An oversupplied American console market collapses in on itself

What happened

Several pressures arrived together. Half a dozen incompatible consoles were fighting for the same customers, and anyone could manufacture cartridges for the most popular one without permission or review. Publishers appeared overnight, funded by the assumption that shelf space guaranteed sales, and shipped titles that were frequently unfinished or barely playable. Retailers, unable to tell one box from another, ordered heavily and then discounted the surplus to almost nothing, which trained buyers to wait for bargains and destroyed the margins that had funded development.

The scale of the decline is usually described as industry revenue falling by a very large proportion over about two years, but the figures that circulate come from contemporary trade estimates rather than audited accounts and should be read as approximations. What is well documented is the outcome: publishers closed, Atari's parent absorbed severe losses and eventually broke the company up, Mattel withdrew from the business, and specialist retailers dropped the category. Computers absorbed part of the audience, while the Japanese market was largely untouched.

Recovery required a manufacturer that controlled its own platform tightly, restricted how many titles a publisher could release, manufactured the cartridges itself and stamped approved products with a seal. American retailers first had to be persuaded that consoles were not a dead category at all, which is why the machine that revived the market was initially sold with a robot accessory and described in language that carefully avoided the discredited word.

The world at the time

Only two years earlier the trade press had treated growth as permanent, with new consoles announced constantly and cartridge production booked far ahead. Home computers were dropping in price at the same moment and offered more for the money. Nobody had experienced a downturn in the category, so warning signs were read as growing pains.

What it changed

Consumer electronics chains stayed wary of games for years, and American console manufacturing effectively ended for a generation. Leadership of the industry moved to Japan. The licensing rules Nintendo later imposed, resented by publishers, were a direct response, and the episode is still cited whenever a segment of the business expands faster than its audience.