An excerpt of the cover of Atari's E.T. The Extra-Terrestrial

Excerpt of the cover of E.T. The Extra-Terrestrial, Atari 1982

The Great Video Game Crash - End Game

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Entire Industry, 1983-1984

High Hopes

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

The Winter CES show floor, January 1983, Las Vegas


Through 1982, things look pretty rosy for the video game industry, as game cartridges move into mainstream venues like large music and videocassette retailers. For the year, sales in home video games across the board rise from 950 million dollars the previous year to $3.2 billion. 25% of US homes have at least one system. There have been 12 million 2600‘s sold by Atari, the clear market leader owning 70 percent of the market, 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. There are a million Intellivision’s sold by Mattel, with another million and a half ColecoVision sales for Coleco.

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. Woman’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 games. What’s not so publicly known is that Atari has already began stumbling on the playing field. By the end of 1983, it and the rest of the industry was 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. A public that had once seemed to possess an insatiable appetite for any new game or console to come down the pike now collectively turns their backs on the game makers. Buyers who went all-in on video games for those same large entertainment chains find themselves out on the street, and distributers are left stuck with warehouses full of unwanted cartridges. An industry that had practically sprung up overnight to dominate the entertainment sector misses the rings and falls flat on its face.


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 March 1982. It is designed by Tod Frye, who’s 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 goes on to become the biggest selling Atari cartridge ever. It becomes rapidly apparent, 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 a gobbling. Moving sluggishly around a maze that bears no resemblance to 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” are 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 difference. The various prizes that Pac-Man can gobble up for points in the arcade game are represented by a two-tone coloured block called a “vitamin” that never changes shape. 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 the 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 sIt is painfully apparent that the game is a rush job, in order to quickly recoup the money paid by Atari to Namco for the Pac-Man license. Frye is ensconced in a room by himself to code for the four month deadline, and his end product results in a million dollar paycheque, 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 the 2600, released in February of 1983

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 into 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. Of course, not every game released by the company is a turkey, as shown by the marvellous 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 is Howard Scott Warshaw, creator of some of the more complicated 2600 games, including Raiders of the Lost Ark and The A-Team, which starts out as a game called Saboteur until the graphics are altered and the name of the hit early 80′s Mr. T vehicle is slapped on the cartridge. He juggles the play mechanics of the now-license-less Star Castle port around a bit, and the result is 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. Yar’s Revenge is heralded with a two-minute commercial run in movie theatres, featuring state-of-the-art CGI by Robert Abel and Associates.



Their next big fumble is E.T.: The Extra-Terrestrial. Warner chairman Steve Ross negotiates a 21 million dollar deal with his friend Steven Spielberg 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. The company also announces that Spielberg will be directly involved in the game’s development. It’s hard to figure out just when Howard Scott Warshaw would be able to find the time to consult with Spielberg over the design, as he has accepted a breakneck six week deadline to get the 2600 game out for December 1982. The resulting product nets Warshaw a $200,000 payment, but it is torture for gamers, 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. Having been complacent in the boom years when new video games quickly sold out, grumblings now begin about formal return policies for surplus product from video game companies, a process known in the industry as “stock balancing”.  Atari is left with a large inventory of unsold or returned cartridges as E.T. becomes one of the greatest videogame flops in history, creating a noticeable drag on company sales figures. A similar yet different version of the game, titled E.T. Phone Home! is released the next year 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, 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.

Under cover of night sometime in 1983 a convoy of 14 tractor-trailer 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, along with various hardware prototypes and limited production runs littering Atari’s warehouses. The trucks are driven to a secret landfill site in Alamogordo, New Mexico, home of another big bomb; nearby was the site of the 1945 Trinity test, the first explosion of a nuclear device. The cartridges are ground up and then buried in huge cement sarcophagi. Atari later insists the midnight burial was done to dispose of “defective” inventory. If only they could bury the lack of confidence the abject failure of the E.T. videogame 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.

JUMP: E.T. commercials by Atari, YouTube playlist

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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?


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