What caused the video game crash of 1983?

The crash of the US home console market came from several pressures acting together: too many consoles and games, over-optimistic production and ordering, weak game quality, and a new rival in the home computer. Sources differ on how much weight each deserves, and one academic account argues the crash needs no exceptional explanation. [1] [2]

By 1982 analysts were warning of saturation, noting that new software would support only a few big hits and that retailers had given too much floor space to systems. A Goldman Sachs analyst said in 1983 that demand was up 100 percent on the previous year while manufacturing output had risen 175 percent, leaving a large surplus. Atari's chief executive Raymond Kassar expected saturation when about half of American households owned a console, but the crash came after roughly 15 million machines had been sold. Atari's Michael Katz said 30 million consoles had been sold by 1982, against 35 million households with children aged six to sixteen. [1]

The New York Times, as summarized by Atari History, traced Atari's shortfall to October 1981, when it asked distributors to commit to orders for almost all of 1982. Having failed to meet demand in earlier years, distributors ordered more than they needed. As rival cartridges arrived, cancellations followed. Warner's Emanuel Gerard said, "We were just dumb." [3]

Game Merchandising magazine counted about 100 different cartridges on sale in June 1982 and about 400 by December. The number of cartridge makers had more than tripled to 20. Ernkvist's study says 158 companies released games for the Atari VCS in 1981 and 1982, most releasing only a few before the crash, and many were venture-funded newcomers with little programming talent. He writes that most of the new firms released substandard games and that even Atari lost much of its earlier innovativeness. When the market turned, many sold off stock far below original prices. [3] [2]

Atari's home version of Pac-Man drew criticism for flickering graphics yet sold very well. According to the Times, this convinced the company it could sell almost anything. It then relied on E.T. and Raiders of the Lost Ark for late 1982, and neither became the expected hit. Ernkvist reports that the E.T. licence reportedly cost more than 20 million dollars and the game became Atari's largest commercial failure. The National Videogame Museum notes the popular story that Atari made more E.T. cartridges than there were consoles; the excerpt supplied does not settle whether that is accurate, so it should be treated cautiously. [3] [4] [2] [5]

Ernkvist argues the crash was not exceptional. In his view the same dynamics as in the 1977 crash drove it: disruptive technology (home computers), limited ability to differentiate similar games, and low entry barriers that let fragile small firms in. He says computers let individual users program games and avoided the cost of large cartridge stocks, and that disruptive technology alone was necessary but not sufficient. Other, more popular accounts stress particular failures such as poor games and Atari's decisions, and a short radio-style summary also lists shifting demand toward computers and primitive development tools. These views overlap more than they conflict, but the search results do not show which one specialists favor most. [2] [6] [4]