What was the 1983 video game crash?

You could play some terrible games on the Atari 2600 (Picture: Wikipedia)

Gaming Short Stories looks at how a booming games industry suddenly dropped from $3.2 billion in revenue to $100 million in two years in the US.

It feels like every passing week people in the video games industry are being laid off, from publishers and developers big and small, including Microsoft’s Activision Blizzard and Bethesda, Fortnite maker Epic Games, and League Of Legends creator Riot Games.

A big reason for this is because video games spiked in popularity during the COVID pandemic, and game makers overextended by hiring too many people to meet the sudden demand – something that was made easy by low interest rates. Now that demand has returned to normal, and interest rates have gone up, companies are stabilising their balance sheets by organising mass redudancies.

Looking back in time, you can see a worryingly similar story during the 1983 home video game crash, when the industry’s revenue fell by 97% because of another gross overextension.

The 1983 video games crash was a bubble ready to pop for several reason, but the most important one was the oversaturation of consoles available on the market.

Unlike today, when the console market is dominated by Microsoft, Sony, and Nintendo, there were an abundance of consoles to choose from in early 80s.

The video game industry was growing fast and publishers wanted in on the market with their own consoles, such as the Atari 2600, ColecoVision, Intellivision, Vectrex, Bally Astrocade, and Magnavox Odyssey 2.

Competition is usually a good thing but such an oversaturation meant that only a few could survive, causing those how backed the losers to exit from the industry entirely.

The Magnavox Odyssey 2 in all its glory (Picture: Wikipedia)

During the same time, publishers and developers over-projected how much demand there was for consoles and video games. What made things worse was that the games that were released were often rushed and of poor quality, and often made by third party developers with little experience.

When games started being returned by retailers that simply didn’t have enough space to carry them all, things went from bad to worse, as many of the new publishers didn’t have other products to push or the cash to offer refunds to the stores.

Publishers such as Games By Apollo and U.S. Games went under, and surplus games ended up in the discount bin for a fraction of the original cost.

Video games were just as expensive as today – if not more expensive back in the 80s, considering inflation – so people bought the discounted, rushed, poor quality video games, which only worsened the industry’s reputation.

David Crane, co-founder of Activision, and someone who once had worked at Atari, later told Arcade Attack: ‘Those awful games flooded the market at huge discounts, and ruined the video game business.’

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