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Information about Video game crash of 1983

The video game crash of 1983 refers to the sudden bankruptcy of a number of
companies marketing home computers and video game consoles in late 1983. The
term "shakeout" would be a more accurate description of what happened, but
because of its sudden and unexpected nature the term "crash" has stuck.

The crash has been attributed to a weak economy, poor quality of games
(particularly the Atari 2600 versions of Pac-Man and E.T. (video game)), and
to aggressive marketing of inexpensive home computers such as the Commodore
VIC-20, Atari 800XL, Commodore 64, Tandy Color Computer and Texas
Instruments TI-99/4A; the crash was probably caused by a combination of the
three factors.

Up until the early 1980s, personal computers had primarily been sold in
specialty computer stores and at a cost of more than $1,000. The early 1980s
saw the introduction of inexpensive computers that could connect to a
television set and offered color graphics and sound. Since they generally
had more memory available than a console, they permitted more sophisticated
games and could also be used for tasks such as word processing and home
accounting.

Commodore International went so far as to target video game consoles in its
advertising, offer trade-ins towards the purchase of a Commodore 64, and
unlike most other computer manufacturers, it also sold the machines in the
same department, discount and toy stores that sold video game consoles.

Commodore's vertical integration allowed it to engage in some predatory
pricing; its margins were much higher than that of Texas Instruments, Coleco
and Atari, and, making matters worse, Commodore's MOS Technologies
subsidiary actually manufactured many of the chips used in Atari computers
and video game machines. The situation was similar to the calculator market
in the early 1970s, when companies found themselves buying chips from Texas
Instruments but having to compete with TI's calculators.

The result was a massive shakeout of the industry. Mattel, Magnavox, and
Coleco all abandoned the video game business. Computer sales were also
affected, as the Coleco Adam, TI-99/4A, and the line of Timex-Sinclair
computers were withdrawn from the U.S. market, along with a number of other
smaller players. Atari nearly went bankrupt and was sold off by its parent
company Warner Communications (now part of AOL-Time Warner).

The longest-lasting result of the crash was the shift of dominance in the
home console market from the United States to Japan. When the video game
market recovered in 1985, the leading player was Nintendo's NES, with a
resurgent Atari battling Sega, also of Japan, for the #2 spot. Atari never
truly recovered, and eventually exited the hardware business in 1996. It
wouldn't be until Microsoft entered the arena with the X-Box nearly 10 years
later that the United States would have another competitor in the console
market.

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