The video game crash of 1983
Somewhere outside Alamogordo, New Mexico, in September 1983, a fleet of Atari trucks arrived at a municipal landfill carrying hundreds of thousands of unsold cartridges. Workers unloaded them. A bulldozer spread quick-set concrete. The desert covered the rest. Atari had been hoping no one would notice.
The game buried in the largest quantities was E.T. the Extra-Terrestrial — designed in five and a half weeks by programmer Howard Scott Warshaw to ship in time for Christmas 1982. Warshaw was talented: he had made Yars’ Revenge the year before, which Atari 2600 owners considered something close to a masterpiece. Five and a half weeks was not enough time to repeat that. No one tested the finished game with real players before it went to shelves. Atari had paid between $20 and $25 million for the Spielberg license and manufactured more cartridges than there were Atari 2600 consoles in existence, gambling that customers would buy the hardware to play the game. They did not.
But E.T. was symptom, not cause. North American home video game revenues had peaked at roughly $3.2 billion in 1982. At that same moment, over 100 companies were scrambling to release Atari-compatible titles. In June 1982 there were about 100 Atari 2600 games on shelves; by December, more than 400. Manufacturing output grew 175 percent while demand grew 100 percent. Warehouses filled. Retailers slashed prices. Customers, unable to distinguish a good game from a bad one in the pile, stopped buying either.
Atari’s losses for 1983 totaled $536 million. The company laid off 3,000 of its 10,000 employees and moved all manufacturing offshore. In July 1984, Warner Communications sold the consumer division to Jack Tramiel, who had left Commodore earlier that year. The industry as a whole shed 97 percent of its revenue between 1982 and 1985: from $3.2 billion down to roughly $100 million.
The 2014 excavation at Alamogordo confirmed what Atari had buried: approximately 728,000 cartridges, far fewer than the urban legend of millions, but enough to make the image permanent. E.T. was among them. So were scores of games that nobody had ever played.
What the crash forced was a reckoning with trust. When Nintendo launched the Nintendo Entertainment System in North America in October 1985, it came with an explicit quality gate: third-party developers had to license their games, submit them for review, and earn the Official Nintendo Seal of Quality before a title could ship. Retailers, burned by 1983, stocked the NES because Nintendo had promised to hold the line. By 1988, Nintendo controlled roughly 70 percent of the North American market, and the industry’s revenues had surpassed $5 billion — higher than the peak that had collapsed.
The cartridges went into the ground because no one had asked, at any point in their production, whether anyone wanted to play them. That question, it turned out, was the whole business.
Sources
- Video game crash of 1983 — Wikipedia — revenue figures, timeline, market saturation data, Atari’s financial losses, recovery statistics.
- E.T. and the U.S. Market Crash — National Videogame Museum — ET development timeline, license cost, Alamogordo burial, 2014 excavation cartridge count.
- What Video Game Crash? — The Strong National Museum of Play — Nintendo’s quality licensing strategy, consumer experience of the transition, industry recovery.