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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