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The full episode, in writing.
In 1983, American home video game revenue topped $3.2 billion. Two years later it was $100 million — a 97% collapse. The cause wasn't lost interest. Atari alone had flooded the market with so many cartridges that the unsold ones were buried in a New Mexico landfill in September 1983.
The Atari VCS, renamed the 2600 in 1982, held 58% of the home console market that year. ColecoVision held 17%. Both faced a glut of competitors — the Magnavox Odyssey², Mattel's Intellivision, the Atari 5200, the Vectrex — each with its own incompatible library. Then came the third parties. Activision was founded in 1979 by four ex-Atari programmers who wanted public credit and royalties; their 1982 hit Pitfall! sold over four million copies and proved anyone could build for the 2600. By 1983, AtariAge documented 158 different vendors releasing 2600 games. The number of Atari titles on shelves jumped from 100 in June 1982 to over 400 by December.
A 1983 Goldman Sachs analyst noted that consumer demand had risen 100% year over year while manufacturing output had risen 175%. Atari CEO Raymond Kassar had predicted saturation would arrive when half of American households owned a console. The crash hit at 15 million machines sold — roughly a third of his estimate. Meanwhile Commodore dragged the price of the C64 from $499 to $300 in June 1983, then below $200 at some retailers, with William Shatner asking in VIC-20 commercials, "Why buy just a video game from Atari or Intellivision?"
Stores returned unsold inventory to publishers who had no cash to refund them. Cartridges that had retailed for $35 ended up in $5 discount bins. Games by Apollo and U.S. Games folded. By mid-1983 Atari had lost $356 million and laid off 30% of its 10,000 employees. That September it buried 728,000 unsold cartridges — including E.T. and Pac-Man — in a landfill in Alamogordo, New Mexico, an act it never publicly acknowledged until diggers recovered the cartridges in 2014.
Warner Communications sold Atari's consumer division to Jack Tramiel in July 1984 after $536 million in cumulative losses. Magnavox left the console business entirely. Imagic withdrew its IPO the day before going public.
On July 15, 1983, two new consoles launched in Japan untouched by the American crash: Nintendo's Famicom and Sega's SG-1000. By 1986, 19% of Japanese households owned a Famicom. When Nintendo released it in the United States in October 1985 as the Nintendo Entertainment System, every cartridge had to carry a proprietary 10NES lockout chip and pay a 30% royalty per unit, capped at five titles per publisher per year. Every platform fee a developer pays Apple, Sony or Microsoft today descends from that 1985 policy.