The video game crash of 1983 was the sudden bankruptcy of a number of companies producing home computers and video game consoles in North America in late 1983 and early 1984. The term shakeout would be a more accurate description of what happened, but because of its sudden and unexpected nature, and the fact that almost every video game console publisher was driven from the business, the term crash has held.
The crash has been attributed to a weak economy, poor quality of games (particularly the Atari 2600 versions of Pac-Man and E.T., but also many third-party Atari 2600 games) and very 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 USD. The early 1980s saw the introduction of inexpensive computers that could connect to a TV set and offered color graphics and sound. Since they generally had more memory available and better graphics and sound possibilities than a console, they permitted more sophisticated games and could also be used for tasks such as word processing and home accounting. Also, their games were much easier to pirate, since they came on floppy disks or cassette tapes instead of ROM modules. All of these factors made the home computers a better deal than a game console for most people.
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 outlets as video game consoles: discount, department and toy stores.
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 Technology, Inc. subsidiary actually manufactured many of the chips, notably the 6502 CPU 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. Cinematronics went into Chapter 11 bankruptcy, and eventually closed. 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 Time Warner). It was worth noting Mattel eventually acquired The Learning Company in 2000, only to divest it to the Gores Corporation less than two years later.
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 1987, 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 left the hardware business in 1996. One result of the crash was that the console companies instituted measures to control third-party development for their consoles, to avoid shoddily produced third-party games tainting the consoles' reputation, as well as to cash in on the success of third-party developers.
Ironically, 1983 is by some considered a peak time in the history of arcade games, the home video game consoles' bigger stand-alone brethren located in diners, shopping malls, and video arcades. For example, the first real-time 3D arcade game was created that year (called I, Robot).
See also: Timeline of video games
