The Great Crash of 1983: When America Gave Up on Video Games

Quick version: In the early 1980s, home video games in North America went from boom to bust in about two years. Too many consoles, a flood of poor games and cheap home computers wiped out most of the market. Atari, the biggest name of all, buried unsold stock in a New Mexico landfill. It took a cautious Japanese company, Nintendo, to win shoppers back.

Fun fact: For 30 years, "Atari buried millions of E.T. cartridges in the desert" was treated as an urban legend. In April 2014, a documentary crew dug up the Alamogordo landfill and found that it was true, though on a smaller scale than the legend claimed. They recovered about 1,300 cartridges, and the man who'd overseen the original dump put the total buried at around 728,000.

The full story

Boom

By 1982, video games looked unstoppable. Arcades were packed, and the Atari 2600 had turned living rooms into mini arcades. Rivals piled in. Mattel had Intellivision, Coleco had ColecoVision, and there were many smaller machines, such as the Vectrex and the Magnavox Odyssey². Atari itself launched a second console, the 5200, without retiring the first.

The bigger problem was software. In the early days, anyone could make cartridges for the 2600 without Atari's permission. Once Activision had shown that third-party games could make money, all sorts of companies wanted a slice. Some had no experience of games at all, and food and toy brands released tie-in titles, such as Purina's Chase the Chuck Wagon. Shops filled with games that were rushed, samey or simply broken.

The warning signs

Two Atari releases became symbols of the problem. First, its 2600 version of Pac-Man (1982) sold in huge numbers, but players hated how little it resembled the arcade game: flickering ghosts, odd colours, a strange sound. Atari had reportedly made more cartridges than there were consoles to play them on.

Then came E.T. the Extra-Terrestrial. The licence was expensive, and the game had to be ready for Christmas 1982. Its programmer, Howard Scott Warshaw, had roughly five to six weeks to make it, where a normal game took months. Many buyers found it confusing and frustrating, and the returns piled up.

Bust

In 1983 the floor gave way. Shops that had overstocked slashed prices to clear their shelves. Games that had cost around $30–$40 ended up in bargain bins for a few dollars. Once a game could be bought for almost nothing, nobody wanted to pay full price for a new one.

At the same time, home computers such as the Commodore 64 dropped in price. Commodore's adverts, fronted by William Shatner for the VIC-20, asked parents why they'd buy just a video game when, for a little more, a computer could play games and help with homework.

The numbers were brutal. US home video game revenue had been about $3bn at its peak (1982–83, depending on source). By 1985 it had fallen to about $100 million. That's a drop of roughly 97%. Atari reported hundreds of millions of dollars in losses in 1983 and cut a large share of its workforce. In September 1983, trucks carried unsold cartridges and hardware from Atari's El Paso plant to the Alamogordo landfill, where the dump was crushed and covered over. In July 1984, Warner Communications sold Atari's home products business to Jack Tramiel, who had just left Commodore.

Meanwhile, in the arcades

Arcades had a downturn of their own at around the same time. It was slower and less dramatic than the home crash, and historians tend to call it a shake-out rather than a crash. Between 1980 and 1982, the number of US arcades more than doubled, to about 10,000, and machines appeared in pizza places, supermarkets and motels. Then the novelty wore off. According to the US trade magazine Play Meter, the takings of American coin-op machines fell from an all-time high of about $8.9 billion in 1982 to $6.4 billion in 1983 and $4.5 billion in 1984. An average video game cabinet that took about $140 a week in 1981 was taking about $53 a week by 1984. Time magazine reported that at least 2,000 arcades closed in 1983 alone, and some cut prices to eight tokens for a dollar to compete.

The causes overlapped with the home crash: too many machines chasing the same players, and too few exciting new games. Many arcade historians argue that the coin-op slump began in 1982 and wasn't caused by the console collapse. The two simply happened side by side. Arcades survived, but the golden age was over.

Not a worldwide crash

The crash was mainly a North American event. In Japan, Nintendo launched the Famicom in July 1983, right in the middle of the American collapse, and it became a best-seller in Japan by 1984. In the UK and Europe, cheap home computers such as the ZX Spectrum and the Commodore 64 were already leading the market, so British gamers barely noticed the console bust.

Nintendo wanted to bring the Famicom to America, but retailers didn't want to hear the words "video game". So Nintendo of America disguised it. The machine became the Nintendo Entertainment System, with a grey, front-loading design that looked more like a video recorder than a toy. It came with a little robot, R.O.B., and a light gun, the Zapper, so shops could stock it alongside toys.

Nintendo tested it in the New York area from 18 October 1985. To convince nervous retailers, it offered to set up displays and take back unsold stock. Reports put first-Christmas sales at about 50,000 (some say up to 90,000), which was enough to justify a wider rollout in 1986.

Nintendo also made sure the flood of bad games couldn't happen again. A lockout chip (10NES) stopped unlicensed cartridges from running, and the Nintendo Seal of Quality told parents that a game had been approved. Strict licensing rules limited how many games third-party publishers could release each year: five titles per publisher. These ideas shaped how console makers have controlled their platforms ever since.

Within a few years, Nintendo dominated the American market. Atari, now run by Tramiel, turned towards home computers with the Atari ST.

Related consoles and pages

What happened next: Famicom launches in Japan (on the timeline)