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The video game crash of known as the Atari shock in Japan was a large-scale recession in the video game industry that occurred from to , primarily in the United States. The crash was attributed to several factors, including market saturation in the number of game consoles and available games, many of which were of poor quality , as well as waning interest in console games in favor of personal computers.

The crash abruptly ended what is retrospectively considered the second generation of console video gaming in North America. To a lesser extent, the arcade game market also weakened as the golden age of arcade video games came to an end.

Lasting about two years, the crash shook a then-booming video game industry and led to the bankruptcy of several companies producing home computers and video game consoles in the region. Analysts of the time expressed doubts about the long-term viability of video game consoles and software. The North American video game console industry recovered a few years later, mostly due to the widespread success of Nintendo’s Western branding for its Famicom console, the Nintendo Entertainment System NES , released nationally in The NES was designed to avoid the missteps that caused the crash and the stigma associated with video games at that time.

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The Atari Video Computer System renamed the Atari in late was not the first home system with swappable game cartridges , but by the early s it was the most popular second-generation console by a wide margin. Launched in just ahead of the collapse of the market for home Pong console clones, the Atari VCS experienced modest sales for its first few years.

In , 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. 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.

This was the first real threat to Atari’s dominance of the home console market. 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 , 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.

In addition, the rapid growth of the videogame industry led to an increased demand, which the manufacturers over-projected. However, Kassar expected this to occur when about half of American households had a video game console. Unfortunately, the crash occurred when about 15 million machines had been sold, which soundly under-shot Kassar’s estimate. Prior to , there were no third-party developers , with console manufacturers like Atari publishing all the games for their respective platforms.

This changed with the formation of Activision in Activision was founded by four Atari 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 ultimately settled the case in While the settlement stipulated that Activision must 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!

Prior to , Activision was one of only a handful of third parties publishing games for the Atari VCS. By , Activision’s success emboldened numerous other competitors to penetrate the market. However, Activision’s founder 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 games of poor quality.

They largely relied on industrial espionage poaching each other’s employees, reverse-engineering each other’s products, etc. In fact, even Atari themselves engaged in such practices, hiring several programmers from Mattel’s Intellivision development studio, prompting a lawsuit that included charges of industrial espionage.

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. By December, that number grew to over BYTE stated in December that “in few games broke new ground in either design or format If the public really likes an idea, it is milked for all it’s worth, and numerous clones of a different color soon crowd the shelves.

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That is, until the public stops buying or something better comes along. Companies who believe that microcomputer games are the hula hoop of the s only want to play Quick Profit. You have to wonder how tenuous the connection will be between the game and the movie Marathon Man. What are you going to do, present a video game root canal?

Besides just flooding the market with far too many ideas, there was also a limited competitive space. Prior to , Atari was considered the dominant company in the home video game industry, but as described above, new players in the hardware market and the loss of publishing control caused the company to slip from its dominant position. One factor was around certain games Atari chose to publish, as by this point, with the company owned by Warner Communication, it was more focused on business opportunities rather than innovation.

Many of its executives were MBAs , and looked for any business opportunity that would give them an edge over other third-party game publishers. The Atari VCS port of the arcade hit Pac-Man was released in March and was critically panned, with its graphics cited as particularly poor. While some vendors canceled orders, most of the large retailers continued to sell the game, and Atari sold seven million units in Still, the quality issues hurt the Atari brand and led some consumers to ask for refunds.

Atari anticipated about four million units to be sold, but the quality of the game due to the time constraints stalled sales, and a reported 3. The combined impact of the poor quality of Pac-Man and E. Atari attempted to improve future arcade and licensed game ports to draw back consumers, such as the Ms. Pac-Man port which was more positively received by critics.

Inexpensive home computers had been first introduced in and, by , Atari unveiled the Atari and computers, built around a chipset originally meant for use in a game console, and which retailed for the same price as their respective names. By , new desktop computer designs were commonly providing better color graphics and sound than game consoles and personal computer sales were booming. Because computers generally had more memory and faster processors than a console, they permitted more sophisticated games.

A compendium of reviews of Atari 8-bit software used pages for games compared to for all other software types. Games were easier to distribute, since they could be sold on floppy disks or cassette tapes instead of 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 addition, both Commodore computers were designed to utilize the ubiquitous Atari controllers so they could tap into the existing controller market. By that year, Gutman wrote, “Video games were officially dead and computers were hot”. He renamed his magazine Computer Games in October , 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 The release of so many new games in flooded the market. Most stores had insufficient space to carry new games and consoles.

As stores tried to return the surplus games to the new publishers, the publishers had neither new products nor cash to issue refunds to the retailers. Many publishers, including Games by Apollo [30] and U. Games , [31] quickly folded.

Unable to return the unsold games to defunct publishers, stores marked down the titles and placed them in discount bins and sale tables. The presence of third-party sales drew the market share that the console manufacturers had. By June , the market for the more expensive games had shrunk dramatically and was replaced by a new market of rushed-to-market, low-budget games.

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A massive industry shakeout resulted. Magnavox abandoned the video game business entirely. Imagic withdrew its IPO the day before its stock was to go public; the company later collapsed. Activision had to downsize across and due to loss of revenue, and to stay competitive and maintain financial security, began development of games for the personal computer. Within a few years, Activision no longer produced cartridge-based games and focused solely on personal computer games.

Atari was one of those companies most affected by the crash. As a company, its revenues dropped significantly due to dramatically lower sales and cost of returned stock. Unsold Pac-Man , E. In September , Atari discreetly buried much of this excess stock in a landfill near Alamogordo, New Mexico , though Atari did not comment about their activity at the time.

Misinformation related to sales of Pac-Man and E. Gaming historians received permission to dig up the landfill as part of a documentary in , during which former Atari executive James Heller, who had overseen the original burial clarified that only about , cartridges had been buried in , backed by estimates made during the excavation, and disproving the scale of the urban legend. Lack of confidence in the video game sector caused many retailers to stop selling video game consoles or reduced their stock significantly, reserving floor or shelf space for other products.

Retailer opposition to video games was directly responsible for causing Nintendo to brand its product an “Entertainment System” rather than a “console” , using terms such as “control deck” and “Game Pak” , as well as producing a toy robot called R. Furthermore, the design for the Nintendo Entertainment System NES used a front-loading cartridge slot to mimic how videocassette recorders , popular at that time, were loaded, further pulling the NES away from previous console designs.

The crash also affected video game arcades , which had had several years of a golden age since the introduction of Space Invaders in but was waning by due to the expansion of home consoles, the lack of novel games, and undue attention to teenage delinquency around video game arcades. The full effects of the industry crash were not felt until Two major events of helped to revitalize the video game industry. One factor came from increased sales of personal computers from Commodore and Tandy helped to maintain revenue for game developers like Activision and Electronic Arts and keeping the video game market alive.

In response, Nintendo limited the number of titles that third-party developers could release for their system each year, and promoted its ” Seal of Quality “, which it allowed to be used on games and peripherals by publishers that met Nintendo’s quality standards. The end of the crash allowed Commodore to raise the price of the C64 for the first time upon the June introduction of the Commodore 64c—a Commodore 64 redesigned for lower cost of manufacture—which Compute!

The crash in had the largest impact in the United States, and rippled through all sectors of the global video game market worldwide, though sales of video games still remained strong in Japan, Europe, and Canada from the beleaguered American companies.

There was also a significant shift in the home video game market, away from consoles to personal computer software, between and The console itself was engineered to look like anything but a game system. Nintendo wanted it to look more so as a regular home tech item such as a VCR rather than a gaming console. Nintendo’s tactics were that with the crash just ending, taking a toll on the gaming industry and its consumers, the company would go for a look that was far removed from what was actually inside the unit.

Nintendo was afraid that people would be wary after the events and would not want a console in their homes.