E.T. a game for the Atari 2600 video game console

E.T.... Get lost!

The Great Video Game Crash - End Game

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Entire Industry, 1983-1984

Image of the show floor from the 1983 Winter Consumer Electronics Show (CES)

The Winter CES show floor, January 1983, Las Vegas

High Hopes

Through 1982, things look pretty rosy for the video game industry, with over 10,000 video game arcades in business by the end of the year. Home games have expanded as well,  as cartridges move into mainstream retail venues like large music and video cassette retailers. Together, arcade and home videogames form a $7-billion dollar industry. For the year, sales in home video games alone across the board rise from 950 million dollars the previous year to $3.2 billion. 15 million consoles have been sold in the US overall, along with 65 million cartridges. 25% of American homes have at least one system. By midway through the next year, there will have been over 12 million 2600‘s alone sold by Atari. They are the clear leader in 1982, starting the year with a 70 percent share of the video game market. They are also a company that employs almost 10,000 people in a sprawling system of buildings around Silicon Valley. There are over 200 games available their system, with new batches hitting the market every week. Owned by Warner Communications, Atari makes about 5 times the revenue of Warner’s film division and accounts for over 60 percent of the mother corporation’s profits. As for the other major players in the market, a million Intellivision’s are sold by Mattel in 1982,  and 1.5M ColecoVision sales for Coleco.

Also a leader in advertising dollars, Atari has spent $28.5 million on TV ads for the first nine months of 1982; they spent only $21.1 million throughout the entire year previous. By the end of the year, Advertising Age estimates that Atari will have spent $75 million on ads, or triple the amount it spent the year previous. Main competitor Mattel spends $21.1 million advertising its Intellivision, trying to retain its 18% – 20% share of the market. Total network time taken for video game advertising is estimated to reach $100 million for 1982-1983. 1984 even sees Atari named as the official sponsor of home computers, arcade and home video games for the Olympic Summer Games, held in Los Angeles. This entails computers and games for participants in the Olympic Village, an arcade set up at the ABC International Broadcast Center for use by the 1000’s of media personnel, and direct sponsorship of the U.S. Women’s Volleyball team. Atari also contracts with official Olympic broadcaster ABC to air 75 commercials across the Winter and Summer games, ensuring the company has huge exposure during the festivities.What’s not so publicly known is that Atari has already begun stumbling on the playing field. By the end of 1983, it and the rest of the industry was steadily unraveling. By the end of 1984 things come to a crashing halt, with every major videogame system up to that point either being sold to independents or discontinued altogether. Buyers for retail outlets who went all-in on video games find themselves out on the street, and distributors are left stuck with warehouses full of unwanted cartridges. Faced with a cut of income by the end of 1983 by anywhere from a third to 50% compared to the boom years, arcade game distributors and manufacturers who had thrown money around on wild expansion of fixed-cost expenses like huge new warehouses and manufacturing plants are now paying the piper… or not paying their debtors. An industry that had practically sprung up overnight to dominate the entertainment sector misses the rings and falls flat on its face.

Ad featuring Tempest, Centipede and Space Duel

It’s the Atari era. For now. 1981 trade ad with Centipede, Tempest and Space Duel, 1981


Atari, comprising 2/3 of the industry, bears the brunt of the shakeout. The first sign of trouble comes with the 2600 version of Pac-Man, released in late March of 1982. It is designed by Tod Frye, whose previous claim to fame is being the programmer of the Atari 400/800 port of Asteroids. Thanks to the words “Pac-Man” on the box, along with a $15 million advertising blitz, the game sports an amazing one million cartridge advance order from retailers and goes on to become the biggest-selling Atari cartridge ever. Warner Communications, when reporting income of its consumer products division for the first quarter of 1982, assigns much of a 180% rise in operating revenues to Atari and the home version of Pac-Man. It becomes rapidly apparent upon release, however, that the quality of the game is awful, bearing only a very passing resemblance to the coin-op.

JUMP: History of the arcade version of Pac-Man

The graphics in the VCS port are horribly blocky, with the title-character a malformed circle with a bad case of lockjaw; his mouth opens and closes at a painfully slow rate, with the movement more like a mashing than the gobbling of the frantically-paced arcade version. Moving sluggishly around a maze that bears no resemblance to the layout of the coin-op game, the player gums thick dashes called “video wafers” to death instead of dots. The uni-coloured ghosts are a vision of massive flicker, almost invisible as they move around the maze, their eyes rotating meaninglessly. When one of the flashing square “power pills” is swallowed by Pac-Man, the ghosts turn a purple-ish shade of colour indicating their vulnerability to consumption, although the flickering makes it hard to tell the change has occurred or when it ends. The various-shaped prizes that Pac-Man can gobble up for points in the arcade game are represented here by a two-tone coloured block called a “vitamin” that never changes in appearance. The only redeeming aspect of the game would be plenty of different game variations, but there are only eight, simply changing the speed at which the Pac-Man and the the ghosts move. As for sound, there is a grating three-note starting sound, the incessant clang-clang-clang as the Pac gums the rectangle “dots” to death, and the flat-as-a-pancake death sound.

It is painfully apparent that the game is a rush job, pushed out in order to quickly recoup the money paid by Atari to Namco for the Pac-Man license. Programmer Frye is ensconced in a room by himself to code for the four-month deadline, and upon release the game is a big hit, eventually hitting nine million cartridges sold. With a 10 cent royalty on every copy sold, his sales-based bonus results in a paycheque approaching a million dollars, which he cockily staples to his office door. Better versions are eventually released for other platforms like Atari’s own 400/800 computers and the 5200 Supersystem, as well as other manufacturers’ game platforms like the Commodore 64. Atari is eventually redeemed with the vastly improved Ms. Pac-Man on 2600, appropriately released on Valentine’s Day of 1983.

Accompanying the game’s release is a massive backlash from critics and users alike, users who have had a cold splash of reality thrown in their face about just how obsolete the VCS has now become.

The original, however, is an undeniable creative stumble by Atari, and no other game better demonstrates how overwhelmed the 2600 is graphically by emerging systems than Frye’s Pac-Man. Accompanying the game’s release is a massive backlash from critics and users alike, users who have had a cold splash of reality thrown in their face about just how obsolete the VCS has now become. There is a massive amount of returns of the cartridge back to stores by disappointed players, which gives pause to retailers when it comes time to place other game orders from Atari.

Kassar’s Revenge

Of course, not every game released by the company of this era is a turkey, as shown by the marvelous Yars’ Revenge, released in May of 1982. The game is originally conceived as a port of Cinematronics’ hit vector arcade game Star Castle until the licensing deal falls through. The designer of Atari’s version is Howard Scott Warshaw, creator of some of the more complicated 2600 games, including Raiders of the Lost Ark as well as The A-Team, a game which itself had started out being called called Saboteur until the graphics are altered and the name of the hit early 80’s Mr. T vehicle is slapped on the cartridge. Warshaw juggles the play mechanics of the now-license-less Star Castle port around a bit, and Yars’ Revenge becomes one of the most original and involving games in the 2600 library. The title character’s name is taken from Atari president Ray Kassar, to show his triumph over the failed license deal.

To herald the release of Yar, as well as promote 2600 games Asteroids and Star Raiders, Atari commissions an impressive two-minute commercial, titled The Fly, featuring state-of-the-art CGI by Robert Abel and Associates, who also do CGI work on the groundbreaking Disney film Tronreleased the same year as the commercial. Made to run in theatres over the summer of 1982, the ad features actor Rod Davidson sitting in an office chair with his back to the audience, posing as an Atari game designer brainstorming ideas, which manifest themselves as computerized images zooming and swirling around him. Designer-director Clark Anderson and co-director and technical expert John Hughes of Abel first design the commercial as an animatic on an Evans and Sutherland Picture System II computer graphics terminal, the animatic being a B&W wireframe version that is the equivalent of the pencil test in traditional animation. The wireframe design is then filled in with tightly-packed smaller lines, and filters are used between the output video screen and the 35mm camera recording it on film to add colour fill to the images. Actor Davidson is filmed in front of a blue screen, acting against the animatic hidden on a video screen in front of him. Computerized lighting cues expose the actor to the various lighting effects synced to the colourful video game elements; there are 80 different lighting events over the two-minute commercial. Live action, CGI and other VFX elements are then matted together, to make an ad that startles moviegoers in 1982.


Atari’s next big fumble is E.T.: The Extra-Terrestrial. Warner chairman Steve Ross negotiates a 21 million dollar deal with his friend Steven Spielberg, MCA, Inc. and Amblin Entertainment for the exclusive worldwide coin-op and home game rights to the film, and Atari expects their game to match the success of the movie, at the time the highest-grossing ever made.  So it demonstrates a special kind of chutzpah when giving a preview of the game’s development to Spielberg and a cadre of movie execs at the 2600 game development lab at Atari, designer Howard Scott Warshaw starts off with this bold prediction: “This is the game that will make the movie famous!” The company announces publically that Spielberg is directly involved in the game’s development, with Atari Consumer Division vice-president of marketing Ron Stringari stating that the movie director meets with the game’s designer about its development on a weekly basis.  Spielberg himself tells the press that he’s helping to make E.T. “the first emotionally oriented video game ever produced.” It’s hard to figure out just when Warshaw would be able to find the time to consult with Spielberg, as the game designer has accepted a breakneck six-week deadline to get the 2600 E.T. game out for December 1982.

The resulting product nets Warshaw a $200,000 payment, but it is torture for gamers to play, featuring frustrating control over the lost alien, along with endlessly confusing gameplay. Expecting a windfall of sales, Atari manufactures around five million cartridges, but only one million are eventually purchased. Even though wary retailers had scaled back their orders on the game, many are still left with unsold product as they struggle to move E.T. off the shelves after an initial Thanksgiving rush of retailers ordering it. A lavish TV commercial for the video game is produced by Spielberg, who also handpicks its director. Even utilizing the cinematographer and camera operator from the film doesn’t help the ad dig E.T. the video game out of its hole. Bob Abbate, president of the Sounds Alive chain of music stores of Connecticut, would put the industry’s attitude about the game’s release most succinctly: “E.T. is a bomb”.

These marquee game releases expose another problem aspect of the video game industry that has surfaced: it has become overly hit-driven. The vast majority of sales for games, sometimes up to 80%, come from current hits that are heavily promoted, while the growing back catalog languishes. Having been complacent in the boom years when nearly every new video game quickly sold out, when the surmised “hits” stumble upon release, grumblings from distributors and retailers now begin about formal return policies for surplus product from video game companies, a process known in the industry as “stock balancing”. Most of these buy-back agreements equate to “buy two games, return one”. Atari is left with a large inventory of unsold or returned cartridges as E.T. becomes one of the greatest video game flops in history, creating a noticeable drag on company sales figures. An E.T. coin-op game, as well as a computer version, are slated for release, although only the computer product makes it to stores: A similar yet different version of the console game, E.T. Phone Home! is released in early 1983 by Atari for its 8-bit computer systems. Along with improved graphics comes a role reversal, with Elliott on the run looking for the scattered phone parts across four screens, while E.T. hides at home offering telepathic clues to their locations. The game also benefits from a group approach to its development, with game designers, graphic artists, sound engineers and programmers teaming up to produce it. Although E.T. never flies over into the arcade video game space, he does have a deleterious effect over there too: the unprecedented success the movie enjoys in theatres over 1982 (and beyond) draws kids out of the arcades and creates a noticeable drag on coin-op profits. 

Dump trucks at Alamogordo landfill, loaded with Atari E.T. and other video game cartridges and other equipment

A procession of dump trucks, ready to lay part of video game history to rest in Alamogordo, NM, 1983

The Big Dump

With unsold inventory piling up, under cover of night sometime in late 1983 a convoy of 14 dump trucks lines up at Atari’s El Paso, TX. manufacturing plant, previously rendered defunct with its operations off-loaded to factories in Puerto Rico, as well as Taiwan and other points in the Far East. There the trucks are loaded with millions of unsold Pac-Man, E.T., and other surplus cartridges such as fellow movie adaptation flop Raiders of the Lost Ark, released in November of 1982. Also designed by Warshaw, the obtuse gameplay of Raiders makes the game mechanics of E.T. seem clear and concise.  Joining these unwanted games are various hardware prototypes and limited production runs littering what now serves mostly as an inventory storehouse. The filled trucks are driven north to the Alamogordo municipal landfill in New Mexico, home of another big bomb; nearby was the site of the 1945 Trinity test, the first explosion of a nuclear device. The contents of the trucks are dumped and covered with a layer of concrete, in order to deter looters. Atari later insists the sudden burial was done to dispose of “defective” inventory. If only they could bury the lack of confidence the missed sales figures of games like E.T. fosters in shareholders, retailers and consumers alike as easily. They’re not the only culprit, however, as both Mattel and Coleco overproduce cartridges in a market becoming less and less able to support them.

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Comments >>

  1. avatarSawdust

    Enjoying reading your video game history. What is the “one special exception” mentioned in the shutdown of Atari game development?

  2. avatarThomas

    Hello, I’m currently writing a paper on the topic of the Atari video game crash. I was wondering if you wouldn’t mind emailing me some of your sources/information regarding this topic? I definitely enjoy researching this idea, but there does not seem to be enough information online for me to write an effective paper.

    Thank you.

    1. avatarWilliam

      You can find all the sources at the bottom of the final page of the article, by clicking the Sources tab. Glad you find the site useful, and I wouldn’t mind reading your paper when it’s finished.

  3. avatarmm

    Console sales numbers are not quite right. If it’s total sales through mid 1982, 12M Atari and 1.5M coleco vision might be okay but Intellivisions should be about 2.5 million.

    There’s no evidence that any Atari 7800 were sold in 1984.

  4. avatarMatthew

    Grabbing a handful of loose cartridge out of a 55 gallon drum and paying $10, thinking there might be one good game in the bunch. Never actually trying all of them, and missing the fact that two of them were really good games.


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