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What Factors Led to the Collapse of the North American Video Games Industry in 1983?

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What Factors Led to the Collapse of the North American Video Games Industry in 1983? IB History Internal Assessment – Sample from the IST via www.activehistory.co.uk What factors led to the collapse of the North American video games industry in 1983? Image from http://cdn.slashgear.com/wp-content/uploads/2010/04/atari-sq.jpg “Atari was one of the great rides…it was one of the greatest business educations in the history of the universe.”1 Manny Gerard (former Vice-President of Warner) International Baccalaureate History Internal Assessment Word count: 1,999 International School of Toulouse 1 Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 102 Niall Rutherford Page 1 IB History Internal Assessment – Sample from the IST via www.activehistory.co.uk Contents 3 Plan of the Investigation 4 Summary of Evidence 6 Evaluation of Sources 8 Analysis 10 Conclusion 11 List of Sources 12 Appendices Niall Rutherford Page 2 IB History Internal Assessment – Sample from the IST via www.activehistory.co.uk Plan of the Investigation This investigation will assess the factors that led to the North American video game industry crash in 1983. I chose this topic due to my personal enthusiasm for video games and the immense importance of the crash in video game history: without Atari’s downfall, Nintendo would never have been successful worldwide and gaming may never have recovered. In addition, the mistakes of the biggest contemporary competitors (especially Atari) are relevant today when discussing the future avoidance of such a disaster. I have evaluated the two key interpretations of the crash in my analysis: namely, the notion that Atari and Warner were almost entirely to blame for the crash and the counterargument that external factors such as Activision and Commodore had the bigger impact. To keep the scope of the study manageable I have carefully selected sources to include Replay: The History of Video Games by Tristan Donovan, The Ultimate History of Video Games by Steven L. Kent, contemporary articles from the crash and interviews with key individuals.2 167 words. 2 This includes testimonies from Ray Kassar (the contemporary CEO of Atari), Manny Gerard (the contemporary vice-President of Warner), David Crane (the founder of Activision) and a full 2005 interview with Howard Scott Warshaw (the programmer of E.T.). I have also used Racing the Beam by Nick Montfort and Ian Bogost, and the articles used are sourced from 1982-84 issues of the New York Magazine, InfoWorld, the Washington Post and The New York Times (see List of Sources). Niall Rutherford Page 3 IB History Internal Assessment – Sample from the IST via www.activehistory.co.uk Summary of Evidence Context With the release and success of the Atari 2600 VCS,3 Atari became the unequivocal king of the home video game market, despite competition from Coleco and Mattel. Sixteen million 2600s were sold by the end of 1983.4 In 1982, they garnered 70% of Warner Communication's operating profits5 as the fastest growing company in the US. Factors In 1982, Commodore released the Commodore 64 personal computer. The immense commercial success of the C64 undermined Atari's own PC sales due to the ever-decreasing cost6 and the high capabilities of the computer for gaming and other applications.7 By extension, the growing PC market negatively affected the home console market due to their multifunctional nature.8 March 1982 also saw the release of Pac-Man on the 2600. Due to the massive success of the Pac-Man arcade cabinet, Atari were convinced that the 2600 version would be a system-seller, optimistically ordering twelve million cartridges; more copies than there were consoles to play them on.9 It eventually became the best-selling game on the system10 but Atari were still left with five million unsold copies and more flooding in from consumers dissatisfied with the quality of the game;11 a result of low memory cartridges and time restrictions.12 Warner then licensed E.T. from Steven Spielberg, promising him $25 million in royalties.13 In the rush to complete the game for Christmas, Howard Scott Warshaw was given five weeks14 to program the game (by comparison, lead time for development was typically six months).15 Atari released it without having play-tested it in time for the Christmas market boom. The game itself was a mess16 and Atari ended up allegedly dumping the majority of the 5 million cartridges17 they had produced into a landfill in New Mexico.18 3 Atari's first cartridge-based home video game system. For the purposes of this paper I will be abbreviating this to "the 2600". 4 “…the 16 million owners of the VCS...” Mace, Scott, (February 27th 1984). Can Atari Bounce Back? InfoWorld, pp. 103. 5 “…Atari still garnered 70 percent of Warner’s operating profits.” 5 Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 237. 6 “By the summer [of 1983] the Commodore 64 was on sale for just $200…” Donovan, Tristan, (2010). Replay: The History of Video Games. Yellow Ant Media Ltd (ISBN: 0956507204), pp. 103. 7 Reiner, Jeremy, (2005). Total Share: 30 years of personal computer market share figures. Ars Technica http://arstechnica.com/old/content/2005/12/total- share.ars, accessed November 5th 2011. 8 “It was also cheap enough to compete with video game consoles on price, a fact emphasised with adverts asking “Why buy just a video game?”” Donovan, Tristan, (2010). Replay: The History of Video Games. Yellow Ant Media Ltd (ISBN: 0956507204), pp. 102. 9 “Demand for the game was so immense that Atari executives believed people would purchase VCSs just to play Pac-Man. Atari manufactured 12 million Pac-Man cartridges.” Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 227. 10 “7 million, with 12 million cartridges produced…” Buchanan, Levi, (August 27th 2008). Top 10 Best-Selling Atari 2600 Games. IGN. http://uk.retro.ign.com/articles/903/903024p1.html, accessed November 5th 2011. 11 Arnie Katz (founder of Electronic Games Magazine): “Pac-Man...was a terrible job. It was amazing that they produced such a flickery, unresponsive game. And although they sold many copies, paradoxically the more copies they sold, the more people they turned off.” Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 236 12 “The VCS Pac-Man cartridge had only 4K, a quarter of the ROM [of the original]…The company pressured him to use this incomplete version…so that the game could be released for [Christmas 1981].” Montfort, Nick and Bogost, Ian, (2009). Racing the Beam. Cambridge, Mass.: MIT Press, (ISBN: 026201257X), pp. 67, 76 13 Ray Kassar (former head of Atari): “He called me and said I’ve guaranteed Spielberg $25 million to work on this project.” Donovan, Tristan, (2010). Replay: The History of Video Games. Yellow Ant Media Ltd (ISBN: 0956507204), pp. 109 14 “I get a call saying, "Hey, can you do E.T. in, like, five weeks?" No one had ever done a game in less than six months or so.” Phipps, Keith, (2005). Howard Scott Warshaw. The A.V. Club. http://www.avclub.com/articles/howard-scott-warshaw,13912/, accessed November 5th 2011. 15 “No one had ever done a game in less than six months or so.” Ibid. 16 “E.T. has been ranked, more than once, as the worst video game of all time.” Montfort, Nick and Bogost, Ian, (2009). Racing the Beam. Cambridge, Mass.: MIT Press, (ISBN: 026201257X), pp. 127 17 Ray Kassar: "Then [Steve Ross, Warner CEO] ordered us to produce almost 5 million of these games. I told him "Steve, that's crazy. We never make five million of a product unless we have some market testing." He said, "Well, it's going to be a big hit because of Spielberg and E.T." So we made five million and practically all of them came back." Kent, Steven L., (2001). The Ultimate History of Video Games. Roseville, Calif.: Prima, (ISBN: 0761536434), pp. 238. 18 “The company has dumped 14 truckloads of discarded game cartridges and other computer equipment at the city landfill in Alamogordo, N.M.” (September 28th 1983). Atari Parts Are Dumped. New York Times, pp.D4 Niall Rutherford Page 4 IB History Internal Assessment – Sample from the IST via www.activehistory.co.uk The 2600 was then further undermined by Coleco, who released the Colecovision in 1982 packaged with a version of the popular arcade game Donkey Kong. Their license exclusivity and the high technical specifications of the console helped them sell over a million systems by Easter 1983.19 The Atari 5200 (released in 1982 as a technical successor to the 2600) was as a commercial failure20 due to competition not only with Mattel's Intellivision and Coleco but also with the 2600 itself. In an attempt to salvage the situation Atari bought licenses for arcade games, but Coleco's aggressive bidding tactics cost Atari millions.21 Throughout 1982 many companies followed in the footsteps of successful third-party publisher Activision, founded by four disgruntled ex-Atari employees. These publishers had free rein to produce whatever games they wanted for the 2600 since Atari had no power to control the quality of these games.22 23 The flood of poorly produced games24 left consumers dissatisfied with the console whilst Activision's successes25 undermined Atari's power as a brand, especially concerning the poor quality of their two biggest 1982 releases. Crash In December 1982, Atari announced a 10-15% growth projection, short of the 50% growth that executives were indicating beforehand.26 Investors were shocked, and the bubble burst.
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