The date is April 27, 2014 and after years of urban myths,
rumors, and attempts to prove or disprove them, a mix of video game
enthusiasts, archaeologist, tech writers, hucksters, filmmakers, and newsmen
(looking for a story on a slow news day), all descended on a garbage dump outside
of Alamogordo, NM for the “dig” of a lifetime. This would be the day that a
site within the dump is finally excavated to find out if, in 1983, Atari dumped
video game consoles and games here. After a long and arduous day the urban legend would
prove to be far more fact then fiction, except for a few details that many
choose to overlook.

You see the urban legend says that the dump was all the
result of Atari’s E.T. video game,
supposedly the worst video game ever made, and ostensibly so bad that “it made
the already bad Atari, even worse and… crashed the video game industry” keep in
mind I am paraphrasing, but this is the legend. Of course if you’ve been looking
up the “dig” online you’ve probably read over and over again about all the
copies of E.T. dug up, but you
probably aren’t hearing about the fact that many other games including classics
like Centipede, and Space Invaders were dug up as
well.

Might I also add that I’m also sick of ex poste facto video game journalist
writing about how awful the Atari 2600 was, when most of these writers grew up in the
era of the PS2, and original XBox, and sneer at what came before.

So with that said I’m not going to go into any more details
on the “dig”, you can find more fac,t and fiction on that in other places. rather,  I’m
here to help make sense of it all in a way no one else has bothered to yet. If
you’ve read my blog before you know I’m not afraid to get into the economics,
and accounting behind video gamed. The fact of the matter is if you dig deep
enough you may find that a system or video games success or failure may not
necessarily be based on how good or bad a system or game is, but rather on the
huge role economics plays.

Like it or not the Atari 2600 was huge success, and carried
on a 15 year legacy that would start in 1977 and end in 1992. It may not have
been the best system of its era, but it was far more prolific, and most
Americans living in the years between 1977 and 1992 encountered an Atari 2600
at one time or another, and more likely owned one. The Atari 2600 and its 2nd
generation console counterparts all provided us with a look at the future of
video gaming. These were systems that unlike their 1st generation
counterparts allowed us to switch out games, and even buy new ones some of which were
ports of arcade games. Now keep in mind that the Atari 2600 wasn’t the first 2nd
gen system, but it was the one that had the most advertising dollars, which
helped to get it in to households quicker especially in Christmas of 1977.

To say the least it didn’t take long for the 2600 to spread
like wild fire, and take hold in American pop culture. After that all Atari had
to do is sit back and wait for the money to role in, which it did by the
millions, and to say the least that caught the eye of many wanting a piece of that pie. Of course we
would see some great games from 3rd parties like Activision and
iMagic, both companies comprised of old Atari programmers, but there where many
other producers that weren’t as awesome. Pretty soon it was perceived that
making your own Atari games and/or knock off hardware, was as good as printing your
own money, and this is where the issue’s start.

You see Atari for some reason or another never gave any
thought as to whether or not copy cats would reverse engineer their games or
systems, and then proceed to do their own things with them. So when Atari executives and
programmers left Atari in 1980 to form Activision, Atari itself was blindsided
and immediately sued, just to find that their legal position was nowhere near
what they assumed it was. This opened the floodgates, and 3rd party
games and even hardware, entered the market on level that increased almost
exponentially until the “Crash of 1983”.
After that the $40-$60 a game price tag on Atari 2600 games suddenly
vanished and games began to show up in bargain bins for a $1 or less just about
everywhere imaginable. After this some 3rd party developers would
disappear for good, while others would expand development into other systems.

The video game industry is an interesting little segment of
the economy. It’s almost purely consumer driven, since there aren’t many
corporate or government purchases of such products. Also, even dating back to its early
70’s 1st generation roots, it’s still a fairly new industry. With
that said these two components give us a great look at an almost text book and
simple version of an economic marketplace.

If you didn’t take Economics in high school or college than
here is a crash course using our beloved video game industry as an example. You
see the root of economics always comes down to supply and demand, two
factors that tend to work in opposition of each other. For instance the less that
is supplied the higher the demand, or the more that is supplied the lower the
demand. In addition to this two other factors price, and quantity (more realistically revenue) both determine, what equilibrium price a product will eventually sell at to bring supply and demand together

In the case of Atari and the “Crash of 1983” we’re looking at
a supply exceeding demand. When that happens it means too much is being
produced or that the price point is too high for the products, in this case its the former. Between 1977 and
1982, $40-$60 a game was what is called an equilibrium price point, this
was where Atari was able to sell the most games at the biggest profit margin.
Atari would only supply x amount of games at a particular price point to keep
people buying them. Once third parties got over-involved in this marketplace, it
began to change drastically. In the early days of Atari competing with
Activision and iMagic we saw an example of Monopolistic
Competition, were firms selling similar but slightly differentiated
products, all competed in the same marketplace. If they cooperate and respect
each other, each competing firm can make some pretty good money and even grow their respective marketplaces.In this case though as third
party developers flooded the market, consumers had more options than ever, and a
huge supply of games. Suddenly $40 – $60 for an Atari branded game didn’t seem
like such a good deal. Why pay $50 for Pac-Man
from Atari, when you can buy Lock N’Chase form M-Network
instead for $20? This line of thinking, suddenly crashed the whole pricing model as the equilibrium
price dropped.

This meant that Atari had a huge surplus of games, and very
limited alternatives in those dark days of 1983. This brings us back to the
“Alamogordo Dig”, or should I say 31 years forward into the future. Atari
choose to dump the games due to very simple economics, and a little accounting
too. It had nothing to do with E.T. being
a bad game, E.T. was just a victim of
circumstance. You see if Atari had sold all those games it would have flooded
an already over-saturated marketplace driving down prices even further, and
perhaps even destroying the industry. Not only that but Atari had to pay
licenses, and other fees on games sold, for Atari the choice came out to
deciding between a little red ink, or a hell of a lot of it. For Atari they made
the best choice, even if we disagree in our modern world, as sad as it is or was
burying this overstock was a choice that kept Atari alive, and possibly the
video game industry as a whole.

With that said this does leave us all with one very perplexing question question. If Atari and the rest
of the video game industry went down in flames, because Atari choose to sell
rather than bury those games, do you think Nintendo would even have bothered to
develop a system or if they did even try selling it in the U.S.? Perhaps before
painting Atari with shame as many have tried to,  we should thank
Atari for taking one for the team and keeping the ball rolling.

Luckily, Nintendo made the Famicom, and that later reached our shores as the beloved
NES. But, Nintendo paid close attention to the lessons of 1983, and looked at what
simple economics had to teach us about it. Nintendo learned from Atari’s
mistakes and put lockout chips in their systems. These chips made it necessary
for 3rd party developers to get permission and licensing from
Nintendo in order to sell games on Nintendo systems. Although Nintendo claimed this
was for “quality” purposes, it also allowed them to control supply and keep the
market from over-saturation similar to that of Atari in 1983. Competitors to come such as Sega, Sony,
and Microsoft would be sure to follow these practices as well.