This changed with the formation of Activision in 1979. Prior to 1979, there were no third-party developers, with console manufacturers like Atari publishing all the games for their respective platforms. Unfortunately, the crash occurred when about 15 million machines had been sold, which soundly under-shot Kassar's estimate. However, Kassar expected this to occur when about half of American households had a video game console. Atari CEO Raymond Kassar recognized in 1982 that the industry's saturation point was imminent. In 1983, an analyst for Goldman Sachs stated the demand for video games was up 100% from the previous, but the manufacturing output had increased by 175%, creating a significant surplus. In addition, the rapid growth of the videogame industry led to an increased demand, which the manufacturers over-projected.
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In 1982, analysts marked trends of saturation, mentioning that the amount of new software coming in would only allow a few big hits, that retailers had devoted too much floor space to systems, and that price drops for home computers could result in an industry shakeup. Įach new console had its own library of games produced exclusively by the console maker, while the Atari VCS also had a large selection of titles produced by third-party developers. This was the first real threat to Atari's dominance of the home console market. In 1982, the ColecoVision held roughly 17% of the hardware market, compared to Atari VCS's 58%. Notably, Coleco sold an add-on allowing Atari VCS games to be played on its ColecoVision, as well as bundling the console with a licensed home version of Nintendo's arcade hit Donkey Kong. Spurred by the success of the Atari VCS, other consoles were introduced, both from Atari and other companies: Odyssey², Intellivision, ColecoVision, Atari 5200, and Vectrex. In 1980, Atari's licensed version of Space Invaders from Taito became the console's killer application sales of the VCS quadrupled, and the game was the first title to sell more than a million copies. Launched in 1977 just ahead of the collapse of the market for home Pong console clones, the Atari VCS experienced modest sales for its first few years. The Atari Video Computer System (renamed the Atari 2600 in late 1982) was not the first home system with swappable game cartridges, but by the early 1980s it was the most popular second-generation console by a wide margin. The NES was designed to avoid the missteps that caused the 1983 crash and the stigma associated with video games at that time.Ītari VCS, also known as the Atari 2600, the most popular console prior to the crash. The North American video game console industry recovered a few years later, mostly due to the widespread success of Nintendo's Western branding for its Famicom console, the Nintendo Entertainment System (NES), released nationally in 1985. Analysts of the time expressed doubts about the long-term viability of video game consoles and software. Lasting about two years, the crash shook a then-booming video game industry and led to the bankruptcy of several companies producing home computers and video game consoles. To a lesser extent, the arcade game market also weakened as the golden age of arcade video games came to an end. The crash abruptly ended what is retrospectively considered the second generation of console video gaming in North America.
Home video game revenues peaked at around $3.2 billion in 1983, then fell to around $100 million by 1985 (a drop of almost 97 percent). The crash was attributed to several factors, including market saturation in the number of game consoles and available games, many of which were of poor quality, as well as waning interest in console games in favor of personal computers. The video game crash of 1983 (known as the Atari shock in Japan) was a large-scale recession in the video game industry that occurred from 1983 to 1985, primarily in the United States.