In 1982 the home video game business in North America looked unstoppable. Atari had around 80 per cent of it, Warner Communications owned Atari, and a dozen or more other companies were making cartridges for the Atari 2600. Three years later most of those companies had gone, Atari had been broken up and sold, and many shops had stopped selling video games altogether. The American market came back only when Nintendo persuaded retailers to try again in 1985.
The crash is also the source of one of gaming’s best-known stories: that Atari buried millions of unsold E.T. cartridges in the New Mexico desert. Part of that story is true. In September 1983 Atari did dump truckloads of stock in a landfill at Alamogordo, and in 2014 an excavation dug some of it up. What the diggers found was more varied, and much smaller, than the legend.
Too much of everything
By 1982 an American shopper could choose between the Atari 2600, Mattel’s Intellivision, the Odyssey 2, the Fairchild Channel F and the Bally Astrocade, with the Atari 5200, ColecoVision, Vectrex and Emerson Arcadia arriving that year. Each had its own library of games. The 2600 had more than a dozen outside publishers besides, following Activision’s lead, and Atari had no say over what they released. Mattel and Coleco began selling versions of their own games for the 2600 too.
The warning signs were there early. One toy-shop buyer told the Chicago Tribune in February 1982 that a young couple who had bought a console and four or five cartridges “all of which do basically the same thing” would eventually tire of them: “It would be pretty hard to convince that couple to spend yet another $30 on another cartridge just so they’ll have something different to shoot at.”
Atari’s own big releases disappointed. The 2600 version of Pac-Man sold strongly at first in 1982, then stalled once players found how far it was from the arcade game, flicker and all. E.T. the Extra-Terrestrial was made for Christmas 1982 in a rush. Its programmer, Howard Scott Warshaw, later explained that the licence deal took until the end of July, and the game had to be finished by the first of September: “That left you with five weeks to do the whole game.” Most games then took at least four months. Unsold and returned cartridges piled up in warehouses. Published figures for how many E.T. cartridges Atari made, and how many came back, vary widely, and none of them rests on a documented Atari figure.
The collapse
The turning point came on 8 December 1982. Warner and Atari warned that earnings for the fourth quarter and the year would be far lower than they had forecast, and Warner’s share price halved. The rest of the industry followed it down.
1983 was a year of losses. Atari reported a $310.5 million operating loss for the second quarter, and its chief executive, Ray Kassar, was replaced by James Morgan from the tobacco company Philip Morris. Mattel lost $156.1 million in the same quarter. British readers followed the story in Personal Computer News, whose American correspondent reported that the video game market was now being called “a crap shoot for great white sharks”, and that Mattel had “joined Texas Instruments in the $100 million loss league”. Atari ended 1983 with a loss of $539 million on sales of $1.1 billion.
Home computers made things worse for the console makers. Jack Tramiel’s Commodore cut the prices of the VIC-20 and Commodore 64 so far that cheap computers cost about the same as games consoles, and Texas Instruments left the home computer market altogether.
In January 1984 Mattel closed its electronics division. In July 1984 Warner sold Atari’s consumer business to Tramiel, who had left Commodore earlier that year, and kept the arcade side, which became Atari Games. The Atari that had held 80 per cent of the market no longer existed. Department stores, toy shops and specialist shops dropped video games, and surplus consoles and cartridges were sold off cheaply for the next two years.
How far the market fell is harder to pin down than the stories suggest. Later histories often say that American sales fell from about $3 billion to about $100 million by 1985, a drop of 97 per cent. Those are estimates made after the event, and period sources measured the market in different ways.
The Alamogordo landfill
In September 1983 Atari trucked surplus stock from its plant in El Paso, Texas, to the city landfill at Alamogordo, New Mexico, about 80 miles away. The New York Times reported on 28 September 1983 that Atari had dumped 14 truckloads of discarded cartridges and computer equipment there. The press attention made it a public relations embarrassment for Atari.
Over the years the story grew into an urban legend: that Atari had buried millions of copies of E.T. to be rid of them. On 26 April 2014 the city of Alamogordo let a documentary crew, working on the film Atari: Game Over, and a team of archaeologists dig up the site. Warshaw was there. The dig recovered about 1,300 cartridges of dozens of different titles, E.T. among them. James Heller, the former Atari manager who had organised the dumping, put the number buried at about 728,000.
Outside North America
The crash was a North American event. In Japan, Nintendo’s Famicom was a success. British magazines, busy with the ZX Spectrum, the Commodore 64 and the BBC Micro, covered it as news from abroad. Personal Computer News ran it in its “View from America” column, which noted in the same breath that the ZX81 was being sold in American shops as a loss leader for $35, “about the same as a Walkman”.
The recovery
Nintendo spent two years trying to find a way into the American market. In autumn 1985 it test-marketed the Nintendo Entertainment System in the New York area. To get it into toy shops and department stores it packed in a toy robot, R.O.B., and avoided calling its games video games. Sales in New York were disappointing, but a further test in Los Angeles in February 1986 did better, and national launches followed through 1986.
Nintendo also controlled which games reached its console. Its advertising told buyers to look for the Nintendo Seal of Quality, “your guarantee” of what they were buying. Atari had never had that control over the 2600.
Sources
- Retro Gamer issue 100, March 2012, pp. 90–95, feature on the crash: the consoles on sale in 1982; the 2600’s third-party publishers; Pac-Man; the Chicago Tribune quotation (4 February 1982); the 8 December 1982 warning; Atari’s and Mattel’s 1983 losses; Morgan replacing Kassar; the Alamogordo dumping as a public relations problem; Commodore’s price cuts and Texas Instruments’ exit; the closure of Mattel Electronics; the sale of Atari to Tramiel in July 1984; retailers leaving the market; the NES test markets.
- Personal Computer News, 10 August 1983, “View from America”: Atari’s losses, Morgan, “a crap shoot for great white sharks”, Mattel and Texas Instruments, and the $35 ZX81.
- ClassicGamer Magazine, vol. 1 no. 2, Winter 2000, interview with Howard Scott Warshaw, pp. 35–37: the E.T. schedule and “five weeks to do the whole game”.
- Wireframe issue 43, September 2020, pp. 46–47: Howard Scott Warshaw’s account of the April 2014 Alamogordo dig, and the documentary Atari: Game Over, which “attempted to solve an urban legend”.
- Nintendo Power issue 4, January–February 1989: Nintendo advertisement, “Look for the Nintendo seal of quality … It’s your guarantee”.
- “Atari Parts Are Dumped”, The New York Times, 28 September 1983, as reported in later coverage (web, secondary).
- “The Video Game Graveyard”, Archaeology, July/August 2014 (web, secondary): the April 2014 excavation recovered “thousands of cartridges representing dozens of titles”, including E.T. https://archaeology.org/issues/july-august-2014/digs-discoveries/new-mexico-atari-dump-site-excavation/
- “Atari video game burial”, Wikipedia (web, secondary), summarising the 1983 press reports, NPR and Associated Press coverage of 26 April 2014, the 1,300 cartridges recovered, and James Heller’s figure of 728,000. https://en.wikipedia.org/wiki/Atari_video_game_burial