The Video Game Crash of 1983

In my previous post, I discussed a short history of the video game industry up until 1983, when the major crash happened. This post, I'll dig a bit deeper into Atari's corporate downfall, and we'll discover how a company that was on top of the market could have possibly fallen so hard that it nearly took the entire industry with it.

In Depth: The World of 1983
During this time period, Atari was the name of the game, a company that seemed so destined to succeed that Warner Communications purchased it for $28 Million USD in 1976. Suddenly, however, in 1982, Atari began to slow down, reporting only a 10% to 15% increase in expected earnings, a shocking contrast to the 50% or more earnings that Wall Street speculators predicted. What could have possibly caused such a powerful company to slow down like this? Let's look over some probable causes:

• Poor employee treatment caused most of Atari's programmers to leave the company.
• Their consumer hardware was aging poorly, and the release of the Atari 5200 was ill received
• Atari's business model relied on game sales to make up for both the cost of game production   and the cost of system production

The departure of most of their good programmers resulted in less than flattering performance when Atari released a home version of Pac-Man in 1982. In an act of "it was a good idea at the time", Atari produced 12 million copies of Pac-Man even though only 10 million of their 2600 consoles (which Pac-Man was designed for) had been sold, hoping that the game would spur additional console sales. Sadly, this strategy didn't work out, and Atari only sold 7 million copies. Atari's next move lead to the production of arguably the most infamous game of all time: E.T. The Extra-Terrestrial.^[1]

ET: Extra Terrible
In August of 1982, Atari made a deal big enough to make it into the New York Times: they had secured the rights to make a video game from Steven Spielberg's hit movie E.T. The Extra-Terrestrial. Atari payed out somewhere between $20 and $25 million USD^[2] for the licensing rights, and the game was rushed through production on a tight schedule. Atari had high hopes for the game, and ordered for around 5 million copies to be produced. However, like Pac-Man before it, E.T.'s sales were less than impressive, and only earned Atari $25 million USD back. Atari was now left $200 million USD in debt, and E.T. was slammed by critics and players alike for its near unplayable state. While E.T. by itself was not what caused the crash, it has become the poster child for the crash, and is still one of the most notorious examples of awful game design ever.

Atari lost $536 million USD total^[3], and was eventually sold. Atari, who had once dominated the industry, had now hit rock bottom. Next post, we'll compare this information with the world of today.



References:
[1] Barbara and David P. Mikkelson, May 10, 2011: Snopes: Buried Atari Cartridges
[2] Nadia Oxford, September 21, 2011: IGN: Ten Facts about the Great Video Game Crash of '83
[3] Time Magazine, February 6, 1984: Time Magazine: The Zinger of Silicon Valley (1984)