The early 80s crash -- the real reason

[schuwalker]

Regarding the arcade crash of '84... I was gonna put this reply in the thread about the decline of arcades - I'll just post this here.

 

The big mitigating factor was indeed the glut of games being churned out and cost efficiency. It's explained in this video (not sure on the exact time stamp), but had an adverse effect on the mom and pop arcade chains and the route operators.

 

Its an excellent video for you arcade fans...

 

[chuckwalla]

From personal experience in those early-mid 80's:

 

1) quality control of games hit an all-time low for the consoles.

 

2) video game systems were being replaced by computers (all my friends got Apples, C64's, Atari's, TI's).

 

3) my parents sold my 2600 and I got the C64 and it was a little piece of heaven to be able to copy disk after disk full of games and utilities.

[Newsdee]

The shovelware that is often cited always felt to me like an early dot-com bubble.

 

Lots of companies and individuals would try to cash in on a new tech-related fad with very little effort, either copying an existing item or rushing some half-baked idea out hoping people would buy it.

 

If you read some stories from the 90s there are a bunch of initiatives that were outright scams, predating not only customers but also investors unfamiliar with the new industry.

 

Not saying this is the only reason, but I'm sure there was some of this going on as well.

Edited January 29, 2018 by Newsdee

[famicomer]

I know this has been done to death, but I have to set the record straight. Numerous documentaries and books (even L. Herman's Phoenix) state that the video game crash of the early 80s was caused by too many games on the market.

 

This is false.

 

The second thing to address is the year of the crash. Some are quoting it as 1982. From the perspective of the consumer, this is also false. Perhaps some developers began to suspect the bubble was about to burst at the time. The truth is that the general consumer public didn't feel the effects of the crash until 1984.

 

Reasons for the crash:

 

Primary: Home consoles and arcades were slandered by the media. The focus shifted to computers. Video gaming never stopped. Instead of playing at the arcade or on a console, the majority of gamers played on their home or school computer systems.

 

Secondary: The economic recession and rapidly rising interest rates. People were paying over and above 18% on their mortgages in the early to mid-80s. Consider how this and the energy crisis affected the amount of real disposable income (not to mention investor income). If you were going to spend money at that time, it was no longer enough to purchase an item purely for entertainment. Instead, it needed to serve more than one purpose. I.e. integrate home and office (generate income), educate (build a future), and finally -- entertain. Enter the rise of the home computer.

 

Once the economy recovered and interest rates dropped, people could again begin to look at consoles. Hence the rise of the NES, Genesis, etc....

 

http://www.fedprimerate.com/wall_street_journal_prime_rate_history.htm

 

I agree with your first point - the excessive inventories of games didn't cause the crash, they were just an effect of it. I have trouble agreeing with your explanations for the crash though.

 

The interest rate argument doesn't make much sense to me. Interest rates on mortgages peaked at over 18% in the fall of 1981, when the video game market was booming. If they were an important factor in driving people to stop buying console games then the effects of that would have happened much sooner than 1983-1985 (by which time interest rates, while still high by historical standards, were going down from that peak).

 

The negative media coverage might have played some role, but of course that coverage didn't occur in a vaccum - Atari (and others) made some objectively bad business decisions that fed into that and made them ultimately unable to survive the crash.

[Nebulon]

 

I agree with your first point - the excessive inventories of games didn't cause the crash, they were just an effect of it. I have trouble agreeing with your explanations for the crash though.

 

The interest rate argument doesn't make much sense to me. Interest rates on mortgages peaked at over 18% in the fall of 1981, when the video game market was booming. If they were an important factor in driving people to stop buying console games then the effects of that would have happened much sooner than 1983-1985 (by which time interest rates, while still high by historical standards, were going down from that peak).

 

The negative media coverage might have played some role, but of course that coverage didn't occur in a vaccum - Atari (and others) made some objectively bad business decisions that fed into that and made them ultimately unable to survive the crash.

 

Things like interest rate spikes don't have an immediate effect at 'ground level'. It takes a while.

 

There's always a delay when dealing with economies. The peak comes first. Then people hope that it'll end and try to hang in there. After a few years of rates remaining at an elevated level, some give in and cut their losses while others go broke. Either way, a cut in spending (and in investment) occurs. And when production and shipping drop, the consumer feels it. But since consumer disposable income has also dropped, few have money to buy anything as non-essential as video game entertainment. And that serves to further drive out manufacturers since fewer people are buying.

 

It's a bit like getting drunk and knowing that you may be somewhat tipsy now... but in 20 minutes, the wave of drunken stupor will slam into you and there's nothing you can do to stop it.

[famicomer]

 

Things like interest rate spikes don't have an immediate effect at 'ground level'. It takes a while.

 

There's always a delay when dealing with economies. The peak comes first. Then people hope that it'll end and try to hang in there. After a few years of rates remaining at an elevated level, some give in and cut their losses while others go broke. Either way, a cut in spending (and in investment) occurs. And when production and shipping drop, the consumer feels it. But since consumer disposable income has also dropped, few have money to buy anything as non-essential as video game entertainment. And that serves to further drive out manufacturers since fewer people are buying.

 

It's a bit like getting drunk and knowing that you may be somewhat tipsy now... but in 20 minutes, the wave of drunken stupor will slam into you and there's nothing you can do to stop it.

 

Maybe, but if the theory is that high interest rates led to reduced consumer spending (possibly with a delayed effect) which led to the video game crash, a more direct way of testing that hypothesis would be to look at consumer spending levels. When you do, you can see that they never went down. They leveled off (ie didn't grow) during the late 70s-early 80s, but by the time the crash came they were increasing again. So there wasn't a collapse in consumer spending that led to the video game crash.

 

 

https://tradingeconomics.com/united-states/consumer-spending

[Eltigro]

[Dr Manhattan]

It wasn't a crash, it was a market adjustment.