Replay: The History of Video Games

by Donovan, Tristan

  Some of the seeds of destruction were sown when Pac-Man took the US by storm. The game’s enormous popularity prompted companies all over the country to start buying arcade machines on credit in the hope of earning fortunes by installing them in locations as unlikely as golf clubhouses and dentist receptions. In the hubris of the boom years it seemed like a great idea, but soon it became clear these locations lacked the volume of passing trade needed to make the machines profitable. With no money coming in, these companies soon began to default on their debts leaving coin-operated game manufacturers with bad debts worth millions of dollars. “Everything’s based on a pyramid scheme to a degree, everyone coming in and financing the next expansion on credit,” said Ed Logg, the Atari coin-op designer who made Asteroids.

  The sheer volume of arcades that opened added to the problems, spreading the finite audience for video games too thin for any arcade operator to make a living. Desperate for customers, some arcades began offering eight rather than four goes per dollar on their video games – reducing income even further. “Too many arcades had opened,” said Day. “They were taking customers away from each other at the same time that more and more people were investing in home game systems. Eventually there were about four arcades in Ottumwa by 1984 and the city could not support so many arcades. We all went out of business at the same time.”

  Arcade goers were also tiring of the increasingly difficulty of the games on offer. “Games were becoming too hard,” said Scott Miller, the co-author of Shootout: Zap the Video Games, a 1982 guide to beating arcade games. “Arcade makers figured out that too many players could master their games and play for hours on one quarter, so they defeated these players – including me – by greatly increasing the difficulty.” The evolution of shoot ’em ups during the boom was typical. By 1982, Space Invaders looked sluggish and tame next to the fearsome Defender and dizzying fury of Tempest. “You had a player base that lived for the challenge and were becoming more and more highly skilled. So you had to up the ante with each game to continue the challenge and thrill the players,” said Eugene Jarvis, the designer of Defender.

  Noah Falstein, the co-designer of intimidating 1982 shoot ‘em up Sinistar, agreed: “As players got better at them, coin-op games got more challenging in order to keep the coin drop high. In the case of Sinistar, the development team actually had an easier version ready to release, but our management insisted on making it tougher to keep it more profitable. I don’t actually disagree with this, you have to be careful about profitability, but I do think it contributed to the collapse of the arcade market.”

  Dedicated video game players thrived on the ever-greater challenges thrown at them, but the mainstream audience, upon whom the boom was built, found them too demanding, poor value for money and not much fun. The final blow that felled the arcades was the growth of home console ownership, which sucked players out of the arcades. In 1981 the coin-op video game business in the US peaked with annual sales of $4,862 million, in 1984 sales had nearly halved to $2,500 million.

  The home console market’s fall was not far behind, however. The success of Activision, the company formed by four ex-Atari employees to make VCS 2600 games, had encouraged dozens of other businesses to follow suit. These companies churned out poor-quality games in the hope of making a fast buck from the excitement surrounding video games.[1] “Activision was the main cause of the crash – although indirectly,” said Activision co-founder David Crane. "We showed that you didn’t have to spend $100 million to produce a game console to make money in video games. In one six-month period 30 new companies sprang up trying to duplicate our success.”

  The volume of games and the dubious quality of many of them started to put customers off. “There was way too much product, some of it inappropriate,” said Manny Gerard, the Warner Communications’ vice-president who oversaw Atari. “The single greatest failing was built into the 2600 from the very beginning, although nobody understood it at that point, which was we couldn’t control the software for our system. People were putting out cartridges for the 2600 – one was called Custer’s Revenge.”

  Custer’s Revenge was one of three sex-themed games released in the autumn of 1982 by American Multiple Industries, a video game publisher formed by porn filmmakers Caballero Control Corporation. It was both terrible and downright offensive: the aim was to rape a Native American woman tied to a post. The game’s launch in New York City attracted 100 protestors armed with placards declaring: “Custer’s Revenge says rape is fun” and “Pornographers are pimps”. Atari was furious, but could do nothing to stop the release of Custer’s Revenge. “There wasn’t anything we could do about it – it was terrible. We had no control over that because we couldn’t control the software,” said Gerard. Custer’s Revenge and dozens of other dismal games, including adverts disguised as games such as the toothpaste promotion Johnson & Johnson Presents Tooth Protectors and the pet food plugging Chase the Chuck Wagon, delivered death by a thousand cuts to Atari’s console.

  With so much dross clogging up the shelves, sales stalled and retailers found themselves lumbered with piles of unsold games. Shops did what shops do with unsold goods – they discounted them in the hope of getting rid of the excess stock. Soon games that once sold for $30 could be bought for less than $10. Retailers also stopped ordering new games, causing cartridges to pile up in video game companies’ warehouses. These warehouses full of unsellable games were a ticking time bomb for the video game business. “We predicted the crash. I remember saying that ‘none of these new companies will be in business in a year’,” said Crane. “What we didn’t realise is that each company already had a million game cartridges in their warehouse when they went under. It was the sale of these games by liquidators that flooded the market. The liquidators bought them out of bankruptcy for $3, sold them to retailers for $4 and the retailers put them in barrels at the front of the store for $5. When dad went in to buy junior the latest Activision game for $40, he saw that he could be a hero and get eight games for the same money. Sales of new games went to near zero.”

  Companies such as Activision and Atari had no choice but to slash their prices to shift the cartridges now building up in their own warehouses. A vicious cycle from which no company could escape had begun.

  The ageing technology of the 2600 did little to help. The five-year-old system was looking its age and people were growing bored by its limitations. Yet by the start of 1982 no convincing alternative had emerged. Mattel’s Intellivision – the nearest challenger – offered too small a technological leap to pry gamers away from their Ataris and, instead of seeking to build its own successor to the 2600, as suggested by the company’s founder Nolan Bushnell in 1978, Atari had stifled research projects that might undermine its flagship product. “There were a number of projects that were started and brought to the point of being ready for production and then stopped,” said Steve Bristow, vice-president of engineering at Atari. “I heard words to the effect of ‘why should we take risks on introducing a new video game that is possibly going to cannibalise our sales?’”

  Only by 1982 did it become clear that Atari needed a replacement for the 2600 and fast. Its answer was the Atari 5200, a repackaging of its 1979 home computer the Atari 400. It was too little, too late. An Atari focus group held just before its launch confirmed the worse when the Atari 5200 was put up against the newest console on the market: the Colecovision. “Overall, consumer reactions after game play was that Colecovision performed somewhat better than expected,” reported an internal Atari memo about the focus group. “The 5200 did not come out as definitely superior to Colecovision despite some initial expectations that it would be a better system.” The Colecovision, created by toy company Coleco, arrived in August 1982 in a blaze of publicity. It was more advanced than the Atari 5200 and, most importantly, came with a copy of Nintendo’s hugely popular Donkey Kong.

  Donkey Kong was the first game designed by Shigeru Miyamoto, who would go on to be regarded as one of the world’s v
ery best game designers. Te Japanese designer’s debut game was commissioned to pull Nintendo’s US operation out of a hole. Nintendo of America had bet everything on Radar Scope, a Space Invaders-style shoot ’em up that had been a hit in Japanese arcades, but sold only 1,000 of the 2,000 machines it built for the US market. Nintendo decided to create a new game to run on the technology used by Radar Scope in the hope of shifting the unsold machines.

  Miyamoto was originally told to make a game based on Popeye, but when Nintendo failed to get the rights to the comic strip, he devised an entirely new game inspired by the 1933 film King Kong and the fairy tale Beauty and the Beast. It revolved around three characters: Jumpman, a moustached and stumpy carpenter who the player controlled; Donkey Kong, an escaped giant gorilla owned by Jumpman; and Pauline, the object of both Donkey Kong and Jumpman’s affections.[2] Players had to help Jumpman climb scaffolding and ladders to reach the top of the screen, where Donkey Kong was holding Pauline hostage, while dodging barrels thrown by the angry ape and other dangers. Miyamoto’s distinctive characters and bizarre love triangle plot – told in short animated sequences reminiscent of a silent movie – were revolutionary. The game’s jumping action and platform-based levels were equally influential, establishing a new genre of game: the platform game.[3] Following the game’s success, Nintendo changed Jumpman’s name to Mario in honour of its US landlord Mario Segale, who had agreed to give the company’s struggling US arm more time to pay its rent prior to Donkey Kong’s release.

  Michael Katz, Coleco’s vice-president of marketing, felt the Donkey Kong deal was vital to the Colecovision: “I don’t think the Colecovision would have been launched as successfully as it had if we didn’t have the exclusive console rights to Donkey Kong. We made it so it was the only way you could get Donkey Kong for the home.” By Easter 1983, more than a million Colecovisions had been sold off the back of Donkey Kong. The release of an adaptor that allowed VCS 2600 games to be played on the Colecovision spurred sales on even further. Atari had been offered the rights to Donkey Kong by Nintendo but turned it down on the grounds that the Japanese company wanted too much money. The decision left Atari facing a powerful new rival that had wiped out its Atari 5200 system just as the 2600 market began to unravel.

  Not all the problems affecting the video game industry were of its own making. The US had been in a deep recession and by December 1982 one in 10 American adults were out of work. Petrol prices were also rising, eroding households’ disposable income even furr. “The gasoline shortage just sapped money away from kids,” said Gerard. “If you’re an average kid and the way you get around America is in your car and suddenly gasoline prices go nuts, which they did, that hurt.”

  On top of that, the video game console had lost its position as the most exciting thing in home entertainment to the video cassette recorder, or the VCR for short. The VCR reinvented television, giving people control over what they watched and when for the first time. “It was a major thing,” said Rob Fulop, a programmer at game publisher Imagic. “All of a sudden you could see a movie at home whenever. It was amazing. Kids were watching and taping movies, computer games weren’t what they did anymore.”

  As the games business plunged, the VCR went from strength to strength. In the first quarter of 1982, Americans bought 491,000 VCRs. The first quarter of 1983 saw 958,000 sold, an increase of 95 per cent.

  The final blow came from the home computer manufacturers who became embroiled in a bitter price war just as the console market hit the skids. The price war began in April 1980 when Jack Tramiel, the founder of Commodore, paid a visit to London, England. Together with Apple and Tandy, Commodore had started the home computer business but while its PET computer did well in Europe it was lagging behind its two key rivals in the US. To add to its American woes, two other big players had entered the home computer business.

  One was Atari. The other was Texas Instruments. For Tramiel, who was fond of saying ‘business is war’, Texas Instruments’ entry into the computer business offered an opportunity for revenge. In the mid-1970s the two companies had fought for dominance of the pocket calculator market and the resulting price war almost destroyed Commodore. Tramiel was determined to make sure that this time round it would be Texas Instruments that would be left in ruins.

  During his business trip to the UK, Tramiel saw the idea that would form the basis of his assault on his corporate nemesis: the Sinclair ZX80. The British-made computer had outdated technology and was sold as a kit so buyers had to assemble it themselves at home yet it was hugely successful for one reason: its unbelievably low £99.95 price tag. Excited by the idea of a computer anyone could afford, Tramiel tore up Commodore’s plans for a new business machine and ordered his engineers to make the computing equivalent of the Ford Model T, the 1908 car that introduced the idea of mass car ownership.

  Commodore was in a good position to deliver on such a vision. It owned microprocessor manufacturer MOS Technologies and so could get prices that Tandy, Atari and Apple could only dream of. Only Texas Instruments had such an advantage, but its $1,150 TI-99/4 computer was far from mass market. Commodore’s engineers built the VIC-20, a colour computer that cost just $299.95, and launched it in 1980. The VIC-20 was an attack on two fronts. It undercut Commodore’s computer rivals by hundreds of dollars, forcing them to slash their prices.[4] It was also cheap enough to compete with video game consoles on price, a fact Commodore emphasised with adverts asking: “Why buy just a video game?”

  Texas Instruments responded in 1981 by replacing the overpriced TI-99/4 with the $525 TI-99/4a, a home computer designed for the mass market. The war was on. The fight, however, was not jusontest between rival manufacturers, but a struggle between two different and incompatible visions of home computing. Commodore embraced a philosophy of openness, allowing anyone to create software for its computer. Texas Instruments, meanwhile, believed in control. It wanted computing to follow the video game console model, where it and it alone would make and profit from TI-99/4a software. To enforce its beliefs, the Texan giant publicly threatened to sue any company that released TI-99/4a software without its approval.

  Video games would prove crucial in Commodore’s battle with Texas Instruments. While Texas Instruments pushed the educational benefits of its computer, Commodore embraced fun as a way of attracting buyers. “In 1982 no one was buying computers for the software, other than for games or something like that,” said Bob Yannes, who would help design the Commodore 64, the computer Tramiel used to finish off Texas Instruments.

  Launched in August 1982, the Commodore 64 was a $595 powerhouse for its era. Armed with a large amount of memory, strong graphics capabilities and an advanced sound chip, it seemed as if it was designed for games. Its release prompted Texas Instruments to offer a $100 rebate on sales of its TI-99/4a, sparking a frenzy of cost cutting as rival computer firms repeatedly tried to undercut each other in a deadly game of corporate Russian roulette.

  By early 1983 the benefits of Commodore’s openness were starting to shine through. While Commodore owners enjoyed a wide choice of software and games, TI-99/4a owners were being starved of choice. Texas Instruments, which outsold Commodore in Christmas 1982, started to fall behind. By the summer the Commodore 64 was on sale for just $200 and Texas Instruments had been pushed into selling its computer for just $99. In November 1983, having lost $100 million in the second quarter of the year alone trying to keep the TI-99/4a alive, Texas Instruments threw in the towel and shut its home computer operation.[5] Tramiel had won and Commodore now had a 38 per cent share of the fast-growing market for home computers costing less than $1,000.

  The computer wars delivered another nail in the coffin of home consoles. “Home computers replaced home video games,” said Chris Crawford, a member of Atari’s corporate research team at the time. “The price of a home computer system was only about twice that of a home video game system and the software was cheaper and much more plentiful. Combine that with the loss of confidence in the Atari VCS en
gendered by disasters such as E.T. and you can see why sales of the VCS simply collapsed.”

  Home computers did not, however, offer the big profits game makers were used to. While computer games were cheaper to produce, the market was smaller, the sale price lower and games stored on floppy disks were easier to copy illegally than cartridges. The move to home computers may have offered refuge from the chaos elsewhere, but it came at the cost of massively reduced profits, which in turn forced massive lay offs of developers. Sierra Online was one of the companies forced into such a situation. At the height of the boom it joined the console game bandwagon, only to lose huge sums when the bottom fell out of the market. It retreated to its computer game origins. “We were essentially bankrupt,” said Ken Williams, Sierra’s co-founder. “Luckily we had never had a bank line and weren’t really in a hole, we just had no money. By hunkering dwn and laying off almost everyone, we were able to start over.” Al Lowe was one of the game designers laid off by Sierra in the spring of 1984. “One Friday that spring they went from 120 employees to 40 in an afternoon. It was a black Friday,” said Lowe.

  The crash also spelled the end for the vector graphics game. Arcade operators were already fed up with the unreliability of these machines by the time the bubble burst. “A vector monitor has to control and dissipate much more energy than a raster monitor of the same size. More energy means more heat and more expensive parts. Bad for reliability,” said Atari coin-op game engineer Michael Albaugh. The difficulty of repairing vector games added to arcade operators’ frustration, said Logg: “Vector monitors are hard to replace. If your regular colour monitor goes down fine, no problem, every TV in the world is a monitor. Just fix the appropriate controls to make it work. But a vector monitor, that’s a different matter.”