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 video cassette retailers. For the year, sales in home video games across the board rise from 950 million dollars the previous year to $3.2 billion. 15 million consoles have been sold overall, along with 65 million cartridges. 25% of US 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, 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. 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. Main competitor Mattel spends $21.1 million advertising its wares. 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. 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 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. An industry that had practically sprung up overnight to dominate the entertainment sector misses the rings and falls flat on its face.

Pac-Mess

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. 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 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. 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, 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 upon release of 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, released in February 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.

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 and 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. 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 to film to colour fill the images. 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 movie goers in 1982.

Extra-Terrible

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 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, 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, 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. Even a lavish TV commercial, produced by Spielberg who has handpicked its director, utilizing the cinematographer and camera operator from the film, doesn’t help dig E.T. the video game out of its hole. Bob Abbate, president of the Sounds Alive chain of music stores of Conneticut, would put it succinctly: “E.T. is a bomb”. Having been complacent in the boom years when nearly every new video game 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 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 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.

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 control 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 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 abject failure 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.

Shovelling Dirt Into the Grave

Even though successful third-party game makers Activision and Imagic are producing some of the better games for the 2600 in its later years, Atari feels their grip sliding on the control of the software library for their system, and they get involved in a legal tussle with the two companies. Atari eventually loses its case in court, opening the floodgates for third-party manufacturers of games for their systems. Soon everybody and their dog has a game out, and while this does expand the machine’s library of cartridges, little concern is given to their quality. There are 50 companies publishing games for the 2600 in 1983, outfits such as 20th Century Fox, Avalon Hill, CommaVid, Froggo, Milton Bradley, Sega, Spectravision and Tigervision. To put some other accomplices to the murder of the early 80′s video game industry up into a lineup for identification:

  • If you are an aficionado of B-grade schlock movies, you might recognize the name Charles Band. By 1983 he has an impressive resume built up as a producer and director, including such classic fare as Laserblast, Tourist Trap and Parasite. It is with this pedigree that Band wades into the unsuspecting video game industry in 1983, founding Wizard Games. Game production is contracted out to a development studio started by former programmers at Games by Apollo, which had declared Chapter XI bankruptcy on Nov. 12, 1982. Wizard licenses two notorious horror movies for their first video game products: Halloween and The Texas Chainsaw Massacre. It’s true that the violence contained within the resultant games is blockily abstract, but blocky abstract violence is all the public has at the time in video games, so after whole weeks of development time the games are released and the obligatory controversy generated. With most stores unwilling to stock the games, and those that do keeping them behind the counter on a request-only basis, sales figures are understandably low. Unfortunately, Wizard’s planned game based on soft-core porn movie Flesh Gordon never materializes.
Ad for Xonox, a home video game maker for the Atari 2600

Xonox ad, 1983

  • Game maker Xonox is a division of K-tel, infamous TV sellers of “50 Original Hits” music compilations. Their idea of innovation is to sell Double Ender cartridges. Sold for the price of a regular cart, Double Enders have two separate 8K games accessible via edge connectors on each end. Early entries for these dual games include Spike’s Peak/Ghost Manor and Hercules vs. the Titans/Chuck Norris Superkicks. The most clever bit of this whole exercise? The palindrome company name, readable any way their cartridges are inserted.
  • CBS enters the videogame biz via a four-year partnership deal with Bally Mfg. Corp, creating CBS Video Games. This gives CBS rights to available Bally/Midway arcade games for adaptation to home consoles and computers. The cartridges are produced and marketed by Gabriel Industries, the toy arm of CBS, headed by Benjamin Ordover.  Adaptations of Gorf and Wizard of Wor are two of the bigger hits from this partnership. With a name change to CBS Electronics, the company develops 2600 cartridges with the RAM Plus power chip installed inside, adding 16K of memory. This allows games with advanced 3D graphics for the system like Tunnel Runner, as well as the unreleased first-person combat flight simulator Wings, a game within weeks of being released when CBS suddenly pulls the plug on their video game division in late 1983.
  • Another media conglomerate, 20th Century Fox, throws their hat into the crowded ring with their video game arm, Fox Video Games. Headed by former Mattel Electronics Sales and Marketing Senior VP Frank O’Connell, they crank out 20-some carts into the market. Tagged as 20th Century Fox Games of the Century, a few are licensed from computer software game company Sirius Software, and Fox also reaches into their own library for titles like Fantastic Voyage, Porky’s and the Barry Bostwick SF extravaganza Mega Force. Even a video game adaptation of the Robert Redford/Paul Newman classic western Butch Cassidy and the Sundance Kid is threatened. Their biggest stretch might be a game based on the film M*A*S*H, where chief surgeon Hawkeye Pierce actually flies helicopters around rescuing injured soldiers and skydiving medics. At least he does get a bit of surgery in between flights. Fox wins the award, however, for best video game title ever: The Earth Dies Screaming. Another thing that dies screaming is the partnership of Fox and Sirius: the later files a 20 million dollar lawsuit against Fox in the later part of 1983, containing forty counts of breach-of-contract, fraud and lack of good faith charges.

JUMP: A closer look at the M*A*S*H video game, during TDE’s Oscar Week

Marvel founder Stan Lee plays Spider-Man on the Atari 2600, accompanied by the Green Goblin and Spider-Man, 1983

Stan Lee and creations, playing Parker Brothers’ Spider-Man for the 2600, 1983

  • Board game giant Parker Bros., having entered a new era with electronic games such as Merlin in the late 70′s, make their move into the video game market via a series of lucrative licenses. While their releases are made for the Atari 2600, Parker Brothers had originally approached Mattel in 1981, offering to make games for the Intellivision if the company would forward technical specs for the machine to speed game design. Mattel passes on the proposal, so Parker Brothers jumps into the rapidly crowding Atari pool. Their strategy for an early boost in the market is aggressive licensing, including a valuable deal with Lucasfilm to make console games based on the Star Wars franchise. Their first game, released in June of 1982, is based on the second Star Wars film The Empire Strikes Back. Parker Bros. also produces an adaptation of the hit arcade game Frogger. Together, both of these initial 2600 games sell over three million cartridges, helping the company pull in $115 million in sales for 1982. Empire alone accounts for over thirty millions dollars of that figure. Parker Brothers would later release Star Wars: Jedi Arena, and titles such as Return of the Jedi: Death Star Battle. The mouthful-of-a-title Star Wars: Return of the Jedi: Ewok Adventure is put in the development pipeline but never released. In 1983 the company is responsible for the highly promoted and anticipated Spider-Man, featuring Marvel’s iconic web-slinging superhero, for the Atari 2600. Parker Brothers also makes the largest bid yet for an arcade game license, paying Nintendo $2 million for the rights to the hit Popeye, plus a promise of $4 in royalties for every cartridge they sell. They also put out product based on Strawberry ShortcakeG.I. Joe and James Bond.  Backed by a $30 million ad campaign, Parker Brothers has a slate of 16 new video games, for various platforms, scheduled for release through 1983.
  • Quaker Oats, known more for breakfast cereals than high-technology, enters the market via its acquisition of game maker U.S. Games, Inc. The company quickly builds a library of titles by contracting out to game development company James Wickstead Design Associates, of which Garry Kitchen is an employee. There he makes the shooter Space Jockey, probably U.S. Games’ most popular title out of a bunch of other fairly forgettable games. One U.S. Games release bears the mouthful of a title Name This Game and Win $10,000, designed by Ron Dubren and tied to a contest asking people to submit their own title for the game. U.S. Games goes out of business before the contest’s April 30th, 1983 deadline. Garry Kitchen eventually leaves JWDA to join his brother Dan at the greener climes of Activision.
Ron Dubren, designer of Name This Game, a home video game by U.S. Games, 1983

Ron Dubren, designer of Name This Game, 1983

Food products such as Purina dog food, Coca-Cola and Kool-Aid are all also being hawked by shoddy video game tie-ins. On the music tie-in front, America’s #1 rock band at the time, Journey, struts onto the video game stage with Journey Escape in 1982. Not only is this the first game based on a Rock ‘n Roll band, it also is the first home game that reverses the common trend and moves from the original VCS cartridge by Data Age into a coin-op version by Bally/Midway the next year.  A collection of five game stages, the arcade version of Journey Escape does contain at least one saving grace: digitized images of each band member’s head on the characters, facilitated by a process created by Ralph Baer, creator of the first home video game system, the Odyssey. Unfortunately for Data Age, it ships 400,000 copies of the home game to retailers but only 25,000 sells. Due to stock balancing policies, the rest get sent back and Data Age, on the hook to buy back the unsold games, succumbs to Chapter 11 bankruptcy in mid-1983.

Custer’s Worst Stand

Slipping a bit in its policy of always being on the vanguard of every new media technology, the porn industry enters the fray with games like Mystique’s Custer’s Revenge in 1983, featuring a perpetually aroused General Custer trying to rape an Indian maiden tied to a stake. Helpful instructions for the game, in addition to pointers on “Foreplay” and “Scoring”, offer this P.S. to gaming parents: “If the kids catch you and should ask, tell them Custer and the maiden are just dancing.” Other delightful offerings from Mystique include Bachelor Party and Beat ‘em and Eat ‘em. Atari spokespeople frantically attempt to distance the company from such games, although this doesn’t prevent organizations such as Women Organized Against Rape from picketing Atari headquarters. The Mystique brand is owned by American Multiple Industries, run by Stuart Keston. While he is in New York City showing off his wares at the Hilton, other groups such as Women Against Pornography show their displeasure by demonstrating outside the hotel, holding signs with messages such as “Custer’s Revenge Says Rape Is Fun”. Several lawsuits over the game fly around: American Multiple Industries sue Suffolk County, N.Y., and Suffolk County Legislator Philip Nolan for $11 million, citing a violation of First Amendment rights over the county’s banning of the game. AMI/Mystique itself is sued by Atari over wrongful association, citing the use of the video game giant’s name on packaging for the game. When Mystique bites the dust as the sun sets on the booming video game industry, its dubious IP is picked up by a company called Game Source, who promptly juggle things around in the game, such as put in an arm movement on the native captive to make her seem more acceptive of Custer’s advances, and change the name to Westward Ho. This and other former Mystique games, along with some new ones, are re-released under the Playaround label, sold on double-ender carts such as the Xonox games.

With surplus inventory of all these iffy video games piling up into the millions, prices begin to slide. Over 40% of cartridges sold in 1983 are priced at bargain basements rates of around $5, and some retailers throw cartridges into discount dump bins in their stores for as low as a dollar. Atari finds their main source of income drastically reduced as they are forced to lower prices on even their biggest titles to distributors in order to compete. Rivals such as Mattel and Coleco both have to slash the prices of their systems and games in order to deal with the ever-increasing videogame glut.

Same Old Same Old

Combined with this over saturation is growing consumer indifference fostered by the lack of substantial improvements in product lines. Atari, the de facto market leader in video games, has left behind its daring, engineering past with founder Nolan Bushnell’s departure in 1978. It has instead adopted a marketing focus favoured by the suits like Ray Kassar, content to sell what they have as opposed to continued innovation. This attitude is perhaps most glaringly apparent at the start of 1983, with Atari slating $100 million in advertising dollars for the year.  This is more than the company spent the previous year in making video games. The company lets nine years pass after the release of the VCS before introducing the first real technological update to their system line-up with the 7800, and they fill the gap in between with redesigns of the venerable 2600, which admittedly does have a larger game base than all of the other major systems combined. This culminates in the 2600jr., a super-compact redesign that sells for a paltry $50. As a lackluster sequel to the 2600, technologically just an Atari 8-bit computer repackaged as a video game console, the 5200 fails to set the market on fire in 1982. Mattel themselves are unable to come up with a suitable next-gen replacement for the Intellivision, opting instead to release the Intellivision II, offering no new technology over the old Master Component. With rebates, the “new” system’s price is also drastically reduced, retailing for $50 on average. With the prices of their consoles and games slashed, the big three have trouble financing their attempts at snagging a piece of the home computer market, and their various computer projects drain already dwindling profits.

The Home Computer Bytes

The third member of the deadly troika that lays the videogame industry low is the home computer boom in full swing by 1984, fueled by incredibly low prices and a growing library of engaging new computer games. More than $2.3 billion worth of computer software is sold this year. The Apple II is well-established as a gaming platform in the early 80′s, and Atari themselves are in the computer game with their 400/800 8-bit line, but Commodore head Jack Tramiel’s kept promise of a line of under $300 computers creates an explosion of sales as people wonder why they should spend that much on the latest videogame when they can have a functional computer for the same price. The Commodore VIC-20 is the first colour computer to break the $300 price barrier, and at its prime hits 9000 units produced daily. Its successor, the 64, enjoys unmatched success with 22 million units sold. By 1984, Commodore is selling 300,000 computers a month, and there are 4 million Commodore computers in use around the world. Many people, including me, sell their current videogame system (in my case, the ColecoVision) and move to a computer, never to look back at consoles again. Time magazine heralds the arrival of the computer as a popular consumer device by changing their annual Man of the Year award to Machine of the Year and giving it to The Computer, in a cover story dated Jan. 3, 1983.

Commodore 64, the popular home computer from Commodore 1982

The paradigm-shifting Commodore 64

Atari Stumbles

All this combines to deal a death-blow to the video game industry. The high-profile home game failures by Atari, both conceptually and financially, along with a slumping coin-op division, causes Atari owners Warner Communications to shock market analysts on Wednesday, December 8, 1982, by reporting “disappointing” fourth-quarter earnings for their video game division. Earnings will not reach what they did in the fourth quarter of 1981, which were $75.84 million. They do report a 10-15 percent increase in earnings for the year, but this is far below earlier projections. Trying to keep the popping rivets from the hull of the Titanic from scaring people, editor Steve Bloom would use the editorial pages of his Video Games magazine to spin the troubles at Atari as “blown totally out of proportion”. However, Warner’s net income has shrunk 56% compared to the same quarter the previous year, after years of explosive, triple-digit growth for Atari, whose market share in video games has dropped to 56 percent. Net income in the consumer electronics division, of which Atari is by far the largest part, is down to only $1.2 million, compared to $136.5 million the previous year. This is a disastrous 99% drop in money coming in. On Thursday the NYSE halts trading on Warner stock for most of the day, responding to heavy trading. When the dust settles, the company’s stock price has plummetted from $51 7/8 to $34 1/2 in one day, costing $1.3 billion in market valuation. The Dow Jones industrial average loses nearly 10 points as a whole after the Warner announcement. Fears of a looming video game shakeout, which had been forecasted on and off through 1982, seem to have finally been proven right.

Retail buyers and distributors, believing they are finally seeing the bubble burst after years of such predictions, run fleeing like rats abandoning a sinking ship.

Soon comes the inevitable rounds of bloodletting, with Perry Odak being relieved of all duties as head of the home video game division at Atari immediately after the Oct. 8 announcement. 1,700 Atari employees get the axe in the first round of mass layoffs in the early part of 1983, representing a quarter of its California-based workforce. The larger part of the company’s manufacturing is moved off-shore to its Hong Kong and Taiwan facilities, in a bid to lower costs. Even with the loss of this overhead, development costs of new gaming and computer hardware are mounting and Atari’s market share in the video game industry is down to 40%, half of what it was in their heyday. An operating loss of $45.6 million in the first quarter of 1983 is reported by Atari, and the company ultimately loses $532.6 million in the fiscal year 1983, bleeding out $2 million daily. In a desperate turn towards their home computer line, at the 1983 Summer CES in Chicago, Atari announces a 5-year deal to hire M*A*S*H star Alan Alda as computer spokesman. Rumours peg the value of the deal at $10 million. Only a total paring of 3,000 Atari employees by the end of the year can staunch the flow for Warner, who post a modest profit at the end of fiscal 1983. Amid this industry downturn is an insider trading scandal dealing with blocks of tens of thousands of Atari stocks sold by Warner’s head Steve Ross, along with Kassar and other Atari executives just previous to the disastrous earnings announcement. In the face of this turmoil, Ray Kassar steps down as Atari Chairman and CEO in July. On September 6, 1983, he is replaced by 41-year-old James J. Morgan, coming off a 20-year stint at Philip Morris where his most recent position had been executive VP of marketing. While at the company he had managed the Parliament, Virginia Slims and Marlboro cigarette brands.

Atari XL computer ad, featuring Alan Alda

Alan Alda shills Atari computers, 1984

After taking the reins at Atari, Morgan immediately shuts down the XL computer line, as well as postpones the imminent wide release of the 7800 ProSystem video game console, in order to reassess and retool the company’s product lines. The successful 600XL and 800XL computers are eventually allowed to continue to roll off the assembly line, but the pause in production causes a 40% drop in supply of the popular 800XL over the critical 1983 Christmas season. Morgan attempts to refocus Atari, including a push into the educational market via its Atari Learning Systems division with products such as the AtariLab Starter Set with Temperature/Light Module, priced at $89.95.  This computerized science kit offers kids 4 -12 years-old over 100 experiments to engage in. Morgan also curtails rampant spending, encourages better communication between division heads, and insists that Atari not show any new product to the public that is not ready to ship. Despite these efforts, a spectacular rebound eludes the CEO in the eyes of owners Warner Communications, and Atari ends up being split up and sold off in pieces. The home console and computer divisions of Atari are dumped into ex-Commodore CEO Jack Tramiel’s lap on July 2 of 1984 for $240 million in long term notes, a sum greatly under Atari’s peak value, the deal excluding the coin-op division of the company. The new Tramiel-led Atari Corp. limps through the turmoil under the power of its 16-bit ST home computer line, but the payroll is cut to a bare bones 400 people. Tramiel eventually releases the 7800 ProSystem console in 1986, which had been given a limited release under Morgan two years earlier before being frozen for evaluation by the new CEO. Tramiel also retools the 2600 into the minuscule 2600r., retailing for a mere $50. In 1987, an attempt is made to repackage Atari’s 8-bit computer line into the Atari XE Game System, or XEGS. Essentially a repurposed 65XE 8-bit computer, the console apes the then-burgeoning Nintendo Entertainment System by including a light-gun zapper along with a joystick and also features a detachable computer keyboard.

The XEGS, a video game console and computer hybrid by Atari, 1987

1987 brochure shot of the Atari XEGS, with keyboard and joystick

In 1996, Tramiel merges Atari Corp. with hard-drive manufacturer JTS Corporation, who are looking to obtain Atari’s American Stock Exchange listing and become a publicly traded company. In early 1998 JTS sell what’s left of the Atari division to giant toy company Hasbro for $5 million in cash. Atari’s contribution to the home game scene lives on under the Hasbro umbrella, and the mother company wastes no time in exploiting the deep well of ground-breaking Atari classic titles, including a drastic 1999 remake of the game that started the whole industry, called Pong: The Next Level.

Game Over

As goes Atari, so goes the rest of the industry. Retail buyers and distributors, believing they are finally seeing the bubble burst after years of such predictions, run fleeing like rats abandoning a sinking ship. 1982 sees Mattel stock shedding 40% of its value when it reports losses of 195 million dollars, with the company eventually losing a total of $361 million due to their electronics division. After discontinuing the Intellivision early in 1984 Mattel Electronics is sold for the paltry sum of $20 million. Coleco themselves are in hot water with a slide of nine points on the NYSE after the Atari announcement, eventually posting a loss of $258.6 million in 1984. This is mainly due to the tremendous flop made by their ADAM computer line. The Adam and ColecoVision lines are dropped in 1985, and Coleco itself succumbs to Chapter 11 in 1988. There is still a demand registered by consumers for video games, but after the market crash of 83-84, the corporate love-affair with video games vanishes, and no North American company will touch the things with a ten meter joystick. In Kyoto, Japan, however, a little 100-year-old playing card company has plans to hit the reset button.  logo_stop

Trade ad for 2600 version of Raiders of the Lost Ark. 1982

Digging with shovels: Trade ad for 2600 version of Raiders of the Lost Ark. 1982

Sources (Click to view; inert links kept for historical purposes)

Hammer, Alexander R. “Dow Loses 9.85 in Late Selloff.” The New York Times 9 Dec. 1982: n. pag. The New York Times. Web. 21 July 2017. Also contributing to the selloff was an announcement by Warner Communications, the maker of Atari video games, that its fourth-quarter earnings would be lower than the year before because of poor sales of its video cartridges and coin-operated games. “A Squeeze in Video Games.” The New York Times 7 Dec. 1982: n. pag. The New York Times. Web. 21 July 2017. Atari, the No.1 advertiser, spent $28.5 million…. George Schweitzer…esitmated total network time purchased at $100 million for the 1982-1983 season. Christopher, Kevin. “ET Phones Home for the Holidays.” Vidiot Mar. 1983: 41-43. Print. Spielberg actively helped make E.T. what he calls “the first emotionally oriented video game ever produced. …the E.T. commercial Atari has been blasting out at you…was produced by none other than Spielberg himself. He picked its director, and a cinematographer and camera operator involved in the original film have also been utilized.” Softline, “Now Then: This Is a Computer Game…, CES” by Andrew Christie, pgs. 42-43, July/Aug 1983. “Data Age Video Games filed for chapter 11 bankruptcy, following Apollo and U.S. Games, after shipping four hundred thousand copies of its Journey/Escape cartridge…Twenty-five thousand copies were sold in stores, and the other three hundred seventy-five thousand were returned…” Retrieved from the Internet Archive, Softline collection, Nov 1 2015.  The Deseret News, “Atari will lay off 380 at El Paso plant and shift assembly work to Far East”, UPI service, pg. B5, Sep 9 1983. “Atari Inc. will lay off 380 employees next week and shift its El Paso manufacturing and assembling operations to plants in Taiwan and elsewhere in the Far East, company officials said Thursday.” “[Bruce] Entin said some of the El Paso plant functions already had been transferred, with some manufacturing of video game cartridges being done in facilities in Puerto Rico.” Retrieved from Google News, Sep 18 2015.  Atari Coin Connection, “James J. Morgan Joins the ‘A’ Team”, edited by Laura Burgess, pg.1, Oct 1983. “Mr. Morgan comes to Atari after a 20-year career with Philip Morris U.S.A….” “He served in a series of marketing positions which culminated in 1978 with his appointment as Executive Vice President of Marketing. As of September 6, he succeeds Raymond E. Kassar…” Retrieved from Pinball Pirate, Atari Coin Connection archive, Sep 17 2015. Video Games Player, “Lights! Camera! Action! Roll ‘em!” by Tony Cohen, pgs. 18-23, Aug/Sep 1983. “A Western, such as 20th Century Fox’s Butch Cassidy and the Sundance Kid, is seemingly tailored for adaptation as a video shoot-’em-up. (Fox Video Games, of course, is doing it.)”. Retrieved from the Internet Archive, Video Games Player collection, Sep 11, 2015. Mace, Scott. “Can Atari Bounce Back?” InfoWorld 27 Feb. 1984: 100. Print. Image of James Morgan with Atari wares. …the company can’t build its new 800XL computer fast enough. Morgan told analysts that Atari could have shipped 40% more computers to waiting retailers, if it had been able to produce them. The 600XL computer also sold well over the Christmas holidays. His [Morgan] first major decision…was not to show any product the company didn’t have ready for shipment. Image of Stan Lee playing Spider-Man with the Green Goblin and Spider-Man from Electronic Fun with Computers and Games, “E.F.G. Times: Spiderman Arrives from Parker”, Feb 1983. Retrieved from the Internet Archive, EFWCG collection, Sep 8, 2015.Electronic Fun with Computers and Games, “E.F.G. Times: Spielberg Helps Design New E.T. Game”, Jan 1983. “‘The two worked well together,’ said Atari’s Ron Stringari, ‘and Steven was over here every week to help on the game.’”. Retrieved from the Internet Archive, Electronic Fun with Computers and Games collection, Sep 8, 2015 Atari 2600 cartridges – www.steverd.com/what26/what26.htm by Steve Reed Billboard, “‘Custer’ Game Is Subject Of Two Lawsuits”, pg. 8, Dec 11 1982 Time, “Pac-Man Finally Meets His Match” by Alexander L. Taylor III, Dec 20, 1982 Videogaming Illustrated, “Focus On: Sturm Und Drang”, by E.C. Meade with contributions from Jim Clark, Martin Levitan, Dale Rupert and Samuel Lawrence, pgs. 19-25, Jul 1983. “There are in excess of twelve million 2600s in homes across the nation…” Retrieved from the Internet Archive, Videogaming Illustrated collection, Sep 17 2015. Radio-Electronics, “Technology – Innovation Consumer Products of 1983 – Games and computers”, by Danny Goodman, pg. 51, Sept 1983 Image of James Morgan, and other information from Antic, “Exclusive Antic Interview: James Morgan” by James Capparell, pgs. 38-43, Mar 1984 High Score! The Illustrated History of Electronic Games – tinyurl.com/3bs6g3 Atari Age, “New Action Games!”, pg. 9, Vol. 1 Num. 1 (relaunch), May/Jun. 1982 Billboard, “Game Monitor: Coleco, Atari Going One-On-One in Expansion”, by Tim Baskerville, pgs. 21-22, Feb 26 1983
Rozek, Michael. “The Making of a High-Tech Ad.” Atari Age (Reprinted from Technology Illustrated, 1983) July & aug. 1983: 20-22. Print. Two of the Bel statters behind the Atari commercial were designer-director Clark Anderson and codirector and technical expert John Hughes. And we have the E&S (ebans and Sutherland) machine. Next the Abel team constructed an animatic… so the computer is instructed to display a thicket of tightly packed parallel lines that, at a distance, resembles a solid shape. “…we simply placed color filters between the video screen and our thirty-five-millimeter movie cameras. “It coordinated eighty lighting events in two minues.” For cues, the actor watched the animatic on a hidden video monitor.
Racing the Beam: The Atari Video Computer System, by Nick Montfort and Ian Bogost, pg. 66, The MIT Press 2009 Videogaming Illustrated, “Eye On: Back at the Ranch”, pg. 10, Feb 1983. “Parker Brothers certainly has had a phenomenal start with The Empire Strikes Back videogame: released in June, it has achieved over thirty million dollars in retail sales.” Retrieved from the Internet Archive, Videogaming Illustrated collection, Sep 14 2015. Crawford, Chris. “Old Fart Stories.” Chris Crawford on Game Design. Indianapolis, IN: New Riders, 2007. 438. Print. After the introductions, Howard began his presentation by declaring, This is the game that will make the movie famous.” Electronic Games, “Q&A” by The Game Doctor, pg. 117, Jan 1984. Retrieved from the Internet Archive, Electronic Games magazine collection Billboard, “Atari To Dismiss 1,700 workers”, pgs. 4, 68, Mar 5 1983 Starlog, “Log Entries: ‘ET’ Vid Games, D&D Film and That’s Not All”, pg. 16, Nov 1982 YouTube – Once Upon Atari – www.youtube.com/watch?v=ylHHv4C1JnQ JTS dismiss v5.pdf(Legal document outlining suit against JTS as a result of its bankruptcy) Tod Frye still and various information from documentary Stella at 20: Volume 2 -www.oocities.com/Hollywood/1698/cyberpunks/stellaat20_2.html(cached version) Videogaming and Computergaming Illustrated, “Eye On: If You Can’t Bury the Competition…”, pg. 8-9, Dec 1983. “The games came from Atari’s El Paso plant, which has ceased the manufacturer of videogames.” “Atari says that, contrary to press accounts, the cartridges were defective…” Retrieved from the Internet Archive, Videogaming Illustrated collection, Sep 18 2015. Image of dump truck procession at Alamogordo landfill, as well as other information, from Softline, “Infomania, In Memoriam”, pgs. 50-51, Nov/Dec 1983. “Last September 27, fourteen dump trucks moved in solemn procession to the Alamogordo municipal landfill, bearing surplus game cartridges and computer bric-a-brac.” Retrieved from the Internet Archive, Softline collection, Nov 2 2015. 1987 Atari XEGS brochure shot from the JohnClaudi Tumblr Page: http://johnclaudielectronics.tumblr.com/page/10 . Retrieved Aug 15, 2016 Billboard, “Games Help Boost Thanksgiving Sales, by John Sippel, pgs. 1, 68, Dec 11 1982 Image of Tod Frye at the Portland Retro Gaming Expo (PRGE) by Joe Grand “Tradetalk.” Softtalk Dec. 1983: 165-66. Softalk V4n04 Dec 1983. Internet Archive. Web. 25 Feb. 2016. Sirius Software has filed a $20 million suit against Fox Video Games….alleging breach of contract, fraud, and breach of covenant of good faith. The Day, New London Conn.(Knight-Ridder Newspapers), “Gobbling up the home video market”, by Joe Urschel, pg. C6, Mar. 6, 1982 Image of Custer’s Revenge protester and other information from Video Games, “Blips: They Say It Ain’t Porno”, by Howard Mandel, photograph by Perry Greenberg, pgs. 13 – 14, Vol. 1 Num. 4, Jan 1983 Videogaming Illustrated, “Eyes On: Promises Promises”, pg. 7, Sep 1983. “From Parker Brothers, two new games based on George Lucas’ Return of the Jedi: Deathstar Battle and Ewok Adventure…” Retrieved from the Internet Archive, Videogaming Illustrated collection, Sep 17 2015. Wikipedia, “Name This Game”, referenced Jun 28 2014 Uston, Ken. “A Report From the First Video Games Conference.” Creative Computing Sept. 1983: 232-46. Creative Computing Magazine (September 1983) Volume 09 Number 09. Internet Archive. Web. 26 Feb. 2016. [From summary of Activision president Jim Levy's speech] 1982…Fifteen million hardware units and 65 million software units were sold.New York Magazine, “Can Atari Stay Ahead of the Game?” by Bernice Kanner, pgs.15-17, Aug 16, 1982 Billboard, “Parker Brothers Releasing 16 New Game Cartridges”, pg. 8, Dec 11 1982 The Sydney Morning Herald (NY Times News Service), “The terrible software wars are only just starting”, by Aljean Harmetz, pg. 8, Jan. 19, 1983 Billboard, “Vid Game Firm Apollo Files Chapter XI”, pg. 66, Dec 4 1982 Image of E.T. touching an Atari joystick was originally referenced from Atari Club Magazin (German), Issue #1 1983, eventual posted ad from Billboard, Oct 16 1982 Lakeland Ledger (Knight News Service), “Solving the mystery maze of video games”, by Jonathan Takiff, pg. 2C, Dec. 9, 1982 Billboard, “Atari Sales Hit Snag; Warner Stock Nosedives”, by Irv Lichtman, pg. 3, Dec 18 1982 MicroTimes, “Free Fall: The Thinker’s Computer Games” by Mary Eisenhart and Bennett Falk, pgs. 12-13, May 1984. Retrieved from the Internet Archive, MicroTimes newsletter collection Image of Steve Ross, as well as other information from New York magazine, “Steve Ross On the Spot” by Tony Schwartz, pgs. 22-32, Jan 24 1983 Videogaming Illustrated, “Eye On: Resignation”, pg. 10, Sep 1983. “In the first quarter of this year, Atari reported an operating loss of $45.6 million.” Retrieved from the Internet Archive, Videogaming Illustrated collection, Sep 18 2015. Billboard, “WCI Posts Fourth Quarter Drop”, pg. 4, Feb 26 1983 Video Games, “Hyperspace”, by Steve Bloom, pg. 6, Vol. 1 Num. 6, Mar 1983 InfoWorld, “Atari: From Starting Block to Auction Block”, by Giselle Bisson, pg. 52, Aug. 6, 1984 Time Magazine, “Video Game Go Crunch!”, by Charles P. Alexander, Monday Oct. 17, 1983 About.com, “Garry Kitchen – Cooking Up Video Game History”, by D.S. Cohen, retrieved Jul 28 2014Image of Fox Video Games’ M*A*S*H tent at 1983 Winter CES from Billboard, “CES Photo News”, pg. 64, Jan 22 1983 Billboard, “Movie, Video Giants Join Game Supremacy Battle”, by Jim McCullaugh, pg.4, 68, Jun 19 1982 Videogaming Illustrated, “Eye On: The Force is With Them”, pgs. 10, 60-61, Aug, 1982. “He [Richard Stearns, Director of Marketing at Parker Bros.] admits that Parker Brothers had gone to Intellivision in 1981, offering to make cartridges to complement their system, in exchange for technical information which would have helped get the games out last year. But Intellivision turned them down…” Retrieved from the Internet Archive, Videogaming Illustrated collection, Sept 14, 2015. Antic, “E.T. Game for Computers”, by Robert DeWitt, pgs. 20-21, July 1983 InfoWorld, “An unTimely award”, by David Needle, pg.38, Jan. 31, 1983 Antic, “It’s Official! Atari joins the U.S. Olympic Team” by David F. Barry, pgs. 13-14, Feb 1984 The Sydney Morning Herald (NY Times News Service), “Atari video games take plunge into concrete”, pg. 7, Oct. 3, 1983 Image of the AtariLab from Compute!, “The Promise of Things to Come: Atari’s New Lease On Life” by Fred D’Ignazio and Selby Bateman”, pgs. 44-48, July 1984 Atari Connection, “Home Computer News/ Atari Youth Advisory Board”, by Jim Carr, pgs. 17-18, Summer 1983 Images of the Atari booth at the Jan 1984 CES courtesy of Steven Szymanski Uston, Ken. “Reflections on CES.” Creative Computng Sept. 1983: 224-31. Creative Computing Magazine (September 1983) Volume 09 Number 09. Internet Archive. Web. 25 Feb. 2016. At a “special” press conference, Atari announced that Alan Alda has been signed as Atari’s spokesperson for five years…I was told by the same reliable source…that it’s a $10 million deal. Atari Age, “The Making of a High-Tech Ad”, by Michael Rozek, pgs. 20-22, Vol. 2 Num. 2, Jul./Aug. 1983 Schenectady Gazette (AP), “Smile! Pac-Man Moving Into Millions of Homes”, pg. 30, Mar. 17, 1982 InfoWorld, “Horror films’ themes reappear in video games” by Tom Shea, pg. 67, Feb 28 1983 Billboard, “Dealers Await Formal Video Games Return Policy”, by Earl Paige, pgs. 1, 21, Jan 8 1983 Videogaming Illustrated, “Eye On: Atari Finds the Lost Ark”, pgs. 10, 60-61, Aug, 1982. “This November, Atari will be releasing a new home videogame based on the hit motion picture Raiders of the Lost Ark.” Retrieved from the Internet Archive, Videogaming Illustrated collection, Sep 14, 2015.  “Atari Relieves Executive of Duties.” The New York Times. N.p., n.d. Web. 21 July 2017. Perry D. Odak, the president of the home video game division of Atari Inc., has been relieved of all his duties, the company announced yesterday.

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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?

    Reply
  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.

    Reply
    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.

      Reply

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