |date=December 1987 |access-date=August 18, 2014 |author=Gutman, Dan |pages=64 |volume=5 |number=2 #6}}</ref> In 1988, ''[[Computer Gaming World]]'' founder Russell Sipe noted that "the arcade game crash of 1984 took down the majority of the computer game magazines with it." He stated that, by "the winter of 1984, only a few computer game magazines remained", and by mid-1985, ''Computer Gaming World'' "was the only 4-color computer game magazine left".<ref>{{cite magazine |url=http://www.cgwmuseum.org/galleries/issues/cgw_50.pdf#page=7 |archive-url=https://web.archive.org/web/20160418152038/http://www.cgwmuseum.org/galleries/issues/cgw_50.pdf |archive-date=April 18, 2016 |issue=50 |magazine=Computer Gaming World |pages=6–7 |date=August 1988 |title=The Greatest Story Ever told |first=Russell |last=Sipe |url-status=live}}</ref>