The lights are on
Power Member - Level 10
The world seems to be in a state of financial chaos. Game developers and publishers seem to implode only months after making massive sales on their most recent titles. For some, this has caused a bit of a stir. The other day, I noticed a particular user's profile comment, stating something along the lines of them not being able to wait until the video game market crashed again, just like in 1983. Though I understand this person feels only a crash could make the industry the way they wanted, I believe it shows a lack of understanding of the cause of the crash and how the industry could handle similar situations now.
The Fall of Atari
Though not the only factor in the two year tumble of North America's video game market the downfall of a single company, Atari, definitely contributed. In the late 70's/early 80's Atari had one of the dominant systems on the market and made a lot of money on the games it sold as they refused to give credit to game designers and refused to pay them royalties for their creations. This caused many of its developers to jump ship and form their own companies (Activision being one of the most notable). Atari then sought to sue Activision in order to prevent it from becoming a competitor in the video game market, but failed. This failed suit led to more developers jumping ship from the console maker's development teams and forming their own businesses, leaving companies like Atari with less talent to draw from and less control over the distribution of video games into the market.
Because of the increased competition, Atari felt it needed to develop high profile games to take over the majority of the market share. Two of these high profile games were E.T. The Extra-Terrestrial and a port of the arcade legend Pac-Man. Atari saw these games not only as fast sellers, but also as system sellers, so they produced two million more copies of the games than there were Atari systems on the market. Unfortunately, as many of my fellow historian gamers know, both games are legendary for being the most awful games ever designed and toy stores couldn't keep up with their product returns. I doubt we could ever convince the Replay team to touch either of these.
By the end of 1983, Atari had built up nearly $500 million in debt it could not pay, that is about 1.2 billion dollars today (calculated using the CPI inflation calculator between 1983 and 2012). Top this off with a 33% decrease in stock price and the president of Atari dumping 5,000 shares of his stock before announcing expected profits far below the anticipated amount, Atari was set to crumble. Interestingly enough, during 1983 Atari was working out a deal to bring a Japanese gaming console to the US, the Famicom (the system that would later be visually changed and rebranded as the Nintendo Entertainment System), but the crash and fall of Atari would prevent a deal from being made.
Low Production Costs
I harp on Nintendo's Wii library nearly constantly because of the awful $5 garbage released on it, but what is funny is that the library of available games for systems in the early 1980's was much worse. Similar to Burger King's video game releases in 2006, companies were using video games as advertisements. Chuck Wagon, a dog food brand, even developed and released a video game of its own: Chase the Chuck Wagon. Awful releases like these were plentiful because of the low production costs associated with video games at the time. And consumers would buy them up left and right, not knowing any better.
In the early 80's, the video game console market was mostly controlled by the Atari 2600. However, Atari was not the only brand out on the market. In fact, there around 10 different game consoles to choose from: the Atari 2600, Mattell's Intellivision, the Bally Astrocade, the Coleco Gemini, the Arcadia 2001, Magnavox's Odyssey 2, etc... With so many choices and little, if any, differentiation between them, no console could get an upper-hand and no small grouping of consoles could control the market. Consumers sat back, waiting for one system to dominate the market before making a purchasing decision but the market fell out from underneath them before one console could control the market.
With the release of awful games, as mentioned before, retailers were forced to mark down their existing stock with huge discounts to try and salvage their inventory costs. Unfortunately, these cheaply priced games ended up making it impossible for the higher-end games to get their foot in the door and make money. Even the big developers were having problems staying open with the prices being driven so low.
As developers started to fail and companies went out of business, media was able to sway public opinion of the North American market to believe that video games were nothing more than a fad whose time in the spotlight was up. Being a relatively new industry with no track record, public opinion shifted, causing consumers to doubt an investment in video games further than it already was.
How Today is Different
A lot of similarities can be drawn to the industry just before it crashed and where it is today. However, I believe there are quite a few areas that are sufficiently different, keeping us from repeating history.
First, we have three dominant consoles, but we do not rely on a single one to buoy the industry. Microsoft, Sony, and Nintendo all have a solid piece of the console market share. If one were to fall, I theorize gamers would simply shift their console of choice. Additionally, each console has built its own niche and they are significantly differentiated from one another, preventing all but the most sheltered consumers from being able to make an educated decision on which console best suits their wants and needs.
Second, developers are able to make money and receive the recognition they deserve. In the old days, even back to the Nintendo, I doubt many people could name the developers of their favorite games, most would probably just say it was made by Nintendo. However, today we are familiar with the names of Infinity Ward, Pandemic, Treyarch, THQ, etc... We know of the existence of publishers and developers and they have the ability to make far more money than they once could.
Third, we have developed a solid foothold in public opinion that only continues to grow. Our hobby has stopped being called a passing fad or only for children. Yes, our increasing popularity brings some unpopular attention from lawmakers and people trying to make a buck off of a news story, but we have also proven that we are an important part of the American economy. While movie ticket sales may falter during poor economic times, the video game industry continues to flourish so long as quality games are being released. Sales only falter when garbage is being placed on the shelves, it makes our industry unique.
Lastly, and most importantly, we have the internet. This tool has become a catalyst to slow the production of awful games. Do they still get released? Sure. However, we are no longer at the mercy of the pictures on the back of a cartridge's box or the description in the same location, we can hop onto Game Informer and read a scathing review by Andrew Reiner or Tim Turi. We also have access to demos, a medium that provides invaluable information to both gamers and developers/publishers. We have a good idea if any particular game is for us or not.
The North American crash of the video game market changed the face of the industry, but I highly doubt it would have lasted long even if Nintendo had not saved the day. But the industry has grown, developed a steady and solid fan base. Brands have developed consumer loyalties and we truly love what we do. If we experience a crash in the industry, it will only be because every other market came crashing down around it.