1983 video game crash

Last Updated on April 15, 2024 by Dave Farquhar

The 1983 video game crash is something most retro gaming enthusiasts are familiar with. But it didn’t necessarily happen exactly the way people remember it today. To Atari, it certainly felt like a crash. But to its consumers, it was much less sudden than that.

The video game crash was a swift and dramatic loss of interest in video game consoles, as consumer mindshare shifted to home computers. But it wasn’t an overnight event.

The video game crash of 1983

Video games were a booming business in the early 1980s. Arcades sprung up all over the country, but standup video games weren’t just confined to the arcade. A machine or two sprung up pretty much everywhere there was space. Most grocery stores had a machine or two stashed somewhere. Large discount stores like Wal-Mart frequently had multiple machines by the entrance. Convenience stores usually had a machine or two, and so did most sit-down pizza joints.

Of course, at 25 cents a pop, arcade games could get to be an expensive habit. That was the appeal of home game consoles. After Atari produced a home version of the arcade hit Space Invaders, sales of the Atari 2600 took off. By 1982, video games were a $2 billion industry. And then in 1983, Atari lost $536 million. You’ve probably heard the story of Atari burying thousands of ET cartridges in the desert and nearly going out of business.

For Atari executives and employees, it probably did feel like it came on all of a sudden. But markets are a weird thing. They don’t affect everyone the same way at the same time. That was the case with the 1983 video game crash.

The way some people tell it, you’d think 1983 was the year everyone moved their consoles out of the living room and forgot about them.

Causes of the video game crash of 1983

The crash has variously been blamed on the low quality of certain games, particularly Atari’s own E.T. and its port of Pac-Man, as well as a flooded market of low-quality games from third-party publishers. Atari never anticipated third-party developers and couldn’t lock them out. Atari sued Activision and Activision agreed to pay royalties, but their 1982 agreement legitimized the business model and led to more third-party development that Atari couldn’t stop.

There was even an entire knockoff console released in 1982 with a first-party library of knockoffs, the Emerson Arcadia 2001. The industry seemed to take for granted that consumers would buy anything.

But it was something of a perfect storm. The Atari 2600 was showing its age, and Atari botched its successor. And while the market was flooded with low-quality games, the price of home computers was falling dramatically. While Apple and IBM held its prices fairly steady, the prices of other brands of home computers fell dramatically during 1983, making it possible to get a home computer for not much more than the Atari 2600 itself had cost a couple of years before.

It wasn’t a single thing, and it didn’t happen all at once, even though Atari came down like a house of cards awfully fast.

Atari made a lot of mistakes, but one obvious mistake was that even after selling 20 million game consoles, it had limited success selling a home computer to that customer base. It only sold 2 million computers between 1979 and 1985.

How the crash was news to me

I first heard about the video game crash in 1984. While there were certainly headlines in some publications about Atari’s woes, whatever article I read was very matter-of-fact about it. I just remember it saying that public interest shifted in 1983 from game consoles to home computers, because you could do more with a home computer, and the games were usually better on computers, too.

But that was a general trend. That’s not to say video games boomed in 1982, then went bust in 1983 and nobody wanted them anymore. Both the game console industry and the home computer industry were very new and immature in 1983 and going through growing pains.

I didn’t own an Atari 2600, but my cousin had one and most of my friends had one. Every one of those consoles started out in the living room, connected to the nicest TV in the house. Eventually, it ended up connected to the older TV in the basement, and went from something they played every day to something that got occasional use. For some people that transition happened in 1983, but for many others it was more like 1984 or even 1985.

I remember reading an article in the November 1984 issue of Boys’ Life magazine titled “Buying your first computer.” Obviously, it favored computers over game consoles, but noted that you could buy an Atari 2600 for as little as $60. Interest was flagging, but it wasn’t non-existent, even a year after the crash.

It wasn’t just the 2600

It’s easy to get the impression that in 1983, people decided they didn’t want game consoles and ran out and bought computers. The market wasn’t binary like that. Timex cut the cost of the Timex-Sinclair 1000, its most popular computer, to less than that of the 2600 in 1983. It was a real computer, with a built in programming language and storage and all that, but it had a terrible keyboard and only 2K of RAM. Some reports from early 1984 claimed Timex sold a million units, but today we believe that figure was more like 600,000.

Meanwhile, the Coleco Vision console sold pretty well in 1983. There’s little question that Atari’s sagging fortunes pulled Coleco down with it, and Coleco’s stock peaked at $65 in mid-1983 before losing half its value in August, but Coleco’s biggest problems stemmed from its disastrous Adam computer. Coleco lost money on the Adam but the Coleco Vision console remained profitable long after Coleco stopped trying. It didn’t discontinue the Coleco Vision until October 1985.

Atari struggled with its 5200 console, but that was a matter of poor execution. The chipset was fantastic, able to hold its own with what Nintendo used in the NES a few years later, but poor controllers, worse marketing, and a lack of backward compatibility doomed it from the start. That meant Atari carried on with the 2600, and 1977 technology in 1983 felt about as dated as PS1 technology in 2020. We didn’t all figure that out all at once.

What the Video Game Crash of 1983 felt like to a consumer

Atari’s catchphrase was “Have you played Atari today?” And to a kid in the early 1980s, that was what you did. You came home from school and you played Atari. I’m sure our parents think we played Atari until dinner. And when the novelty was new, sure, that was possible. But some days, it was more like 30 minutes.

It’s not that we stopped playing Atari. Sure, the market was flooded with bad games, but we played them until we lost interest, and then we’d go back to the standbys like Space Invaders, Pac Man, Donkey Kong, and any number of Activision titles. Sure, the 2600 versions of Donkey Kong and Pac Man were terrible. And we all heard the rumors the Atari Donkey Kong was deliberately terrible. But in each case, the overall premise of the game was there and it was still fun, at least to grade-school kids like me.

I wouldn’t say I remember anyone making a conscious decision not to buy video games after E.T. All my friends had it, and we all found it nearly impossible to play and gave up on it pretty fast. I guess the buzz died down a little after that time, and we didn’t race out to buy the next big blockbuster title. Maybe that was enough to burst the bubble. What I really remember was that, if anything, my friends started getting more games after E.T., but there was a definite difference. It wasn’t $30 titles anymore. Games got cheaper, in order to move inventory, and those sales weren’t really helping anyone’s bottom line.

The self perpetuating problem

There was definitely a problem of overproduction. It’s an oversimplification to say Atari had warehouses of cartridges no one wanted. But it’s fair to say Atari and third-party publishers produced far more cartridges than they could sell in a reasonable length of time. The year 1982 was a huge year for them and they bet, wrongly, that 1983 would be even bigger.

Prior to 1983, the game industry had been mostly immune to the bargain bin phenomenon. At least in the stores I shopped at, the games were generally in glass cases and behind counters during the 2600’s heyday. It was in 1983 that they came out from behind the counter and ended up in big bins at the front of the store, marked down to a small fraction of their original price.

That decimated the perceived value of the games. But from our perspective, it mostly meant games were getting cheaper. At least at first. It started with junk games from hack publishers, then, as other publishers left the business, their titles ended up in the bins, and the momentum pulled almost all of them down the drain. And while it started in 1983, it didn’t end then.

It took more than a decade to clear all that inventory from the retail channel. I remember being out with a friend in 1990 or 1991, and he bought a boxed copy of Yar’s Revenge at a closeout store for 99 cents. There were several copies, laying forgotten in the back of the store. As late as 1996, an Atari collector told me he was buying boxed 2600 cartridges at Big Lots.

Winners and losers of the 1983 video game crash

The video game crash of 1983 had lots of losers and not a lot of winners. The home computer price wars that contributed to the video game crash claimed a lot of casualties themselves, and the winners of the battle ultimately lost the war.

Commodore

The clear winner of the 1983 video game crash was Commodore. Commodore’s rise actually started well before 1983, with the 1981 release of the VIC-20 computer. The VIC-20 sold a million units in 1982, becoming the first computer to reach that milestone. The VIC lost momentum in 1983, but the Commodore 64 took over, selling as many as three million units that year, and Commodore sold more than a billion dollars worth of computer equipment that year while Atari bled to the tune of $583 million. It never repeated that performance, but in 1983, Commodore was on top of the world. The problem was that Commodore’s rapid price cuts decreased the perceived value of computers, so computer companies had a lot of up-and-down years in the mid 1980s too. Commodore may have been the worst.

Coleco

Coleco thought it was ready no matter which direction the market took. It introduced an outright clone of the 2600 in 1983, to go with its next-gen console and its home computer system, the Adam. Production and quality control issues doomed the Adam, which it discontinued in January 1985. The Coleco Vision game console remained in production until October 1985. Coleco never recovered from the Adam missteps and went bankrupt in 1988.

Timex

Commodore went looking for a price war in 1981 and it was Timex who decided to poke the bear. Its cheap, simple computers didn’t win the hearts of millions but they spurred other home computer makers to slash their prices. Timex had to sell in huge volumes to be successful and sold fewer than a million units a year, so it bowed out in early 1984.

IBM

IBM was ready to win big in 1983, but its PCjr was a disaster. It was too expensive, and IBM deliberately made it somewhat incompatible with the very successful IBM PC for fear of cutting into IBM PC sales. Between the price, its cheap calculator-style keyboard comparable to what you found on a $100 computer, lack of expandability and compatibility, the PCjr flopped.

Apple

Apple had a reasonably good year in 1983, selling nearly a billion dollars worth of computers, but its profits were only $77 million. The Apple IIc was really intended as a home computer but never sold all that well. Apple was much stronger in schools than at home in the 1980s, partly due to the high price of their computers.

Tandy

The unsung winner in 1983 was Tandy. Sales of its TRS-80 computers surged starting in Christmas of 1982, and its TRS-80 Color Computer sold well throughout 1983 and into 1984. Tandy capitalized on this, using the revenue to develop the Tandy 1000, which it released in November 1984 and it became everything the PCjr failed to be. Tandy computers ran out of gas in the early 90s but had an outstanding run in the 80s, and did as much as anyone to bring PCs into the home and gaming to PCs.

Nintendo

Don’t forget Nintendo, who arguably won bigger from the 1983 video game crash than anyone. In 1983 Nintendo had a game console and was looking for ways to enter the US market. Ideally it wanted Atari to distribute it. That agreement fell through, ironically because of Coleco. Nintendo studied Atari’s problems and redesigned its game system to avoid its pitfalls, to the point of making it look like a VCR and marketing it as an “entertainment system” rather than a game console, and requiring a license and royalties from third-party developers. By 1986, Super Mario Bros. had captured the imagination of millions and video games were back and bigger than before.

What happened to Atari

Atari emerged from the video game crash of 1983 a very different company. After losses piled up in 1983, Warner Communications, Atari’s parent company, wanted out, so in July 1984, it sold Atari for a paltry $75 million to Jack Tramiel, the founder of Commodore who’d been forced out earlier that year.

After spending three years telling people to buy Commodore computers instead of Atari video games, Tramiel was only interested in Atari as a computer company. He kept Atari afloat by selling surplus office furniture while a team of Atari and ex-Commodore engineers worked overtime to rush a 16-bit 68000-based next-generation computer to market. The new Atari continued its line of very capable 8-bit computers, but did little to promote them. Those machines were underrated then and are still underrated today.

After Nintendo proved there was a market for game consoles after all, Atari did release a number of consoles, but was never more than a #2 or #3 player in the market. Ultimately Atari faded away too, only to rise again as an undead company.