Is Another Video Game Crash Imminent?

Meet the worst game in video game history.
Meet the worst game in video game history.

The year 1983 was a pretty big year in geekdom. That was when IBM introduced their XT computers. It was also when the DeLorean Motor Company, maker of the iconic DMC-12 car/time machine used in the Back to the Future trilogy, ceased production. And who would forget Return of the Jedi?

It’s also the year when the video games industry crashed hard. Here were some of the reasons why it happened:

  • There were too many bad games
    Some of the more well-known culprits include the atrocious Pac Man port, which barely resembled the original arcade game, and the much reviled E.T.Atari made 12 million copies of Pac Man even if there were only 10 million Atari 2600s in the U.S., but only a little over half (7 million) were sold. As for E.T., Atari only had six weeks to develop, manufacture, package and market the game, which was why it ended up like it did.

    In the end, Atari lost $536 million by the end of 1983 due to its bad games.In fact, so many bad games were coming out that stores couldn’t keep up, so they brought down the prices of the games. Prices plunged from $40 to $4.

  • There were too many consoles
    In 1983, there were a couple dozen competing against each other.
  • Publishers lost control
    There were many new companies that rushed to join the market, hoping to take advantage of the boom, but they didn’t know how to make games. Alas, publishers/console makers like Atari and Mattel weren’t able to regulate the number of companies making games for their systems, or the supply of games that were flooding the market.
  • Personal computers
    During that era, computers were aggressively being marketed as capable of doing more than consoles. Since these computers were priced competitively, more people were buying them.

    The result: Consumer confidence went down and the fledgling home consoles industry crashed. While the crash was bad for the industry, it didn’t affect the consumer, so not many realized there was a crash. But yes, there was a video game crash, despite what some people say.

    The arcades weren’t affected (it was a different industry) but publishers like US Games and Games by Apollo went under. The home console market shifted from North America to Japan. To avoid a similar fate, Nintendo and other console makers controlled distribution by imposing licensing restrictions and a lockout system, which remain today.

Are We Headed for a Second Video Game Crash?

By looking at the past, let’s see if another video game crash is in our future:

Factor #1: There were too many bad games
The kneejerk reaction would be yes, there are so many bad games right now, but let’s take it in the context of 1983: What suffered then was the home console industry, not the arcade industry, not the computer games industry.

The home console industry suffered because $40 console games were competing with $4 console games. Since consumers didn’t have any way to find out which was better (no internet, no reviews, no rentals), many end up buying inferior games. Remember that price is not indicative of quality.

Today, there are still many bad games out there, but I believe that because of channels like the internet, game reviews, rentals and social media, people can find out if a game is good, bad or popular. There is more choice!

Factor #2: There were too many consoles
In 1983, there were around 24 home console systems competing against each other. Today, there are three. This is not a factor.

Factor #3: Publishers lost control
As mentioned earlier, there were so many companies that rushed to join the market. They did so by reverse engineering to learn how to make games for proprietary systems. Today, console makers have tight control over who develops games for their system.

In fact, developers need to get approval from console makers before they can start developing for a specific system. Console makers like Sony even check a game’s progress at certain points, so rights can still change in the middle of development. Talk about tight control.

So no, loss of control can’t be a factor today.

Factor #4: Personal computers
Back then, computers were a source of competition for home consoles, and interestingly, these computers gained the upper hand during that time. Today, however, is a different story. The console game market has the upper hand and is earning more than the computer games market.

But regardless of each game market’s standing, their competition isn’t causing a crash anytime soon.

We’re Still Headed for a Crash

Despite the dissimilarity between today and 1983, I still think the industry could head for a crash, but under different circumstances.

The Old Republic cost $200 million to make.
The Old Republic cost $200 million to make.

Console games today cost a lot of money to produce, and budgets are steadily growing. Big names like Modern Warfare 2 had a launch budget of $200 million, which included marketing expenses, disc distribution and production costs.

Grand Theft Auto IV took $100 million to develop, but this doesn’t include advertising expenses yet. Star Wars: The Old Republic cost $200 million to make. For games to make up for these costs, they have to either sell several million copies or increase the price tag.

Either way wouldn’t be good for the industry.

Increasing the price tag would hurt sales. I don’t think the casual crowd or parts of the hardcore would be willing to regularly spend $70 or more for a game, so expect used game sales to increase when that happens. You probably know how that would turn out.

While the core gaming audience would keep buying the games they want, their numbers wouldn’t keep game companies afloat, especially with the growing launch budgets needed these days. This is why game companies aim for a larger audience, like what Nintendo did for the Wii, but this isn’t always sustainable because the casual crowd is fickle.

Even if the entire core audience and part of the casual gamers are buying big-name games, a crash could still easily come, because a game selling “okay” isn’t enough anymore for companies to survive.