From 1977 to 1983, the video game industry went from almost nothing to being one that rivaled the film business in Hollywood, hitting an estimated $7 billion in revenues at its peak for both home and arcade games combined.
By 1986, it was all over. Home video game sales which peaked at $3 billion in 1983 dropped to around $100 million by 1985. Companies went bankrupt and closed up shop and video game consoles and cartridges hit the bargain bins.
And landfills. A long-rumored story was finally confirmed in 2014 when it was reported that millions of unsold E.T. cartridges produced for the Atari 2600 were in fact buried in a New Mexico landfill.
What happened and how did the video game business crash so hard and so quickly and how did it end up rising again several years later?
Video Game Crash of 1977
Sadly 1983 wasn’t the first video game crash. That would be the one that occurred in 1977 for largely the same reasons the 1983 crash happened: Oversaturation of games, poor quality products and games and consoles sent to the bargain bin.
The difference was that in 1977 Pong was pretty much the only game in town. A basic version of tennis invented by Atari in 1972, Pong quickly became a popular option for both the home and arcade sectors given how basic the game play and graphics were. The problem was that numerous companies produced the same game, prices came down, a glut resulted and video game manufacturers abandoned the market. The first generation of video games came and went.
By 1978 only Atari and Magnavox remained as other manufacturers such as Fairchild exited production of video games. Fortunately for history both companies and Atari in particular continued with production of existing home video game systems.
1977 – 1986
The period of time beginning in 1977 around the time Pong was being sold off in bargain bins until 1986 is widely regarding as being the Golden Age of Video Games.
During this period of time both the home and video game markets exploded. On the arcade side, Space Invaders from Japan’s Taito introduced in 1978 rejuvenated the video game business and numerous companies began to enter the market. On the home side, Atari, Mattel and Coleco all produced successful home video game systems, the Atari 2600, Intellivision and ColecoVision respectively.
Many of the most legendary and most successful arcade video games were created during this period and hit the arcades and in many cases, the home market too: Pac-Man, Ms. Pac-Man, Donkey Kong, Donkey Kong Junior, Frogger, Galaga, Galaxian, Centipede, Pole Position, Defender, Dig Dug and many more.
While there is debate to the exact timeframe of this period, it generally runs from 1977 or 1978 to either 1983 with the crash or as late as 1986 when arcade revenues while generally still strong, hit a low. The end of the era was the same result as in 1977: Companies went bust, jobs were lost and bargain bins were filled with excess products.
E.T. Debacle
In 1982, E.T. the Extra Terrestrial was the biggest movie of the year and ended up for a time being the biggest grossing film of all time. I remember going to our local mall to see it and walking about 100 yards to the back of the lineup to the other end of the mall’s main hall to wait for tickets only to find out it was sold out. I had to come back for the later show but managed to get in.
In order to capitalize on the success of the movie, Atari bought the right to produce a home video game for their 2600 home system and agreed to have the game ready for the 1982 Christmas season. They had 6 weeks to produce the game at a time when video games normally took 6 to 7 months to create.
The result? One of the worst video games ever produced. Poor gameplay, cheap graphics and a whole pile of cartridges left unsold.
Rumors abound to this day as to the actual numbers involved. One rumor was that Atari had produced enough copies that every single Atari 2600 owner – up to 20 million at the time – could buy an E.T. game cartridge although it appears this is inaccurate. Lower numbers suggest that around 4 million copies were produced and that at best 1.5 million copies were sold. Many of them ended up getting returned, too.
The bottom line? Millions of unsold E.T. game cartridges and nowhere to put them. So they were buried in a New Mexico landfill and sealed with concrete. It was a rumor that persisted for decades but in 2014, it was finally revealed that the rumor was true.
In many respects the E.T. video game debacle was a microcosm of the entire industry at the time. Too many consoles, too many games rushed to market and overall low quality. Clearly the industry hadn’t learned from 1977 but this time around the crash was a much bigger and costly fall.