The Video Game Market Begins Its Collapse

Through 1983, the North American home video game market entered a collapse that would ultimately shrink US industry revenue from an estimated $3.2 billion down to roughly $100 million by 1985 — a decline of approximately 97% in under two years.

The visible symbol of the collapse

Atari’s E.T. the Extra-Terrestrial, rushed through development in about five weeks to meet a holiday release deadline, became the most widely cited symbol of the crash, with unsold inventory — including but not limited to E.T. cartridges — buried in a landfill near Alamogordo, New Mexico in September 1983. A 2014 excavation, conducted with permission as part of a documentary project, confirmed roughly 728,000 cartridges had actually been buried there.

What was actually driving the collapse

Market oversaturation from too many competing consoles and an excess of low-quality, rushed games diluting consumer confidence, combined with direct competition from home computers like the Commodore 64 that could play games and also perform other useful functions, together drove the decline — no single game or company caused it alone, whatever E.T.’s outsized reputation in popular retellings might suggest.

The damage to Atari specifically

Atari itself lost approximately $356 million during this period and laid off roughly 30% of its workforce, shifting manufacturing overseas as part of a broader company-wide retrenchment — the most visible single-company casualty of the broader industry-wide collapse.

What eventually reversed the decline

The market’s recovery, beginning around 1985, was led by Nintendo’s entry into the US market with strict third-party publisher licensing and quality-control requirements — a direct structural response to the unchecked, quality-diluting oversaturation that had characterized the pre-crash market.

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