The early 80s crash -- the real reason

[Nebulon]

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

[Keatah]

First time I heard interest rates involved, but it indeed wax part of the problem. There were many reasons.

[Tales from the Game Room]

For some, it was just too easy to blame Atari's E.T.

[mr_me]

Too many games did have something to do with it, but it was more a retail channel problem. Another misconception is demand went down. Demand for new games went up but simply weren't easily available. The stories about bargain bin sales of old cartridges are irrelevant.

 

Retailers had limited capacity to stock cartridges and they had no clue what they were buying. This wasn't a problem when selection was limited, they stocked everything. When selection exploded, retailers had no clue how to evaluate their cartridge purchases and made poor purchases. They had stock thay nobody wanted to buy. That stock not only didn't move but it prevented new cartridges that people wanted to buy and pay top dollar from coming in. All retailers knew was that cartridges weren't selling and they got out of the video game business. Warner and Mattel stopped getting orders and with massive losses due to poor management, got out of the videogame business. Small developers like Imagic and Activision went out of business, well Activision survived thanks to tax credits.

 

My personal experience was in 1983, I anxiously awaited new 1983 cartridges but they never came to the usual department stores. The Kmart near me suddenly closed the video game department. One day their video games literally disappeared, no bargain bin sales. It was a bit of work, but I found a store that carried some of the new cartridges but I couldn't find all the ones I wanted. I wanted to buy new cartridges but couldn't find them. Money stayed in my parents pockets.

Edited January 24, 2018 by mr_me

[+save2600]

Not too many games, but too many poor quality 3rd-party games diluting what was once a good to great selection. When all the "me too" companies arrived, trying to cash in on the latest craze, is when we started seeing bargain bins full of crap.

[mr_me]

There was lots of bad music and bad movies. So all the bad video games shouldn't have mattered. The good ones will sell if people have access to them.

[Gamemoose]

I was 8/9 at the time of the crash. I remember some the bargain deals. At a Woolworth's/Walgreens type store what games they had were being sold for half off. I got Space Attack for $10 using Christmas money I got from my visiting grandparents. My parents, who didn't have much, were able to purchase a couple games later on before we moved from Nevada back home to Wisconsin.

 

When we moved back and visited relatives, I discovered my aunt and uncle had a 2600 and a stash of games. My uncle said he was walking through Sears when an announcement came over the PA that all video games were being discounted. So much so he literally grabbed two arm fulls of games and a system and put them in the cart. He never really spent cash on stuff like that, so the discount had to be huge.

 

After that-I never saw any video game at a store in the city I lived in until the NES came out.

[zzip]

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.

Agreed

 

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.

I've long said that games simply stopped being cool. One year everyone was caught up in Pac-man fever, then the next it was "video games are for nerds" and nerds weren't cool in the 80s. Then after those two extremes, we got a balance when NES caught on.

 

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.

I would take issue with this slightly. The recession was in 1980, and then another recession in 1981-82. Right at the time of the videogame boom. I think it may be counter-cyclical. Games are a cheap form of entertainment in times of cost cutting. The economy was recovering in 83 and 84 when the videogame market crashed. Maybe people were spending their entertainment money on that vacation they put off for a few years instead of games.

 

your prime rate chart shows this as well. Interest rates were higher 80-82 than they were 83-84.

[BydoEmpire]

As with much of life, it's more accurate to say reasons. There are many, which affected the industry to different degrees, and played into each other. Personally I don't think the media had anything to do with the crash, I just don't see any evidence of that.

[spacecadet]

I think the crash is one of those things that there are so many theories behind, it's pretty easy to find an article or book to disagree with and start a thread on like this.

 

But one thing you have to realize about the crash is that it was an *industry* crash, not a market crash. That's where the theory (which is really pretty correct) about the glut of games comes from. People didn't stop buying so much as the costs of all the manufacturers went way up, and the profits didn't scale accordingly. As small as all of the major players at the time were, they couldn't make corrections in time. We've had far worse downturns and losses in the industry since then, but a company like Microsoft can just absorb losing $5 billion over 5 years. Mattel, Atari, etc. could not absorb losing $250-400 million over one year. They pretty quickly couldn't afford to make new games anymore as they waited for the old games they'd already paid for to sell. It became a very fast vicious cycle, almost more like a vortex sucking the life out of the industry.

 

Or maybe they technically could have waited, but it wasn't clear yet that video games were more than a passing fad at the time, so staying in the market would have seemed foolish. It took the comeback a couple years later to prove to everyone that video games would be around for the long haul, and was an industry worth sticking it out in.

[+save2600]

There was lots of bad music and bad movies. So all the bad video games shouldn't have mattered. The good ones will sell if people have access to them.

 

I know you said "shouldn't", but it obviously *did* as it relates to perception and how it affected the industry. And have to be careful when comparing the medias. People looked at video games much differently than they do/did movies and music and for good reason: movies and music are two solid forms of media already firmly entrenched and accepted in our culture. Video games were looked to be something of a fad, not really a part of our lifestyles yet.

 

While they're forms of electronic entertainment, it's still an apples and oranges comparison. *Might* share more similarities today though, but all in all - most people better relate to movies and music than they ever would or could video games. Which is probably why they can compartmentalize or better sift through the bad stuff, without turning their backs on or damning the respective industries.

[zzip]

I think the crash is one of those things that there are so many theories behind, it's pretty easy to find an article or book to disagree with and start a thread on like this.

 

But one thing you have to realize about the crash is that it was an *industry* crash, not a market crash. That's where the theory (which is really pretty correct) about the glut of games comes from.

I still maintain it was more of a demand-side problem than people want to admit. Pacman mania, like Beanie Baby Mania or Pokémon Go Mania had a limited shelf life. Pacman mania drove the sudden rapid rise in new arcades and home videogames, but once these things run their course, the people who were just along for the ride leave the market. And they don't last more than 18-24 months. Pokémon Go didn't even get that long.

 

Retail knows how to deal with a glut of products in a properly functioning market. Typically they wouldn't carry much of the unproven stuff in the first place. For every product you see on the shelves, there's lots of products that don't make the cut. But the market was so crazy they made an exception because they thought they could sell anything VG related. When the demand dropped off, they were left holding the bag and had to mark down everything.

[enoofu]

Wasn't really demand side problem's, a lot of the issues that caused the crash was related to electronics being dumped by UK mainly though Kong Kong, plus South Korea, and Taiwan. Not only did they dump goods onto the US and EU market's but didn't enforce copyright or Patent Law.

Believe trade went from 2%- 38% from within 1979-1982 with those countries in the electronic field in the US before it caused a worldwide crash of Electronic components. Japan was somewhat protected as they never did get alone with those countries since they were always in a trade row do to WWII issues;

[+davidcalgary29]

I don't know why people keep talking about "The Crash" when it seems that there were multiple related events resonating across consumer electronics during this period of time: a video game 'crash', a (I'll use COMPUTE!'s terminology here) 'computer shakeout', and increasingly accelerated evolution that led to systems being rendered obsolete before they could be profitable (or released).

 

I think this era probably had a lot in common with the dot-com bubble: hyperinflated interest in a new industry eventually cooled, exposing those companies which had developed unsustainable business practices (TI, Atari) and leaving them vulnerable to collapse.

[spacecadet]

I still maintain it was more of a demand-side problem than people want to admit.

 

But this is a chicken and egg question. By the end of 1983, manufacturers could no longer afford to make new games, so of course people bought fewer of them. But that lack of money came *first*. And that was a result of earlier "irrational exuberance" on the part of game makers, who made more games than people wanted to buy earlier in that year.

 

I'm attaching a news article from October of 1983 that I'm sure some people have seen (it's one of the few scanned articles that's easily found on the net). It starts off talking about how demand is down, but read to the end - that's where there's a good analysis as to why that basically mirrors what I'm saying. Also, it wasn't down as much as you'd probably think - from $1.6 billion to $1.3 billion is a drop that a well-run industry should be able to manage, especially since it was temporary.

 

Note the last line of the article - "demand was up by 100%, but manufacturers' output was up by 175%." Well, there's your problem!

 

The chicken/egg thing comes up in a *lot* of blog posts and other forum topics that I see about the crash... I often see stuff like this that seem to assume the contraction of the industry from 1983-1985 was due to a lack of demand rather than a lack of supply. They get it backwards. There were no more games on the market for people to buy by 1985. People didn't really stop buying games, or they didn't *want* to stop buying games. The timeline basically was, game makers made way too many games in 1982-early 83; the market was not yet big enough to buy up all those games, so game-makers lost money; with no money to make big new games, and fewer quality new games on the market in late 1983, demand for games predictably slipped; game makers lost more money and exited the market; the market crashed.

 

Retail knows how to deal with a glut of products in a properly functioning market.

 

Retail does, but we're not talking about a retail crash, we're talking about a game industry crash. If Levi's and Wrangler went out of the jeans business because they made too many jeans and not enough people bought them, Target and Wal-Mart would just keep right on going.

Edited January 24, 2018 by spacecadet

[enoofu]

Wouldn't say demand was down

 

CoinOp major problem was inflation during the early 1980's so one coin per play meant way less profit, followed by more expansive arcade systems

For example

"Inflation peaked in April 1980 at 14.76% and fell to “only” 6.51% the following April"

[Nebulon]

Definitely lots of good points mentioned in this thread.

 

Some food for thought...

 

Yes, it's true that interest rates started to drop in 1983 and 1984. However, they were still relatively high and didn't get into somewhat reasonable territory until 1985.

 

There's always a delayed effect due to people (and corporations) using their cash reserves to sustain themselves. Once that dries up, suddenly the real story becomes apparent.

 

So you have people saying that there was a crash in 1982 (with consumers noticing the effects in 1984) and a mortgage rate crisis in 1980 and 1981 with consumer spending being strangled in 1984.

 

I clearly remember this when it happened. Plenty of arcades closing down and retailers dumping cartridges in favor or diskette software.

 

Inflation was mentioned in the discussion and that's certainly another important factor.

 

North America was home of some of the biggest video game giants in the industry at the time. And that's where these economic shocks were felt the most. It was effectively a localized 'crash'.

 

With a very difference economic situation in the 1980s, it's no surprise that Japan picked up the slack. The Japanese video game market was going strong throughout the 80s and the lull in North America was their strategic moment to move in on that market. It was only a matter of time before disposable income in North America came back on line and getting the timing right was a gamble that paid off (especially for Nintendo).

 

As for low-quality games. I agree somewhat. But after collecting all these years (and recalling the early days of the first Playstation), I can see that there were tons of low-quality games on the market. That didn't seem to put a dent into the NES or the Playstation. People just kept on buying. And if there ever was a lull with the NES, I'm convinced it had more to do with what affected the Atari 2600. That is, the hardware was getting long-in-the-tooth. Other systems were hitting the market with more advanced graphics and sound. A platform only has so much longevity and eventually the bulk of the game-playing consumers will be lured away.

 

Regarding media portrayal of games, I do recall the chatter amongst parents. There certainly were cases here in which parents started to shift toward setting their children up with a home computer instead of a console. Many considered computers to be the more 'respectable' option at the time.

 

As mentioned already, the 2600 E.T. game is easy to blame. Media likes quick and sensational sound bites. But as Keatah stated, "There were many reasons."

[zzip]

But this is a chicken and egg question. By the end of 1983, manufacturers could no longer afford to make new games, so of course people bought fewer of them. But that lack of money came *first*. And that was a result of earlier "irrational exuberance" on the part of game makers, who made more games than people wanted to buy earlier in that year.

That's assuming demand was down due to lack of supply. I'm saying demand fell due to lack of interest.

 

You can't have a fad without a comedown, and "Pacman fever" certainly was a fad, with songs, breakfast cereals, cartoons all rushed to market. Other videogames benefitted from it, but when the kids lost interest at a time when videogame makers were expecting exponential growth, it just caused an avalanche.

[high voltage]

As for low-quality games, you get abundance of those since C64, NES, Apple, Amiga/ST, SNES but it was more noticeable in the Atari/Coleco/Intellivision/Videopac era because there was little comparison and lesser games.

C64 had 1000s of games, 90% bad games mostly from UK, NES had 100s of terrible games, mostly from Japan on Famicom, but even on NES huge quantity of low-quality stuff in USA.

That's the way it goes.

Edited January 26, 2018 by high voltage

[Keatah]

Air disasters, like the videogame crash, rarely have one reason. It's usually a series of events that lead up to something breaking. Then there is a pause, and commerce resets itself.

 

I experienced the "videogame crash" from multiple angles. I was getting more involved with the promise of real computing, not the baby toys of videogame consoles. And my parents did call them baby toys, to the point where they started throwing stuff out without me knowing about it.

 

Then the amount of "me too" companies, a lot of crap came out and consumers didn't want to spend time sorting through it all. This is a real problem. It just adds to confusion, and confusion is unpleasant. The opposite of a tight and neat catalog listing 25 titles. Retail couldn't possibly stock every title out there either.

 

Then there's demographics, I was getting interested in women about the time of the crash. Who was dating who and where was I going to come up with $10 for movie night were more important things than yet another version of Space Invaders or Pac-Man. My buddies didn't care about hi-scores that much anymore. And we got tired of reading about games that never came out. The vaporware.. That's another thing.

 

And my hometown banned arcades. The fat ass town mayor thought arcades attracted too many pot heads, she was probably right. Showbiz Pizza / CEC had the right idea by promoting "Family" as opposed to the "serious" arcade that attracted undesirables. That family model survives today, the hard arcade doesn't. I remember skipping school to go to the arcade and it was glorious! Because all the machines were open and available. It's like I owned the place. Any game. Any time. This in the late 80's. Then the IBM PC came out with Doom and Raptor and other games, and I had had enough of the arcades. I didn't want to wait in line anymore. Never. Instead of my weekly trek, it became monthly, more or less. Probably less. And arcades in my area tended to "push" the machines, doing maintenance only when necessary. Controls got sloppy, colors were wrong, among other little annoyances. I didn't have that problem with my own computer at home.

 

There was no science in how games were marketed. Skinner boxes hadn't yet come to the industry. Today it is much different, there's tons of analytics for each app. And it's carefully watched. You are carefully watched. Devs learn the right combination of free & pay. Just enough to get you hooked. Especially the wales.

 

And back then games were done for exploration of the art. Today games are done for the exploitation of your wallet.

 

There's more, but I'll leave that to continued discussion.

Edited January 26, 2018 by Keatah

[S1500]

Not too many games, but too many poor quality 3rd-party games diluting what was once a good to great selection. When all the "me too" companies arrived, trying to cash in on the latest craze, is when we started seeing bargain bins full of crap.

 

I'm so glad many years later that we've wised up from that, I mean it's not like there's tons of cookie cutter "match 3" games on the Android Marketplace. Heh

[enoofu]

That's assuming demand was down due to lack of supply. I'm saying demand fell due to lack of interest.

 

You can't have a fad without a comedown, and "Pacman fever" certainly was a fad, with songs, breakfast cereals, cartoons all rushed to market. Other videogames benefitted from it, but when the kids lost interest at a time when videogame makers were expecting exponential growth, it just caused an avalanche.

Wouldn't say demand changed in the US Market or that Videogame Makers were expecting exponential growth;

A lot of the problems were caused by Atari vs Activision in which 3rd developers were created ( 30 within 2 years), which killed Atari/ colecovision/itellivison business model as they were all were living on licencing fees;

 

Canada/Japan/Europe Market conditions was worst then expected also, so they had no place to send overstock, which was problematic since their was so much software competition do to the new 3rd party developers

 

 

"Pacman fever" certainly was a fad

Arcades were switching to more expensive machines such as Laserdisc and Vectors which did add to the downfall of the arcades once inflation was added to the issue as it took far longer to pay them up

[VectorGamer]

I know this has been done to death

 

which is why I'm putting this thread on ignore <<<groan>>>

[+save2600]

 

I'm so glad many years later that we've wised up from that, I mean it's not like there's tons of cookie cutter "match 3" games on the Android Marketplace. Heh

 

AFAIC, tablet gaming is off-the-charts ridiculous, territory I refuse to venture in outside of the occasional few minutes of The Pinball Arcade before I'm bored. My GF can sit and play this crossword puzzle game for hours and I'll just leave that right there...

[Keatah]

I know families that have PS4, Wii, Xbox, N64, Sega 32x, and various other traditional consoles, sitting in the basement untouched since they got iPads. Those slot machine games, the crossword games, those war games and battle strike games advertised on sci and discovery channel - all those - all those are the rage today.

 

No one wants to fart around with cartridges and discs and lengthy update times. Let alone power adapters and cables and subscription accounts. Let alone TV video modes and aspect ratios. That's old man stuff from another time gone by.

Edited January 26, 2018 by Keatah