(Image courtesy Mitchelaneous.com)
In 1983, video game companies were riding high. U.S. sales hit a peak of $3.2 billion (the equivalent of $7.3 billion today) and developers couldn't make games quickly enough.
No one knew it at the time, but the industry was about to dive into a crisis that remains the most serious publishers, developers, and console makers have ever faced.
The crash that followed 1983 almost destroyed the video game industry, nearly relegating video games to the same cultural scrap heap as Pet Rocks and bell bottoms. It came about due to a confluence of events -- some eerily similar to where the industry finds itself today.
To fully understand the crash of '83, it's important to realize the event was actually spread over several years (as most economic depressions are). Two years after hitting their peak in '83, industry revenues had fallen to a meager $100 million. Once things hit bottom, the dark days lasted for roughly two years, until the Nintendo Entertainment System saw its popularity surge in the U.S., leading gaming out of its slump.
To most people, the blame for the crash is generally lumped on Atari. That's not entirely unfair, but it's not the full story.
At the time, Atari was far and away the biggest mass market player in gaming. Unfortunately, its quality control was virtually non-existent. Any company that wanted to make a game for the Atari 2600 could do so. Spurred by the thinking that video games were a flash in the pan, countless developers spit out awful products without worrying too much about whether the games were any good. Many titles, in fact, were little more than interactive commercials for brands. Kool-Aid Man had his own game, for instance. So did the Purina Dog Chow Chuckwagon.
This all culminated with the release of the infamous E.T. video game, a title so badly overhyped -- and over-manufactured -- that the company ultimately buried millions of unsold copies in a New Mexico landfill. It wasn't until Nintendo put a leash on third-party developers, demanding that games meet certain standards, that players started to see real improvements.
But Atari -- and the games on its systems -- wasn't solely to blame. There was a glut of consoles on the market at the time as well, each with its own unique library of games. The Bally Astrocade, ColecoVision, Magnavox Odyssey 2, Mattel Intellivision and Smith Engineering's Vectrex were all vying for those quickly evaporating consumer game dollars.
Competition might sound great on paper, but with so many consoles on the market, there simply wasn't enough quality software to keep any of them afloat. That oversaturation of hardware, combined with the glut of really bad software, was a one-two punch that resulted in the crash. In short, gaming was an industry that grew too quickly, and it was vastly unprepared for such a quick evolution.
While the industry eventually righted itself -- contemporary blockbuster games are billion-dollar events -- the current state of affairs is not entirely healthy.
Today, we're once again looking at an explosion of game devices. Beyond the trifecta of Nintendo, Sony and Microsoft, gamers also currently (or will soon) have options from Ouya, nVidia, Razer, Valve, Apple, Samsung, Google, and dozens of no-name, direct-to-TV systems. That deluge of systems could spell disaster for an industry already stretched pretty thin.
While software revenues haven't tanked quite like they did in 1983, retail sales have been steadily decreasing for a solid year now. To be fair, those brick-and-mortar numbers don't include digital sales like Steam and Xbox Live -- not to mention the explosion of mobile apps -- but it's still sobering news for game companies trying to keep their shareholders happy.
Poor retail sales also speak to the fact that we've reached an unprecedented amount of time between console generations. However, analysts across the board expect next-generation systems to fall short of the sales numbers posted during the current gen. ABI Research, for example, expects the number of consoles sold in the first five years by the big three to drop by 7 million units compared to this generation. The Wii U's poor performance in its first year has only stoked concerns. The next gen isn't off to a very good start.
Though the quality of games by major publishers has been pretty consistent for the past few years (with average Metacritic scores of 69.7 in 2012, 69.1 in 2011 and 70.2 in 2010), there are concerns about the App market, one of the fastest growing fields of gaming. Just as in the mid-80s, the ability for anyone to make a game has led to some amazing creations -- and some real stinkers.
So could we be facing another potential crash?
It's possible, but unlikely. Video game industry executives are still interested in maximizing profits, but they're also much more aware of long-term repercussions. Investors keep a close eye on the roll-out of major new games and demand answers should the numbers fall short of expectations. Game publishers, in turn, are being much more careful about cranking out new games. While we still see plenty of crummy, product-based games, most major publishers seem to have learned a lesson or two.
That means the days of shelves filled with shovelware are seemingly over -- or at least winding down a bit. Given the costs of developing for current and next-gen systems, few companies are willing to churn out games they know have little chance of being a significant hit.
There's also a potential wildcard in play for consoles this generation: China. Several reports have indicated the country is on the verge of eliminating its ban on console gaming systems, which could open a huge market for Microsoft, Sony and Nintendo. While it's unlikely the companies would introduce the Xbox One or PS4 to that market, due to ongoing piracy problems, it could give a boost to sales of existing systems, helping the bottom lines of all three companies.
The flood of games and systems is having some fallout, though. This year alone, two once-mighty publishers, THQ and, ironically, Atari, have been forced to liquidate their assets. Other game makers, like Square-Enix, have regularly failed to post sales numbers in line with expectations.
As for the console market, there's likely to be some consolidation there as well in the next few years, though it's anyone's guess at this point who will thrive -- and who will crash.
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