Flashback: The Fall of Atari and the Rise of Nintendo

Posted on Jun 26 2013 - 12:27am by Ryan Herrera

Flashback Atari Nintendo 1024x576 Flashback: The Fall of Atari and the Rise of Nintendo

Or How-Amazing-Was-the-NES? THIS-AMAZING!

The great video game crash of 1983 turns 30 this year.  I feel it would be a huge mistake to completely forgo such a huge and dark chapter in gaming history that shook the industry down to the roots. Let’s relive the past, as to not recreate the errors of our forefathers, shall we?


The year was 1983. The country was the United States of America.

The final installment of the original Star Wars trilogy hit theaters. The space shuttle Challenger made its maiden voyage. Trapper Keepers, leg warmers, and parachute pants were all things that happened. Gas cost $1.24 a gallon, unemployment was at a 9.6%, and I was only a glimmer in the eye of my father. And years prior, the gaming industry looked to be the next big thing.

There were upwards of nine videogame consoles on the market between the years of 1980-1982, including the legendary Atari 2600, ColecoVision, and Mattel Intellevision (and some lesser-known game boxes and clones of them, like the Radio Shack branded Tandyvision and the Western Technologies Vectrix). Each had a plethora of exclusive games in an attempt to jump on the video game bandwagon and duplicate Atari’s success. Atari grew from a company that made $75 million a year to a company that made an astounding $2 billion in just three years’ time.

Basically, those new-fangled video game things were changing the world and becoming a highly marketable asset. And everyone wanted in on the big pie of money that Atari had put to bake.

Most of the companies producing the hardware weren’t exclusively gaming companies. Some were toy companies (like Mattel), others were electronics companies (like Western Technologies and Coleco), but they had one thing in common: most had little clue how to make a decent console. Naturally, most had little clue how to make decent software.

Atari would go on to make several questionable decisions, including holding back the names and royalties of their major developers, who eventually departed the company to start the world’s first third-party video game developer: Activision. Atari sued Activision (because it didn’t see a single dime from third-party sales), but eventually lost; thus the third-party revolution began. Companies as varied as Quaker Oats and Purina participated in the revolution, releasing third-party Atari software and thus flooding the market with a mass of what we now call “shovelware.” So hundreds of companies existed simply to exploit the new medium and make a quick buck by selling cartridges. And not a single cent went back to Atari, even though the games ran on on Atari systems.

pacman compare Flashback: The Fall of Atari and the Rise of Nintendo

The left is Namco-developed Pacman from 1980. The right is Atari-developed Pacman from 1982. Notice the ass-y-ness of the latter.

And then Pac-Man happened. What seemed like a brilliant move (which, realistically, it was) turned out to be one of the final stakes in the Atari casket. Atari executives got the rights late in the year and hired an outside programme – not that they had many left. And for the first time, a single programmer was promised royalties for the game he made. Usually it would be per unit sold, but Atari promised per unit manufactured. And Atari had expected (and planned to make) 12 million Pac-Man cartridges, although only 10 million Atari 2600s had been sold. So with this guaranteed payout to this lone programmer, he had little incentive to make the game good in the miniscule time Atari had given him to make it. While the arcade version of Pac-man was legendary because of its smooth graphics and memorable sound effects, the Atari version was its deformed stepbrother. It was slow, awkward, and painful to the ear. Pac-Man didn’t fail financially (Atari sold 7 million of its 12 million Pac-Man cartridges), but it did damage far more deep than flopping simply would have. It damaged Atari’s reputation amongst customers.

A year later, Atari got its mitts on another massive property which could shake the foundation of gaming: Steven Spielburg’s ET: The Extra Terrestrial. And it was as bad as you think. Trust me – I had it. Atari released ET in under six weeks and – having been burned by a big name game in Pac-man – customers decided to wait to see if it was good, instead of buying instantly.

Basically, few people bought it, and Atari had five million ET cartridges sitting in its warehouse. It was a huge blow to the company, which had gone from 50% increases every year to 10%.  That December 1982 shareholders announcement seemed uneventful, but a surprise loomed. The next day, Atari’s stock  (as well as its owner’s, Warner) dropped steadily and collapsed into comparable nothingness. Many games publishers closed, and entire companies like Magnovox and Coleco completely bailed from the industry.

The market was oversaturated. The market had too many consoles, too many games, and not enough money flowing back to the console maker. Imagine a market exclusively filled with Chicken Shoot, Game Party, and anything with the word “Petz” in the title. What was once a booming $3 billion dollar industry, shrank to a mere $100,00 flop in less than two years.

Thus, Atari pulled the millions of unsold consoles and games and dumped them in a landfill in New Mexico, and became $500 million in debt. Gaming was defeated by itself and its rivals: the personal computer and the still-striving arcades. Retailers moved on, investors moved on. Analysts predicted that home gaming was a flash-in-the-pan phenomenon. And, indeed, it did seem that way.


The year was 1983. The country was Japan.

Crusher Joe won Animage’s Anime Grand Prix for best work. Shohei Imamura’s The Ballad of Narayama won Best Film at the Japan Academy. And Japan hosted the Miss International beauty pageant.

A company called Nintendo – which had previously delved into a myriad of different markets including card games, taxi services, instant noodles and even love hotels – had gotten into making electronic games after distributing the Magnavox Odyssey in Japan in the ’70s. July, 1983 saw Nintendo launch the Famicom – short for “Family Computer” – to a hungry Japanese audience. It would go on to become the best-selling console by the end of 1984.

And it was with this success that Nintendo targeted North America. Funnily enough, Atari had gotten the rights to distribute the system in America under the name “Nintendo Advanced Video Gaming System.” The deal was set to go down at the ’83 Consumer Electronics Show, but it was delayed because Nintendo discovered Coleco was running an illegal version of Donkey Kong on its system at the same show. The deal was delayed and subsequently died. Nintendo decided it could conquer North America itself. And thus history was made.

DeluxeSet 1024x592 Flashback: The Fall of Atari and the Rise of Nintendo

This Deluxe Set came with a console, ROB, Gryomite, Duck Hunt and a controller for $199.99, roughly $432 today.

This is the point where Nintendo begins to is making decisions that would go on to resurrect gaming and become a juggernaut of the industry. Firstly, Nintendo doesn’t label i’s console with the words “video game” in it at all. At the time, the term “video game” was tarnished since The Crash. Nintendo renamed the “Nintendo Advanced Video Game System” to the “Nintendo Entertainment System.” It was marketed as a toy, and not a game console, and specifically targeted children. Nintendo avoid the term “video game” with such vigor that it called the cartridges “Game Paks” instead of “games” and the console a “control deck.” Nintendo also included R.O.B., a lovable robot pal who would be completely interactive and the mascot of the system.

Nintenod also wanted to promise consumers that they wouldn’t be screwed over again by the flood of terrible games that killed the industry. Thus the Nintendo Seal of Quality was born, and a chip was placed in every NES that would prevent any unlicensed game to be played. This was also a way to get money from third-party companies – something that hadn’t happened before. Nintendo collected royalties from every publisher who wanted to make games for the NES. Because Ninty had the chip, you needed to play by its rules and  rules only. It was really a brilliant tactic at the time.

The Nintendo Entertainment System sold roughly 10-to-1 of its meager competitors (which included the Sega Master System and the Atari 7200) is the catalyst that sparked the gaming industry’s resurrection.

So what can we learn from history?

Gaming isn’t what it was 30 years ago. Like any medium, it’s changed with technology drastically. And while it won’t completely die off like it did in ’83, I do see some interesting parellels that echo the crash from 30 years ago. You ever go on your mobile platform and see how much utter crap that are complete ripoffs of other popular games? Ninja Fruit Birds, Birds of War, Air Penguin, Angry Beetles and Angry Zombie Birds are all about throwing an animal at a target. In the 80′s, game clones were a huge chunk of the market. Taito’s Space Invaders itself had a huge number of clones with clever titles like Spectral InvadersSpace Intruders, and simply Invaders. Not saying some terrible Angry Birds ripoffs won’t crash the market, but it’s an interesting parallel that cannot be ignored. There is no industry that is infallible; this is proven enough this year at E3 with the massive backlash that the Xbox One received by critics and fans alike.

According to Business Insights, gaming is worth roughly $76 billion. It would be incredibly hard to completely kill the industry worth so much and so instilled into the culture, but we can’t ignore the lessons the ancestors of the industry learned the hard way. As Atari learned the very hard way, consumers don’t like being ripped off, and they can realize when a product is bad. And also having a good relationship with third-party developers is indicative of success. This isn’t an issues nowadays, unless you’re Team Bondi. The indie market on Xbox Live isn’t great, and the rumors that self-publishing will be completely dropped from the Xbox One is a blow to smaller developers.

Gaming isn’t the ruleless, reckless, out-of-control wild west it once was. It’s changed, matured, and there are established rules and legalities that prevents what happened with Atari and its ignored developers from happening again. And whenever an injustice like that happens today, it’s always looked into and brought to the forefront of news.

Gaming’s past is one of my favorite parts of the industry. The dramatic changes in direction, technological adaptations and interesting trends made in three decades is absolutely fascinating. And if gaming can learn from the past for a better future, then the future of gaming is going to be absolutely awe-inspiring.

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I just want to play games, write about games and make people laugh. Oh, and drink beer. I /love/ beer. I live by this quote: "If you can't laugh, you might as well be dead." - Roger Rabbit

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5 Comments so far. Feel free to join this conversation.

  1. mike June 26, 2013 at 6:27 AM - Reply

    Awesome write up.
    By that time, i didn’t even know consoles did exist. I used to play paperboy and sirfred at a friend’s, on a zx spectrum. Those were my first video games.I’ve never played games on a commodore 64, or Atari. I remember my father brought me a computer from Sharp , by 86-87, maybe. I was sad because everybody had a zx spectrum +128, and I had that thing, with a couple pacman like games.
    Load “” , anyone? That command, and the game started loading from the tape.yeah ;)
    I remember I had also played some cool games, at a friend’s, something like MSX ? Graphics were really cool, huge difference compared to the zx spectrum ones.
    I remember buying a mega drive/genesis by 1994/later. Man, how I was happy, when I had that new sonic game, or thunder force 1-4, which were amazing shoot-them-ups, with incredible parallax /scrolling and huge bosses. I feel like crying now :) best times of my life: no shit, no bills, no problems, no xbots XD. Innocence, pleasure and joy, only.

    By those times, I remember seeing a kid, at a local store, his father had bought him like 30 games and a Nintendo, for about 4000$ ! Arabics, they were. And I, I even hadn’t 100-200$ for buying a Nintendo NES. Fuck life :)

    I also remember playing legacy of kain on my ps1. Can’t remember how many hundred times I had thrown my controller away: ah, Kain….

    I remember street fighter on SNES at local stores, where kids used to spend full days on it.and then, street fighter got released on genesis/mega drive. Huge combats , intense debates between fans, trying to prove why x version was better than y version. I think that game created the first fanboys of the history.

    Today, I still have like 100 magazines from the early nineties. No internet, no biased reviews, no n4g xbots and trolls, with moderators disagreeing,reporting,restricting and hating anyone who dares saying something positive about sony. Only a real gamer and journalist reviewing a fully-completed game, with no day-one patches, or 2$ color outfits dlcs. A full game. That couldn’t be broken, by any means. OK, Activision, and ps3 cod games…or Bethesda.. and 99% of the gaming companies.OK ?

    I also remember buying a 3d module, for my genesis, for playing a F1 racing game in real 3d. Revolutionary. Maybe the first 3d game? Or first on genesis..

    I also remember going to a local games store, who had a neogeo console, displaying on a huge retro-projector TV. Man, those were expensive. But those shoot them ups… argggghhhhh, so gooooood. But so expensive, only rich people could afford one.for sure.
    Too bad each neogeo game costs like 7-10$, on the psn. If they cost 2-3$, there would be 10 times more sales, I would buy many games.but for that crazy price, forget it. Greedy!

    Well, I could write 10 full pages about those first games and consoles, easily, but don’t want to make a huge comment.

    It’s incredible how games evolved, today. Just finished the last of us, and I think that it’s the best graphics a ps3 and x360 can display. There’s almost no room left, for any substantial optimization. I’m glad the ps4 will be able to display 3-4-5 times better graphics than the current ones, since it’s supposed to be 10 times more powerful than the ps3. We should be able to see incredible things, next years. And I’m glad until at least 2023, games will come on a physical support, and we will still ‘own’ them.

    Next gen shouldn’t take 7-10 years to be maxed out, like the complicated ps3. I am sure by 2017, on the second gen of games, developers should be using 95% of the available power, and soon, they will need new tools and consoles, if they want to make new games with much better graphics. The 30 years of experience on x86 systems will allow developers to easily extract all the power a console have. I wouldn’t be surprised if by 2017, Sony announces a new system. As soon as a studio will make a game and a sequel, and will max out a console, people will be wanting to have new games with new incredible graphics, that the consoles will no longer be able to output, since they will have been maxed out quite fast. A new console will be needed.

    What is great, is the fact every single console was much more powerful than the previous one, but since the video resolution were always increased, that power would be lost, because there were 2-3-4 times more pixels to draw.
    Right now, we reached like a plateau, where resolutions will remain unchanged for the next 4-7 years. While many games will be playable at 4k, like platform games, etc,which don’t require as much power as, say, a gta5 game, 99% of the games will be playable at 1080p. And that’s cool, because that resolution is already awesome. Sure, God of war 6 at 4k would look much better than god of war 5, at ‘only’ 1080p. But honestly, I prefer a 1080p with ultra high textures and everything, than ugly compressed 4k games. After all, when we watch a Rebel, Shrek or Toy story 3 bluray movie, at 1080p, it looks amazing, right? If the ps5, or Xbox two, by 2020, will allow those kind of graphics, in real time, I will be f*cking happy to have ‘only’ 1080p graphics, instead of 4k. And with the move from ps4 to ps5, if we keep the same 1080p resolution, all the extra power will be used on graphics and textures, instead of using 80% of that extra power drawing 8 times more pixels, at 4k. Does anyone dares imagining a shrek-like game, in real time, on a ps5, by 2020? Or a god of war? Or uncharted? Or many others. It could be amazing. I just wish they could find new materials, new transistors, new stuff, so a ps5 or Xbox two could use like 50 nvidia Titan chips, in a single console. I want that, at home :)

    Well, much more could be said. I just want to thank the author for his article, that made me remind of how cool the first games were, how magical buying a game, going home, and start playing it, was, back in the days. One thing is sure, I will always play video games, whether I’m 50-60-80 yo. It’s a part of my life, it’s one of the best ways for escaping the quite sad lives we are forced to live: working,working,working, paying bills and giving our hard-earned money to the government, so they buy shit and play real-time RTS games, with OUR cash. Damn.

    This is why PC gamers can’t understand why people prefer playing on consoles, instead of being able to play on ultra settings, on a PC.
    This is a way of living. There is something special, when inserting a cartridge or CD, pressing ON, and pressing the start button. It’s a ritual. It’s magical. It’s awesome. And add a 2nd player, and get twice the fun. Simply.

    • Jeffrey L. Wilson June 26, 2013 at 7:29 PM - Reply

      Aw, Thunder Force! Such an underrated shooter series. Probably my second favorite behind the other Thunder series (Gates/Lords). Those were some great memories.

      • mike June 27, 2013 at 7:06 AM - Reply

        Thunder-force 4 was huge,with countless waves of bullets, huge bosses, all that running on a 7 MHz CPU and a 3 button gamepad. And that D-pad was just perfect, we could play street fighter with it, for hours. Today, the ps3 or x360 dpad are just unplayable.

        I wish Sega could team up with a 200 billion$ rich guy from Qatar, who would like to invest 2 or 3 billion. Sega name is still powerful, I bet most guys who own a ps3 and x360 would easily invest 200-300$ on a console made by Sega.
        If tomorrow there is a Sega console,with a new sonic, new ecco the dolphin, a new thunder force, a new kid kameleon, a new shenmue, a new streets of rage, etc etc, man, I would get them all.

        I still hope one day, Sega will make a new console. I hope.

        • Jeffrey L. Wilson June 27, 2013 at 2:13 PM - Reply

          SEGA making a new console would be a Dream come true. I think the company hit its creative peak with the Dreamcast. That said, I wouldnt be mad i Nintendo just outright bought SEGA. Maybe they’d have the budget to bring back many of our childhood favorites.

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