Fun Fact: Video Game Crash of 1983!
Home video game consoles in 1982 were a $3 Billion industry; By 1985 the industry managed only $100 Million in sales. The video game crash of 1983 completely destroyed the video game market, with most analysts predicting that the video game "fad" that began with the first arcade hit, 1972's Pong
, was over, and that home consoles would be relegated to history.
The crash of '83 resulted from a combination of stock market speculation, gross mismanagement at Atari, and a spate of third party cartridge producers who tried to cash in on the boom. Home consoles and arcade machines earned more money in 1981 than Hollywood AND Las Vegas gambling COMBINED. Profit margins were huge, and stock market speculation created unreal expectations that the pace of growth would continue. Meanwhile, Atari's execs seemed to agree that the console market would continue to expand unabated. In 1983, when Atari secured the rights to make the arcade sensation Pac-Man into a cartridge for home use, they decided to produce 12 million copies of it, even though only 10 million Atari 2600's existed at the time. The theory being that the ability to play Pac-Man at home would increase sales of the system to the point that their would soon be 12 million people who wanted a copy.
During the same period however, hundreds of new game companies had opened shop. Some like Activision were founded by ex-Atari employees, and these hundreds of new companies lured away Atari's most talented programmers. While certain third party manufacturers like Activision produced quality games, the majority were parasites that sold poorly made and derivative games. Suffering from this brain drain, Atari's Pac-Man was a substandard adaptation of the game. As a result Pac-Man sold 7 million copies, leaving Atari with 5 million extra cartridges of the game and 70% of their customers feeling hoodwinked with a crappy imitation of the arcade Pac-Man. Meanwhile, all those third party game makers were churning out cheap cartridges and the flood of overstock resulted in massive discounting and a perception among customers that most home video games were of low quality. In order to compete with the discounted titles, new games had to be sold at a reduced retail price, and the spiral of discounting continued.
Atari was selling the 2600 at a loss, with the plan to make profit by selling games. But the sheer volume of third party cartridges stopped this plan from working.
Atari thought it's salvation would be to license the rights to a game based on the movie E.T. After the success of the movie, they bought the rights and quickly wrote a game that they could release in time for Christmas. With many of their best programmers no longer working for them, and an extremely rushed production, the result an unplayable disaster. Seanbaby named it the #1 worst game of all time
But Atari had decided to produce an initial run of 5 million copies of ET, anticipating a hot holiday seller. An Atari executive remarked, "nearly all of them came back."
Unable to give them away for free, Atari decided to throw out millions of copies of Pac-Man and ET.
"In order to keep the site from being looted, steamrollers crushed and flattened the games, and a concrete slab was poured over the remains." (I also read an article about a empty mine shaft that was filled with millions of copies of 5 or 6 games in 1983 and then sealed up, but can't fine that article online right now. They unsealed the mine shaft a few years ago, and you could (can?) buy the sealed games for a couple of bucks each.)
Atari reported a $536 million loss in 1983, and the home console market was decimated.
In order to prevent the crash of 1983 from happening again, when Nintendo released its 8-bit system in America in 1986 it issued a ban on unlicensed third party developers, suing violators. Some companies made games anyway, with interesting results like Bible Adventures
, the recalled Tengen Tetris
, and the rare pornographic Bubble Bath Babes