Welcome to Tech Stuff, a production from I Heart Radio. Hey there, and welcome to tech Stuff. I'm your host, Jonathan Strickland. I'm an executive producer with I Heart Radio. It all love all things tech, and you know, back in two, Chris Pallette, my original co host, and I did a short episode about the video game crash of nineteen eighty three. But I think we fell into some traps that a lot of people fall into when they talk about that, and I figured that we could probably go back to a deeper dive in this episode and learn about how that all happened. Now, the super short version of the story is that here in the United States, the home video game market went into a recession after it became oversaturated. It was built on a faulty business model, really a faulty distribution mode atle which we'll talk about. Investors lost confidence in the companies involved, and the entire industry, mostly concentrated in a single company, collapsed under its own weight. Now, some people given even shorter version, effectively blaming a pair of Atari cartridges for the whole thing. But as we'll see, that ends up being a little bit reductive, but seemed like it would have been a great year for games. I mean, if you look at the arcades, Dragons Layer and Space Ace, both video games with full hand drawn animation from Don Bluth stored on laser disc. They made a big splash that year. This was despite the fact that player interaction in those games is just limited to responding to timed events and pushing on a joystick in a particular direction or hitting a button. Um, but you're not controlling animated characters the entire time. It's literally like, oh, the screen flash to push left. Uh. The Star Wars Arcade Machine also came out in nineteen eighty three. That one had vector color graphics and lines from the movie. By the way, that game remains one of my favorite arcade games of all time. Likewise, Spy Hunter another game that I consider a top arcade game of all time. That one came out in nineteen eighty three. That's the game where you control a car. You have an overhead view you're controlling of cars that goes down the highway and the car's got like all these spy gadgets kidded out into it, or it can get them by you know, docking with a a U a semitruck that's also on the road and you have to shoot bad guys and stuff. Super cool game. And a lot of other big titles came out that year, like Discs of Tron, Elevator Action, Junior pac Man, and Crawl. Okay, so that last one wasn't exactly a class arcade game, but it was an arcade die in with a science fiction fantasy film that I've got a soft spot for. All Right, So we can't just jump into nine or even nineteen eighty and expect to have a full understanding of what led to the industry crash. We really need to understand how this all got started in the first place. So we're gonna do a quick overview of the birth and evolution of video games, both for home consoles and for the arcades, because they are tied together somewhat um And also, arcades were a thing too once upon a time, just in case you weren't aware. I mean, there are some arcades still in existence, particularly outside the United States, and you've got your stuff like David Busters and whatever, but it's not like the old days insert old time and music here. Now. Before even the old days, there was a physicist named William Higginbotham uh, and this cat was an interesting fellow. For one thing, he was a scientist at the Los Alamos National Laboratory during World War Two and was part of the group that developed the atomic bomb. He worked on the electronic side of things, you know, rather than the stuff what goes boom side of things. But of course all these groups were working together with a common goal in mind. Anyway, he was part of the team that brought upon us the era of nuclear weapons. He also campaigned hard for the world to you know, not go ham on nuclear weapons and build them all over the place. Also, I should point out that it's not like the United States was the only country working toward nuclear weapons. And I don't mean to suggest that if the US hadn't developed the atomic bomb, no one else would have done it. Uh, that surely would have happened. It's just that's how history played out, all right. So let's get back to the video games, though. So Hagin Botham goes to work for the brook Haveven National Laboratory after the war, and he worked in a department called Instrumentation, and this department built various cathode ray tube or CRT displays intended for radar systems. Well, in ninete fifty eight, he's told he's gonna create an exhibit to show off to people whenever they're touring the lab. And he's like, we use systems to display stuff on screens. It's not very exciting. I mean, it's radar systems, and unless you've got something to pick up, it's you're just looking at a screen. So he gets an idea. See, the team was using oscilloscopes, and oscilloscopes are used to display wave forms of various signals. So when a scilloscope can show stuff like a signal's frequency and amplitude, among other things, and most importantly for this podcast, it can plot curved lines. And when paired with an analog computer that Higginbotham's department had, it gave the physicist a chance to design a very simple tennis game. A technician named Robert Davorak took Higginbotham's plans and built the exhibit, and Higginbotham called it Tennis for two. This was in nineteen fifty eight. That's more than a decade before we'd see a refined version of this called Pong. But the game was different from pong in other ways, as well, so pong uses a top down view. For the table tennis game, players take control of bars that act kind of like paddles or rackets. Typically they're taking control on the left and right sides of the screen, and it's like you're looking down on top of a of a table tennis board and you you move these these bars, these paddles up and down the screen on your side in order to hit a ball back and forth. When the ball encounters either the top or bottom edge of the screen, it bounces off and heads towards you know, whichever direction it was going. But Tennis for two only had two lines in It had a line along the bottom of the screen which represented the ground, and halfway across the length of this line was a short vertical line extending up, so this represented the net. So it's like you're looking at a tennis court in profile. Players had a dial which allowed them to set the angle of the ball, and then a butt and you would push the button when the ball entered your side of the court, and you would use the dial to set the angle of your strike. There were no paddles or anything like that on the screen. Higginbotham didn't really do anything else with this idea. It was just kind of to demonstrate the technology, and even though it got a lot of attention, he didn't really see any application for it beyond that. Now you could argue this was the first video game, but it was never a commercial product. But flash forward to the nineteen sixties. An engineer named Ralph Bear was working for a company called Sanders Associates, Incorporated. He was exploring how the company might make a companion technology for the television, which had proven to be quite popular by the nineteen sixties. So the idea was that most folks already had a TV, and so creating something that could expand the capabilities of a TV would tap into a pre existing market, a market that already was proven to have spent money on a appliance as expensive as a television. So there and two bills, Bill Rush and Bill Harrison began developing a box you could connect to a television that would allow you to play games on the TV. And the engineers built a few prototypes, and we typically referred to them as the brown boxes because they were covered in a veneer that made them look like they were made out of wood. They created a version of table tennis that used controllers with three knobs and a button on them. The knobs or dials controlled the paddles and the ball itself in fact, so one dial was to control the horizontal movement of a paddle. And remember this is a table tennis that you're looking at either the left side or the right side of the screen, So by controlling your horizontal movement, you can move closer to or further away from the net in the center or the center line. And then the second dial controlled the vertical movement of the paddle, so that lets you move up and down in order to intercept the ball before it would pass you and go beyond your side. And then the third dial would actually control the movement of the ball itself, so once your paddle had hit the ball, you could use this third dial to put quote unquote English on the ball after you'd already hit it. So not really realistic, but you can control the path of the ball by turning this dial, so you can make it go up or down, or you can make it go up and down really fast as you're heading towards the other side, in an effort to make sure your opponent can't hit it. So you could actually skew the direction of the ball as it left your paddle. If your opponent managed to hit the ball well, then you would no longer be able to control its movement. You wouldn't want to anyway, because you would be, you know, focusing too much on trying to make sure you move your paddle in the right spot to intercept the returning ball. So Sanders Associates filed a patent on this design and got it, and they looked for buyers, and a company called Magnavox, that's a company I should cover in depth at some point licensed this design in nine and began working on a consumer version of the prototype technology. And this would become the first Magnavox Odyssey console, which essentially played table tennis without being able to keep score. That you had to keep score, you know, on your own. Uh. The Magnavox Odyssey came out in September nineteen seventy two. The console could accept game cards. These were printed circuit boards that were kind of like a proto cartridge. UH. The cards modified how the console would send signals to a television and how it would interpret inputs, which gave the players a few different game types that were all mostly based off of table tennis. Magnavox even created the first video game console peripheral. For an extra charge, you could buy a light gun that you could use with some basic shooting games. Again, um, just like you know, they would display a white square in your TV and you would aim the light gun to it, pull the trigger, and if it had detected that the white square was in the sight of the gun, then it counted as a hit. Well, the Odyssey would enjoy some modest success. Some would say it was actually a failure. It would eventually sell around three units when all of a sudden done, but early on it wasn't making that much of an impact, except it would have a huge impact on the history of video games, just not necessarily on the consumer market right off the go, because one person who saw the Magnavox Odyssey and Action was Nolan Bushnell. Now Bushnell and his partner Ted Dabney had created the first arcade video game in nine under a company that was called Scissor G. And this arcade game was called Computer Space, And in turn, this was based off a game that had been created by folks at M I T way back in nineteen sixty two. Called Space War. Now I emphasized that title because the actual title has an exclamation point after the word space War. Anyway, computer Space was largely an adaptation of Space War, and it would become the first commercial arcade game, but it wasn't particularly successful. However, Bushnell thought there's gonna be a big business in video games, and so he was convinced that they needed to stick with this kind of this market. So he goes off and then found the company Atari, specifically with the goal of creating games that the company would then license to manufacturers. So the original idea was that Atari would create the i P and would program a game, but then effectively sell that design to some established gaming company like Bally or Williams. Bushnell hired on an engineer named Alan Alcorn. Now, the video game world is really young at this point, like pretty much the only people who have made any games were engineers and programmers who are really just trying to create fun ways to misuse company or research lab or university property. Like, they weren't games for the general public. They were typically making games for themselves and for the folks who worked closely with them. And Alcorn had no experience in creating games. So Bushnell decided to give him the assignment of making a table tennis game similar to the Magnavox Odyssey home console game, but this time in arcade format, so not a home console, but like an arcade cabinet that you would encounter in a place like a theater or a bar, because this isn't the time before arcades themselves, so this was kind of like a programming exercise for Alcorn. So Alcorn pretty much reinvents the table tennis game we saw with the Magnavox Odyssey, which again Bushnell had actually had a chance to see in person before it was released, and Uh and Pong would be the result of this. He created an interesting variation on this table tennis game. For one thing, it could keep score so you didn't have remember it. For another, he went so far as to program the little bars that act like your paddles or your your rackets. They actually have computationally different angled surfaces along the front of the bar. So that's just mathematics at this point. So by that, I mean if you were to look at them, they would be rectangular, right they don't. They wouldn't look angular. They're just the rectangles but mathematically there are different sections of the bar that act like a slightly different angle of attack of a paddle. So if you hit the ball smack dab in the middle of your um, your your paddle, you would have a pretty simple deflection. If it was coming straight at you and you hit it right dead in the center, it would go straight back um. If it was coming at an angle, then it would bounce off at a ninety degree angle deflection. But if it hit other parts of the bar, like toward the end, they would have a more severe deflection, a sharper angle. So where you hit the ball with your paddle would change the way the ball flew back towards your opponent. It was neat that he was able to mathematically do this anyway. Atari would choose to manufacture pong itself rather than license it to some other company. There's this whole story about how Atari had approached a couple of different companies about the possibility of making pong and then told each of the companies, Hey, it turns out the other guys aren't interested in making this for us, which then discouraged the company. So they backed out that that was Atri's plan because they wanted to make it themselves, but they first had to get out of this commitment that they were going to make it for some other company. So they did that. They went out and they got a line of credit in order to produce this. Because Atari was still a very young company, didn't have a lot of money, and manufacturing an arcade machine is expensive. You have to go through the whole manufacturing process, so this was a big risk, but it paid off. Pong would become the first commercially successful arcade game. It would also prompt Magnavox to sue Atari for patent infringement, saying, hey, we paid for this patent and you clearly have copied it, so what's up with that. This lawsuit would eventually get settled out of court. Now, Atari would subsequently make its own table tennis video game console, which it called, fittingly enough, Home Pong. They released that console in the original Odyssey had been on the market for a few years at that point, and Atari would sell around a hundred fifties thousand units all told, so, you know, still not a huge number in the grand scheme of things. Now, Pong the arcade game was wildly successful, and you can kind of understand why I mean, the game is simple, so it's really easy to understand how to play, unlike say Computer Space, which was notoriously complicated. It only costs to play Pong for a session, whereas home consoles were upwards of a hundred dollars, and when we adjust for inflation, that's around the same as six hundred twenty bucks today. So while the home consoles were moving okay, the arcade was doing a little bit better. Between nineteen seventy two and nineteen seventy seven, pretty much all the video game home consoles were focused mainly on table tennis, are games that were very slight variations on table tennis, So in other words, everything was Pong pretty much like it may not be called Pong because that was an Atari thing, but they were all essentially Pong. So there were numerous copycats out there, and there was a massive oversaturation of first generation consoles, and they pretty much all played Pong or some variation of that, and by nineteen seventy seven that had all played out. Dozens of companies that had jumped into the market in an effort to cash in on what was seen as a craze found themselves over extended and many of them would go out of business, and it was a tough sell. I mean, a lot of folks who were interested in video table tennis had already bought a console, and since all the consoles offered more or less what wasn't a largely identical experience, there wasn't much reason to go out and buy another one. Right, you already have a Pong machine. You don't need another one, So why would you shell out a hundred dollars or more to buy something that you essentially already have. So the arcade game business wasn't in much better shape at this point. While Pong had been a high point in the arcade industry, there was a real lag and innovation in the arcade space, and so the whole industry, consoles and arcade went into a bit of a recession. In by in the night a game would come out that would breathe new life into the arcade industry and later on into the home video game market. We'll find out which game that was when we come back from this short break. Okay. So there was this early glut of table tennis based video game consoles in the early to mid seventies, and that market ultimately collapsed By the time the dust had cleared, only a few companies were still in that market. Atari was one of them. Atari had continued making arcade machines as well as some consoles and handheld devices as well. You probably wouldn't be surprised to learn that a lot of those still remained kind of Pong inspired, because that game had been such a big success for Atari. It was something that the company was leaning on. Some of the other titles that were uh the Atari was producing we're racing game titles. They had a couple of military games, like some games where you would control a tank or a jet fighter game. Also, in nineteen seventy six, Bushnell made a deal to sell Atari to Warner Communications, and he stayed on for a short while anyway, to continue to lead Atari. But lots of other companies that tried to cash in on the video tape old tennis trend. We're not so fortunate. And once the market was saturated, you know, once pretty much all the folks who one of one of these things had one, there was nowhere to go. Plus, the second generation of consoles were beginning to come out, and that was the real nail in the coffin, and a big change with these consoles is that these were predominantly cartridge based. So instead of hardwiring games into the console itself, where the console is limited to which every games were programmed onto the the actual circuit boards of the console. Programmers were designing games that a company would print onto a circuit board that was housed inside a cartridge. You would plug the cartridge into a console and the console could run the game. So this was kind of like if you were actually physically switching out part of a circuit board in the console every time you were playing a game. That's effectively what you were doing. The games were all written in ROM format. ROM stands for read only memory. That means that a machine can only pull from the data that's stored on that cartridge. It cannot change or overwrite that data. RAM memory is non volatile, meaning the game would always exist on that cartridge unless you were to actually physically damage the cartridge itself. It's it is a physical program on a circuit board. Now, this switch to cartridges allowed companies to make consoles that could run any number of games. You just had to program it onto a ROM and have that housed in a cartridge and have it be compatible with the machine. Then you were off to the races. And in the beginning, each company making a console had its own game titles, like they were producing their own games. So a few of the big consoles to come out around that time, where the Callika Vision it was actually one of the later ones, Mattel's in television, the Magnavox Odyssey to which was a cartridge based game console, and of course the giant in the space, the Atari Video Computer System or VCS, better known to me at least as the Atari twenty hundred. Now there were other consoles as well. Um. In fact, sometimes people cite that as one of the reasons for the video game crash, as we'll learn not so much. And really these four consoles were the most popular by far, and the Attori twenty hundred commanded the overwhelming share of the market. Um depending upon which source you look at, Atari would ultimately sell between twenty five million and thirty million at twenty units. So that's a lot, especially when you look at second place in television, which depending upon which source you're looking at, sold between two and three million units, so twenty to thirty million units for they two to three million for second place, which was in television. Atari was the home video game market in in many respects Now, I should also add that the Atari twenty six it came out a year before The Odyssey to, two years before in television, and five years before the Collique of Vision, so it really had a head start in the market when you compare it to the others. Now, the sold okay at launch. It didn't. It didn't do badly when it debuted in ninety seven, but it also was not a runaway hit. It wasn't like a viral marketing sensation. It retailed for just under two hundred dollars, so when you adjust that for inflation, it would be more than eight hundred bucks today. So when you look at a console and you see that's like six hundred dollars and you think, wow, that's expensive, keep in mind the Atari twenty hundred when it first debuted was sold for the equivalent of eight hundred dollars today. And I had one of these things, and I think about how much my parents must have had to save to give me that. Now, granted I got mine a little later in the life cycle, it probably wasn't sold at the full two d dollars. But still my parents were teachers. Anyway, I don't mean to turn this into a Jonathan realizes how many sacrifices as parents made podcast. It was expensive and despite the cartridge approach providing you know, way more options than what you would find with first generation consoles, it was a bit of a slow burn. I mean you had to remember also that this was this required a change in consumer thinking, right because consumers before, yeah, they were limited to whatever games were hardwired on a console, but they didn't have any other purchases to make once they bought the console, unless they were getting a peripheral that everything was in the box. But with this model, you bought the system, but then you had to buy games. You know, you had additional purchase costs on top of the system itself. Now, before the break, I alluded to an arcade game that would revive the arcade industry and subsequently really put a spark in the home video game market. That game came from a Japanese company called Tito, and it was a little game called Space and eight Ers. This game came out for the arcades in nineteen seventy eight, so the year after the VCS or came out and it was a huge hit. And in the game, you just you shoot down blocks of aliens that are flying overhead and they scroll left and right, and they dropped down a line. Each time they get to the edge of a screen, they descend towards you. It's pretty simple game, but it became an instant classic. Now the folks that Attari, we're paying attention, not Bushnell. At this point he had actually either been fired or he quit in nine. How that unfolded really depends upon whom you ask, because different people have a different explanation for that. And Atari engineers were working on what was supposed to come after the Atred because when the company first launched the console in nineteen, they did it with a plan to replace it with a newer piece of hardware within three years. So like when they launched seventy seven, they thought, in eight, we're going to come out with the next generation of this hardware and it will be more powerful and have more capabilities. But things would not work out that way, seeing in eight Atari published a port of Space Invaders, a pretty decent port, and it would go on to become the second most popular AT twenty game in its history. We'll talk about what was number one a little bit later. Now, people were eager to have the experience of playing Space Invaders at home. I mean, this was a game where typically you would have to go someplace like a theater or a bar or something in order to play it. Eventually you would be able to go to arcades and play it, and this would really see a tight relationship formed between the arcade and home markets. Console companies began to see the value in licensing popular arcade titles for home markets, and arcade developers saw the added value of bringing in revenue by licensing their intellectual property to the video game companies. So it became kind of a symbiotic relationship. At first, it's some foreshadowing. So starting around at sales start to pick up and the folks at Warner Communications, remember Warner had purchased Atari in nineteen seventy six. They were encouraged by this, and it also meant that there was still life in the at Remember, the plan was to phase it out in nineteen eighty and to have a new kind of hardware come on the scene. But now they were seeing more and more sales, which meant the company decided to push back plans to introduce new, more powerful consoles. Why would you spend cash to produce something new if you can still move units of something that you're already making, alright, But something else that was going on around this same time, and it's a big part of it. This was the birth of the independent developer. Now. I mentioned earlier that at first, each console company was responsible for putting out games on its system, So the Atari cartridges came from Atari. Atari was the company that both made the console and made the games. But then things changed, and they changed largely because of how Atari was conducting business under Warner Communications. For one thing, Atari wasn't paying out bonuses or royalties. You were paid a salary and it didn't matter if the game you made flopped or if it was a huge hit. You made the same amount. So you could make a game that would make the company millions of dollars, but you wouldn't see any of that cash. Also, if you worked for Atari, the only name that was associated with any game they'll name that was on the cartridge would be the company Atari's name. It didn't matter if you came up with the game idea. It didn't even matter if you coded the whole darned thing yourself. The name of the cartridge was just Atari. There was no credit to you. You weren't acknowledged at all, partly because at least the belief was that Atari didn't want to run the risk of losing talent to some other company. Like if they said, oh, this game was created by so and so, then some other company might approach so and so and say, hey, I see you like to make games. How would you like to make way more money doing it? Well, game creators weren't totally cool with this. Allot of them wanted to have more credit, or at least any credit, and Atari just wasn't keen on doing that. Plus, the folks at war Our Communications were really cost focused, and they didn't trust video game developers. They didn't think of them as creatives. So in nineteen seventy nine, a group of Atari game developers, four of them left the company to found a new one called Activision. Yeah, Activision, as in the company that's now known as part of Activision Blizzard. It all started off because a bunch of Atari game developers were fed up with how Atari was running things. They originally planned to create a company that would develop its own console, but ultimately they would develop games that would run on the Atari twenty hundred, but they would not be made by Atari. This would eventually spawn a lawsuit in which Attari tried to make Activision stop. They were claiming the Activision was infringing upon proprietary intellectual property, but eventually the two companies reached a settlement and Activision would pay a licensing fee to Atari, but otherwise would be able to continue developing games for the Atari twenty six hundred. The talent that moved from Attari to Activision represented some of the strongest developers who had been at Atari, so now Atari was forced back a step when it came to developing games. Plus, Atari's games would compete against Activision's games, and Activision would be just the first third party game developer to create a hundred cartridges. Others would follow. One of those would be a Magic, another company that had some x Atari talent, create their own developer company, and the Magic would launch in one So now Atari was going to have to compete with other companies that were making Atari games, when before Atari was the one and only source of Atari games. This will be an important component as we move forward. Now we need to talk a bit about distribution and retail because this would also play an enormous part in the collapse of the market in So let's talk about how retail typically works. Okay, So a retail outlet deals with either wholesalers or distributors, buying either from a wholesaler or directly from a distributor, or maybe directly from a source itself. But the point is, the real retail organization orders a certain number of units of whatever it is we're dealing with, in this case, video games, and that then becomes the stock that the retail establishment has to sell. Then the retail company marks up the price of this stuff and sells it on to the consumer. The retail store is the point of sale for the customer, right And of course the retail store has to mark up the price or else it would make no money. So it has to sell the thing for more money than it costs for it to purchase it to put it into its stock. That all makes sense now, Typically a retailer is on the hook for the units that they order. So if a consumer, you know, if the consumers don't buy enough of whatever it is we're talking about, then typically the retailer has to eat that cost. So if video games had worked this way in the nineteen eighties, it would have been a very different story. It would have looked something like this. Let's say, um, Jimmy Bob's video game emporium purchases twenty copies of Activision's River Rate, and let's just say, for the sake of this this example, that that costs ten dollars a pop. So each copy is ten dollars for Jimmy Bob to purchase at this this arrangement. But then Jimmy Bob marks up those copies to thirty dollars each, So Jimmy Bob spent a total of two hundred dollars buying these twenty copies of River Raiate to have in stock. That means that Jimmy Bob needs to sell at least seven copies to start making money in this drastically oversimplified example. So seven copies at thirty bucks a pop, that means he would net two. But for some reason, this here town, the Jimmy Bob's in it don't have video games with sophisticated tastes and they don't appreciate the hard work the Activision put in for River Raid. So Jimmy Bob only sells three copies, that means he brings in ninety dollars, but he spent two hundred on the games he bought straight for Activision. That means Jimmy Bob has going to bed poorer but wiser. At least you would if that's how video game distribution actually worked in the old days. It didn't. See in that case, the retailer would have to come up with other strategies, maybe trying to position games in a more inviting spot to get more people to buy them, maybe marking down the price a little bit so that they can at least break even, if not make a little bit of profit. But that's not how video game distribution worked in the early eighties. See, retailers were not super keen to carry video games that much, so companies had to make deals with these retailers in order to get their products onto store shelves, and it put a lot more of the risk on the game developers instead of the retailers. It was the cost of doing business. This was the way to convince retailers, hey, give our game systems and our cartridges shelf space in your store. Shelf space that could go to something else that you know, has a proven track record. So the deal that a lot of companies agreed to was that the video game developer would provide copies to retailers. Retailers would say, here's how many copies I think I need. The video game developer would send those copies to the retailer. The video game developer would be financially on the hook. If the retailer found it impossible to move the games, they would have to take all unsold inventory back. So now the retailers didn't carry a risk, right they would make money if they the games sold, but they would essentially get their money back if they didn't sell all the titles, because they would return the titles to the video game developer and recapture costs, and so the developer would take on the burden of games unsold. So yeah, the retailers weren't on the hook for those unsold games. This would be a key component for why the market would crash, and it put a ton of power in the hands of the retailers. And because of that, and because there was this perception that video games were the license to print money, some retailers went a bit hog wild. They drastically overestimated how many copies they would need for their titles, thinking like, everyone wants video games, so we're gonna order, you know, one copies of this thing. But then you can understand why retailers would do this too, because there was no risk, right. I mean, retailer could order a hundred copies of a game and if they only sold ten of them, well, they could still return the other ninety to the video game company and recapture those costs, so they would not be in a in a really bad position as long as everything held steady. So even really good popular games were a bit of a risk for game developers, Like if a retailer like Sears put in a really large order, you'd have to pay to manufacture that many units of car artridges and then ship them to the retailer. And then if it turned out that Sears had drastically overestimated how many units they would actually sell, you would have to take all the excess back and figure out what to do with it. So for bigger companies like Atari and to a lesser extent, Activision, this was something that they could potentially weather on a case by case basis. But for other companies it would be a different story. While we saw a ton of third party developers pop up in the Atari era, most of them wouldn't stick around for very long. The agreements with retailers would prove to be too expensive for many of those companies to navigate, and they would go bankrupt as a result. In fact, sometimes they would go bankrupt before they could take back any copies of games. We'll get to that too. But the really, really big thing that would cause the dominoes to fall happen in the winter of two. I'll explain more after we come back from this break. So in December nineteen eighty two, one or Communications holds a stockholder call. So this is when companies have to report on performance to their shareholders in order to keep them up to pace with what's going on and also to lay out projections for the following year. Well, in nineteen eighty two, video games were a huge business. We're talking a multibillion dollar industry that was dominated by Atari. And yeah, video games are a multibillion dollar industry today, but you got to remember they were very young in the nineteen eighties, right. Plus when you just for inflation, when you talk about just a few billion dollars in the early nineteen eighties, that's many, many billions of dollars today. So Atari had been pretty darn busy. In nineteen eighty two, it released the Atari fifty two hundred, which was an upgrade from the VCS Slash D so it boasted better graphics than the twenty s hundred. However, it also wasn't compatible with the games Ford, at least not initially, and it also didn't have very many games of its own to speak of, because Atari had actually directed most of its game development towards the DRED because that installed base for the console was still so large, but it meant that they didn't really have games to help sell the unred to the public. Meanwhile, Calliko had launched the Callico Vision, which ironically could pay play at twenty games on it, so if you bought a Callico Vision you could play old Atari twenty six hundred titles on it, like if you bought you couldn't. And then in Television launched the in Television two, which was pretty much just in Television one with a new case and just didn't sell anywhere close to as many units as the twenty hundred had And here's where we get to some of the big issues that Warner Communications was going to have to address. One is that by two the Atari undred was really showing its age. The Colliko vision was more technically advanced. And of course, Attari itself had initially planned to phase out the twenty six hundred in nineteen eighty, but then changed course once the console sales started to pick up, but the market was pretty well saturated. Most of the folks who wanted an atarid already owned one, didn't grab hold in the market the same way, and so that was a disappointment to Atari. Meanwhile, Atari was also seeing these other developers out there, these third party developers putting out games that were competing with Atari's own titles. So while Atari would make licensing fees from these other third party developers, it wasn't profiting off of big sales. So if Act Division were to put out a real banger, and they put out a lot of bangers, ATRII wouldn't see any of those profits. It would get the licensing fee, but you know, if River Raids sold millions of copies, none of that money was really going to Atari. So while video games in general were doing well. Atari, the company wasn't performing quite where it wanted to be, and because Atari dominated the market, this meant that the industry as a whole was on shaky ground, like it was all kind of dependent upon Attari to some extent, like Activision as a company could be doing great, but if Atari were to suffer, while Activision would as well, because you've got to be able to play the games on something, right. So in this shareholder meeting, one or Communications reps revealed that they had determined the profit increase for Atari would be around ten to fift percent. That's great, right, You're seeing a profit increase. Well, the problem was that Wall Street analysts had predicted that this would be closer to a fifty percent increase in profits, So being adjusted down to ten to fifteen percent was a big drop. The video game market seemed like it was a gold mine. But you know too, investors, this seemed like it was an indication that the industry had already peaked and was now petering out. Like they were seeing this as a warning. So a lot of people, discouraged by this news decided to dump their stock in Warner Communications. That depreciated the value of Warner's stock, and Warner's Communications saw its stock dropped from fifty one dollar a share to thirty five dollars a share. The company lost hundreds of millions of dollars in value overnight. Now, at this point, Atari contributed more to Warner Communications revenue than the film division did. In fact, according to some sources, Atari was generating five times the amount of revenue then Warner Brothers movies were at that point. Now, obviously this had a huge impact on Atari, and because Atari was almost synonymous with the home video game market, it also had a huge impact everywhere else as well. But this was still just one really big factor in the crash. Now, I should add there were other ones that also played a part, and one was that Atari was spending a lot of money getting licenses for really popular I p like pac Man, and Atari made a pretty mediocre home version of pac Man. It was in some ways technically impressive because Atari was only powerful enough to show two sprites at a time. Well, pac Man is your character of pac Man plus four ghosts, So how do you make sure that you can show you know, five sprites at one time. The solution was to make the ghosts flash. They were doing so at a very very fast rate, so they looked kind of of spectral, but they were flashing so that technically each of the four ghosts was only appearing for like a quarter of a second, and then collectively, you you know, through the persist and sub vision, it looked like they were just there. Emulators make this problem way worse. So if you ever see an emulator version of the pac Man game, the ghosts are flashing on and off in a very dramatic way. That wasn't the case with the actual game when it first came out. Still it's not great. However, it sold really well. You remember when I said Space Invaders was Atari's second most popular cartridge. Guess what number one was. Yep, it was pac Man. The game was not a flop, it was a success. No other Atari cartridge for the Atari sold more copies than pac Man. However, retailers ordered more copies than they sold. So retailers ordered way more copies of pac Man because it was such a huge hit of the arcade. You know, Pacman was the arcade game of the early nine It spawned a crazy amount of merchandise. There was a cartoon series like it was in popular culture. It was beyond just an arcade game. This was something that was seen as like a lifestyle thing. So retailers were sure that the copies were just gonna sell out all over the place. They ended up ordering way more than they needed. This meant that Attori had to take back the unsold stock. And the same is true for another title that is frequently mentioned whenever you talk about the video game crash, the infamous E T. The Extraterrestrial. It's frequently mentioned in conversations about the as you know, the worst game of all time. It's it's often in that mix. In fact, Tex Stuff famously once called it that too, largely because of public perception. Um, here's the thing. It's not a very good game, but it's definitely not the worst game of all time. I mean, for one thing, there are games that have shopped that people bought that are literally unplayable, that they are so broken you cannot play them. E T. Was not that ET was playable, It's just it was also a little confusing, so it was kind of hard to figure out what you were supposed to do. It also wasn't very much fun even when you knew what you were supposed to do. But it did work now I owned a copy of it. In fact, well, ET also didn't sell as many units as Atari produced. It sold like a million and a half units, but Atari made more than that. And also the licensing fee the Atari paid in order to be able to make ET in the first place was pretty darn steep, so that was a big expense. So Atari spent a lot of money making E t and then had to spend more money to take back unsold stock. And famously Atari would toss thousands of cartridges into a landfill, which would become the subject of a documentary film many decades later. So Pacman and ET cost Atari money. Definitely, they really they took you know, you took a hit on both of those. However, ET and Pacman did not spontaneously cause the entire video game industry to crumble. There was no shortage of lousy games out there for the A and I'm sure that was part of the reason that folks weren't eager to buy more consoles. But that's just one piece of the puzzle as well. I have a little bit more I want to say about this, but before I get to that, let's take one last break. Okay, so we've established that pac Man and et. While certainly you know, a black mark on Atari's reputation and a hit to their revenue, we're not responsible for the entire industry crashing in. On a similar note, we can also mention home computers. People frequently cite home computers as being the reason why video game consoles died. That is being a little too simplistic as well. The home PC market had started in the late nineteen seventies. Like the Apple, the original Apple computer was really just for hobbyists. The Apple two was the first one aimed at beyond just the hobbyist market, but it was fairly modest. Early on. Some folks point to computers as being the reason that consoles were dying because parents were switching to computers because the computer could do way more stuff than just play games. They could potentially help a kid do homework and stuff, so they were looked at as being, you know, useful and not just a diversion. And I'm sure there's an element of truth to that for at least some households, But computers were typically much more expensive than home video game consoles, and even by the mid nineteen eighties they were still kind of a niche market, Like, yeah, you could buy a computer instead of a home video game console system, but you'd be spending five hundred to seven dollars more in nineteen eighties dollars. That's a significant expense. So I think they contributed to the problem that video game consoles were going through, but they were not the smoking gun. It was not that as a whole, Americans decided that video game consoles were off and now computers were the thing. I do think that the lousy games had a little bit more of an impact than computer consoles. I mean, I was a kid in the early eighties. I asked my parents to buy a game for me, like I said, this was what I wanted for my birthday or for Christmas or something. And then I get the game and it's just playing awful. Well, that's likely to discourage my parents from buying me another game in the future, right, Like, If I'm like, this is terrible and I don't even want to play it and it costs thirty bucks, probably not going to get another one anytime soon. Now, there were some awesome games out there, don't get me wrong, some truly amazing games. For the Atari twenty six hundred when you take into account what the twenty six hundred was capable of. I'm not gonna say they would stand up toe to toe with Call of Duty or something, but sometimes you would just end up with rotten games because maybe you thought the name of the game sounded cool, or the cover art on the box was interesting. Because I remember, there was no Worldwide Web back in those days, so you were probably just buying something based upon how it looked in the store. Maybe if you were living in certain markets, you might have access to things like a trade magazine that was covering stuff like home video games. I grew up in rural Georgia. I was lucky to see magazines at all, so so that was not the case for me. Anyway. Atari went into a bit of a spiral, not just because of the recession brought on by this uh this, this change in investor expectations, but also due to just mismanagement within the company itself. Atari also had a true successor to the twenty six hundred planned This was the seventy eight hundred. This would have been the truly more powerful console. It technically would have been a third generation video game console. It would have been closer to being on par with the Nintendo Entertainment system that wouldn't come out in the U S till But before Atari could go into full production on the seventy eight hundred, Warner Communications sold off the Atari home video game division to Jack Trammel, who had previously founded Commodore and had subsequently entered into a bitter feud with Commodore. Now, I've covered the story of Atari elsewhere. I've also covered the story of Commodore elsewhere, so I'm not going to go into all of that except to say that the seventy eight hundred was a casualty as a result of Atari changing hands from Warner Communications to Jack Trammel. But the recession reached beyond Atari itself. Kaliko decided to develop a home computer expansion for the Clico Vision. This one was called Adam, and they were attempting to get into the home computer market while keeping a toe in the video game industry. But Adam turned into a flop, really expensive flop, and then Calico got out of the business entirely. Mattel, after the failure of the in television, to decide to extricate itself from the home video game market as well eventually sold those assets off to other companies, and meanwhile, video game developers were going out a business left and right. A lot of companies that made super cheap games were gone first because they were a victim of that retail arrangement I mentioned earlier. The Magic had to change its plans. It had been heading for an initial public offering or i p O. That's when a company goes from being a private company to a publicly traded company on the on a stock market. But after the Warner Communications stock took a dive, a Magic put those plans on hold, and eventually the company folded, largely also because of that retail issue. While that shareholder call could be pointed to as the inciting incident for the video game crash, it wasn't as if the market collapsed entirely overnight. It actually was drawn out over a couple of years. But the writing was on the wall. Retailers became skeptical of video games in general. After many of the questionable developers went out of business. It meant that a lot of retail companies were left holding onto stock that they couldn't send back because there was no back right. The companies that had made those games didn't exist anymore. So that's when you started seeing retailers create these enormous bargain bins where they were selling cartridges at like a dollar each or something. And these were a lot of these were like just the worst games, the lowest quality stuff, because again, the companies that had made them no longer existed. Uh not not a great ad for you to go out by them. And meanwhile the retailers are just trying to get rid of them, to get them out of the stores. Uh. This was this, This created just like a bad feeling for everybody, the consumers and the retailers. And I would say that the video game crash really happened for a lot of these reasons. A big one was that retailer agreement, the fact that retailers fell into the same traps that investors did. They overestimated the profit that they would make coming from these games, so overestimating the market was a big part of it. And that the retailers, as a result of getting burned by this, were less interested in carrying and promoting home video game consoles. And meanwhile the consumers were thinking, well, really, the problem here is that I want something that looks a little better. The arcades had been getting better and better. The arcade games have been getting better and better. The arcades themselves would have their own massive recession, but the home market wasn't getting better because you were still using the same old console hardware. If Atari had introduced the hundred a year or two earlier than it did, then things probably would have been a lot different, or at least they potentially could have been a lot different. Instead, it took Nintendo coming over and introducing the Nintendo Entertainment System to revitalize the video game market here in the United States. Uh And famously, when Nintendo did that, they would pair the NES with a robot in order to try and sell it as a toy in toy stores because toy stores were not super eager to hold video game consoles because of the issues I just said, a lot of the problems that led to this crash were kind of self fulfilling. It was this vicious cycle of of issues that collectively created this market collapse. So, yeah, it's a little too simplistic to say et killed video games in America. That's not accurate. It was one aspect of lots of different things that collectively lead to the dissolution of video games for a good two years in the United States. In other parts of the world, by the way, this was not the case like in Europe and Japan, the video game industry didn't have this massive recession the way it did here in the States. But yeah, that is a story about the three video game crash. Hope you enjoyed it. If you have suggestions for topics that I should cover in future episodes of tech Stuff, please reach out to me and let me know. The best way to do that is on Twitter. The handle for the show is text Stuff H s W and I'll talk to you again really soon. I gotta go over to Jimmy Bob's video game Emporium first return this broken copy of Pitfall. Text Stuff is an I Heart Radio production. For more podcasts from I Heart Radio, visit the i Heart Radio app, Apple Podcasts, or wherever you listen to your favorite shows.