Before the Crash: Early Video Game History

The Video Game Industry Crash of 1977

The Video Game Industry Crash of 1977 81 Mark J. P. Wolf Though the Great Video Game Industry Crash of 1983 is well known, it was not the first time the industry experienced a crash. The crash of 1977, although not as big or long-lasting, was the first to test the home video game industry. In some ways, it was a warning to the industry and was predictive of the Great Crash of 1983, with which it shared similar conditions: burgeoning commercial success encouraging high expectations, cheapened product glutting the marketplace, tough competition forcing the slashing of prices, and technical advances resulting in a new generation of technology that quickly outmoded older systems and sent them into obsolescence. Based on the patterns of other electronics industries, some foresaw the 1977 crash. To understand why it happened, we must first look at the conditions that preceded it and the context in which it occurred. Early Rapid Growth The first coin-operated video games, Galaxy Game and Computer Space, appeared in 1971, and the first home video game system, the Magnavox Odyssey, and the first hit game, PONG, appeared in 1972. Video games caught on, and by mid-1975, the Odyssey had sold over 350,000 in three years.1 Seeing the Odyssey’s success, Atari followed up its arcade PONG (1972) with a home version of PONG in 1975, and both had a growing number of imitators. More arcade video games began appearing, and in 1975, Magnavox further released two new home game systems, the Magnavox Odyssey 100 (model 7010) and Magnavox Odyssey 200 (model 7020). By 01 Wolf text.indd 81 3/20/12 12:54 PM 82 Mark J. P. Wolf the end of 1975, an industry boom was underway. “TV’s hot new star: The electronic game,” in the December 29, 1975, Business Week, described the enthusiasm: “It’s a sell-out item,” crows a spokesperson for Sears, Roebuck & Co. stores in the San Francisco area. “We can’t get enough of them,” says a representative of Bloomingdale Bros. in New York. “I don’t know how many we could have sold if we had them in stock,” wails a buyer for a major West Coast department store chain. The object of these retailers’ holiday cheer is yet another consumer product from the high-technology workshops of the electronics industry—the video game. But consumers’ eagerness to pay $100 and up to convert their television sets into miniature athletic fields virtually guarantees a rush of competition next year. “The toy and game market is limited only by our imagination,” says Scott Brown, consumer marketing director at National Semiconductor Corp. “It can be as big as the calculator market is today.”2 In addition to giving a sense of the optimism of the time, the article compares the game market to the calculator market, a good reminder that home video games appeared as a part of the larger home electronics industry and must be understood in that context. Video games were just one of many innovative products that emerged in the years following the appearance of large-scale integrated (LSI) circuits and microprocessors, such as pocket calculators, digital watches, and later, home computers. The same article even goes on to speculate about the home video game industry’s near future: “A big question is whether the entry of National and other semiconductor makers will create the same cut-throat price competition that has bloodied the calculator industry.”3 The question was an apt one. In the early 1970s, calculator prices dropped rapidly as more and more models entered the marketplace. LSI circuits allowed thousands of circuits on a single chip, enabling electronic devices to be made smaller and smaller. As an article in the October 9, 1971, issue of Business Week recounted, Just three years ago it was unfeasible to make a battery-powered calculator designed to fit in the operator’s hand. The first “pocket” calculator, which was made in Japan, did not appear until 1969. Requiring dozens of integrated circuits, it was bulky as a large paperback book and was priced at a hefty $400. 01 Wolf text.indd 82 3/20/12 12:54 PM 83 The Video Game Industry Crash of 1977 But late last month Bowmar Instrument Corp. of Ft. Wayne, Ind., began shipping the first of its new cigarette-pack-sized calculators . They are made entirely in the U.S. with...