In 1983 the video games industry was hit with a recession that almost ended the existence of video games of that time period. This period lasted for almost two years from 1983 to 1985. Many people and journalists who were critical were calling video gaming a fad. Numerous companies went bankrupt or stopped making video games entirely. This recession is known as the Great North American Video Game Crash or Atari Shock (Primarily in Japan).
Video games in the 1970s were dominated by arcade machines and by the end of the decade home game consoles were also getting popular. With the start of the 1980s, the video gaming industry witnessed a boom with numerous companies like Mattel, Atari, and Coleco dominating the market. The early 80s was a time of innovation and growth in the video game industry but there was instability in the industry as well. This was a time period when video games were becoming more mainstream and popular. Many new players entered the market ranging from industries to small developers that had no association or prior experience in game development in general.
Pacman was a big hit in the early 80s and it was not of the most popular video games in the arcades. Its successor Miss. Pacman improved on the formula and was a success as well. After the success of Pacman in the arcades, Atari wanted to replicate the success in the home game consoles. But with the limited constraints with the memory and short development period, the game was not well received by the consumers and critics alike. In 1982 Atari also brought the license to release the video game of the movie for 21 million. The game was developed in a time period of only 5 weeks. The game was negatively received and only 1 million copies of the game were sold off the 5 million manufactured. Many of the sales were also returned to the retailers furthering the damage. During this period video games were being published by small developers with very poor quality and many big developers were producing games that were more of a marketing token than the game. There were many clones of the same games with little to no redeeming quality and replayability. There were also numerous consoles unlike today with too many options that were no different from one another. With the abundance of supply and low sales of games, retailers started to remove stocks of video games and this led to the shrinking of the industry. Atari had lost $500 Million in 1983 and had to cut its workforce from 10,000 employees to just 400 employees.
During the 1980s there was a boom in the Personal Computers market as well. The PCs were much more powerful than consoles and they could play games and do many tasks like word processing and spreadsheets. The PC industry was unaffected by this low point of video game consoles.
In 1985 Nintendo Corporation launched the Nintendo Entertainment systems in North America and Nintendo ensured that only a limited number of games to be released under their license agreement. This ensured a certain threshold of quality for the games that were released for the system and Nintendo emerged out of the survivor from the video game crash. The Nintendo Corporation started to dominate the video game industry with an assurance of quality that was unmatched by any other corporation at that time. Many other entrants like SEGA also emerged after the crash. Nintendo with its approach and license and quality assurance of video games has left a big impact on the industry to this date. Video games industry has only grown since then and also overtaken other source of entertainment. Nintendo can be credited to provide the industry a trajectory that was severely needed after the crash of 83.