Friday, December 27, 2013

Video Game Myth Busters - Did the "Crash" of 1983/84 Affect Arcades?


In recent months, I have come across a claim that I found a bit distressing – that the video game “crash” of 1983/84 was confined to home video games and didn’t really affect the coin-op industry. I first heard this claim on podcast about the crash. The podcast in question is normally quite excellent, so I was a bit surprised but didn’t think too much of it. I’ve heard the claim in a couple of other places since then, however. In the talk section for the Wikipedia article on “The Golden age of arcade video games”, for instance, one editor commented (though the comment is several years old) “The video game crash of 1983 was all about the glut in the home market - I don't see that it had any influence on arcades. I don't think it had anything to do with the end of the arcade golden age…” It appears that the article was revised based on this comment.

I’m not sure exactly what the commentator is trying to say here. It he's just saying that the consumer video game crash didn't effect the coin-op market or cause the coin-op crash , I agree (they were two different crashes), but if he is implying that there WAS  no crash in the U.S. coin-op video game market in 1983 and 1984, he’s not only wrong, but very wrong. From reading industry mags and looking at statistics, I can assure you that the industry itself (and the operators in particular) was convinced there was a crash. Perhaps he was thinking that the decline suffered by American arcade video games was more than compensated by Japanese games, which (in his mind) weren’t affected by the crash. This might work if we were only looking at manufacturers (though U.S. manufacturers were certainly affected – not sure about the Japanese). In terms of the coin-op/arcade video game industry, however, what matters is whether or not the arcades and operators were affected since they were the real bedrock of the "industry".

In any event, let’s look at a bit of the evidence. Both RePlay and Play Meter published annual industry surveys and year-end reviews. Here are some typical quotations from Play Meter (I could include similar quotes from RePlay, but they would be redundant). And remember that these magazines covered the coin-op industry, not the consumer industry.

From the November 1, 1983 “State of the Industry” survey:
“It has previously been a pleasure to present the Annual Subscribers' Poll results in our State of the Industry issue. But, for the first time, the task of reporting our findings is one of pain rather than pleasure. As everyone suspected, 1983 hit hard at all industry levels.”

“Average weekly collections at the operator level plummeted nearly 30 percent. Consequently, some 2,000 operators went out of business last year. Although there were just as many or more machines and locations this year as last year, just one thing was missing - about 2.5 billion dollars. That's a total of 10 billion quarters that found their way to other forms of entertainment.”
“Had those 10 billion quarters found their way back into the cash cans of our nation's operators, enough money would have been available to purchase as many or more new games than last year. But that didn't happen, and as a result, the whole industry suffered.”

“As it is now, home video games have all but closed the gap that once existed between the coin-op and home games. You can now play BurgerTime on your home TV set although the coin-op game was released less than 12 months ago. If the manufacturers fail to reinterest the young adult market, our Subscribers' Poll findings may be worse next year.”
“Like an inconstant lover, the video game spread heartache throughout the coin-op amusement industry during 1983”

“Video game operators who sought refuge in other type of equipment found little solace. As unproductive as video games were, they accounted for 85 percent of operator income. Earnings of all major type of equipment were depressed in 1983.”


“The lack of general public interest in this year's crop of new video games and home games hacked away at overall industry earnings. Leaving the national gross take for 1983 at $6.4 billion, off a whopping 28 percent, or $2.5 billion short of the $8.9 billion Americans put into coin-operated amusement in 1982.”

“The dismal returns marked 1983 as the first year since Play Meter started tracking statistics in 1976 that more operators reported profits falling instead of rising”
As bad as 1983 was for the coin-op video game industry 1984 was much worse - at least for video games (unlike in 1983, the bad times in 1984 were largely confined to video games)

From the November 1, 1983 issue
First, a comment from the editorial (titled “The Rape of an Industry” – though the “rape” in question primarily refers to the appearance of video lottery games).

“For the first time in the history of the State of the Industry report, we are not pleased to present the results of the survey. This year's findings are disappointing to say the least. With a few small exceptions, it was a very bad year all the way around. For the operators it was a bad year, for the distributors it was even worse, but for the video game manufacturers it was devastating.”

From the actual operator survey (titled “The Year of the Crunch”)

 “The decrease of 7.6 billion quarters in the cash cans of amusement machines nationwide dealt a crushing blow to the coin-operated entertainment industry in 1984.”

“On the brighter side of the coin, all other amusement machines performed surprisingly well despite declining video game revenues. The gross annual collections from all other coin-op amusement devices increased by $400 million in 1984.”

 “For the second year in a row and for the second time in the history of this survey, operators reported a decrease in net profits for 1984. Sixty-seven percent of the operators responding to the survey indicated that their net profits decreased since 1983.”
“The remaining operating concerns found themselves with fewer new video machines on location and considerably more non-video, electromechanical machines that require more service and attention. Likewise for the first time in the history of this survey, the total number of units on location dropped dramatically in 1984. The total number of amusement machines on location in the U.S. fell a staggering 12 percent from last year's record level. A net total of 224,065 amusement machines vanished from the streets of America in 1984. Had it not been tor a resurgence of pinballs, phonographs, and pool tables, that number would have been nearly doubled. Video games were undoubtedly, the hardest hit equipment type. There are slightly more than 400,000 fewer video games on location now than there were one year ago.”

“In 1981, when video games were averaging $140 per week in gross collections, 60 percent of all the video games on location were new games. Since that time, this percentage has dwindled rapidly. Today only a mere 15 percent of all video games on location are new games purchased within the past 12 months…”

“The video game glut of '82 and '83 has finally taken its toll on the industry's manufacturing community. Sales of new video games (including lasers) plummeted 44 percent down to 168.508 units in 1984. Comparing that figure to the industry’s high water mark of 563,000 units set in 1982, results in a 70 percent decline in new video game purchases over the past two years…”
Finally, the December 15, 1984 issue included an article reviewing the year titled (significantly) “1984 – Even Orwell Couldn’t Predict How Bad it Was”

The article opens:
“1984 - the year of the crunch.  Much worse than the devastation of 1983, the crash penetrated not only the operating sector but the distributing and manufacturing as well.”


Quotes are one thing - let’s look at some statistics:

First, some statistics on the industry in general.

CAVEAT: Bear in mind that these stats mostly come from the RePlay and Play Meter operator surveys, which were usually published in the November issues. Thus, they usually covered the period from late summer/early fall of one year to late summer/early fall of the next rather than coinciding with the calendar year.
Total Coin-Op video game dollar volume (in millions – Vending Times)

1978: 308
1979: 968
1980: 2,811
1981: 4,862
1982: 4.363
1983: 2,900
1984: 2,500
1985: 2,350
1986: 2,340

Note the huge drop from 1982 to 1983

Overall coin-op amusement industry dollar volume (in billions - Play Meter)

1980: 7.15
1981: 8.2
1982: 8.9
1983: 6.4
1984: 4.5
1985: 4.5
1986: 4

The 1982-83 drop isn’t quite so bad as the previous list, but the 1983/84 drop is similar.

# of video games on location (in thousands)

1978: VT 164.6
1979: PM 430.65, VT 232.8
1980: PM 540, VT 540.6
1981: PM 780, VT 1,100
1982: PM 1,375, VT 1,200
1983: PM 1,491.4, VT 1,150
1984: PM 1068.5, VT 1,001.6
1985: PM 1,095.4, VT 980
1986: PM 971.5, VT 920

This list, doesn’t look quite so bad (the total actually increased in 1983), but remember that this includes all video games – even old ones that weren’t making the distributors or manufacturers any money (and, as we shall see, operators probably weren't making much money either).
A better gauge is the number of NEW video games purchased:

# of new video games purchased per operator (Play Meter)
1981: 52
1982: 47
1983: 29
1984: 19


Here again, we see a huge drop-off.

Here are a couple of other lists that don’t seem so bad:

# of arcades (Play Meter – note that Play Meter defines an “arcade” as any location with 10 or more coin-op games)
1982: 23,687
1983: 25,092
1984: 19,565


# of street locations (Play Meter)
1982: 385,494
1983: 392,175
1984: 358,899


Here, we again see a rise in 1983, followed by a somewhat modest decline in 1984, but this does not tell us whether the locations were actually making money on their games.
Bear in mind that the coin-op business was largely an operator’s business. They were the “front line” troops and whether or not there was a “crash” from the industry’s perspective, largely depended on whether or not operators could money.

So here are some more operator stats:
Weekly Earnings Per Game – Video Games (R=RePlay, PM=Play Meter, VT=Vending Times)

1975: R $43
1976: PM: $40, R $42 (arcade), $35 (street)
1977: PM $44 (arcade games), R $54, VT $37
1978: PM $50 (arcade games), R $44, VT $36
1979: PM $64, R $58, VT $80
1980: PM $102, R $128, VT $100
1981: PM $140, R $110, VT $85
1982: PM $109, R $108 (arcade), $86 (street), VT $70
1983: PM $70, R $62, VT $48
1984: PM $53, R $60, VT $48
1985: PM $57, VT $46
1986: PM $57, VT $49
Note again, the huge drop from 1982 to 1983.

Estimated # of operators (Play Meter)
1977: 6,000
1978-1980: 7,500
1981: 9,000
1982: 12,000
1983: 11,000
1984: 9,000
1985: 6,000
1986: 4,000


Here, the decline in 1983 is modest and is followed by a much sharper drop from 1983-1986. Again, however, remember that these numbers do not mirror the calendar year.

Finally, from a different source, let’s look at the effects of the crash on three of the largest U.S. manufacturers.
Warner/Atari’s losses for 1983 and 1984 are quite well known, but I omit them because they were largely the result of the performance of the consumer division.

For Bally, Williams, and Centuri, however, home games comprised a very small percentage of their business.
For each company, the numbers given are revenues to the left of the slash and income (i.e. profits) to the right. Figures are in millions and the source is company annual reports.
NOTE that negative numbers (i.e. losses) are in parenthesis.


First, let’s look at Bally (fiscal year ended 12/31)
1980: $690/$54
1981: $885/$82
1982: $1,285/$91 – video game and pinball revenue: $435
1983: $1,176/$5 – video game and pinball revenue: $99
1984: $1,349/($100) – video game and pinball revenue: $67

I don’t know about you, but I’d call going from a $91 million profit to a $100 million loss (their first loss since they went public in 1969) in two years a “crash” if there ever was one. Yes, Bally had other product lines, but video games were largely responsible for their losses. You can see why Bally president Robert Mullane said in a January 1985 interview in the Chicago Tribune "The industry didn't decline. It fell off the cliff."

How about Williams (the #3 U.S. manufacturer of the early 1980s) – Fiscal Year ends September 30
1980: $80/$4.8
1981: $149/$19
1982: $136/$16
1983: $92/$9.8
1984: $57/($14)


Once again, note the huge loss in 1984.

Centuri’s numbers aren’t quite so clear, since they were losing money even before the crash (In addition, they changed their fiscal year from October 30 to December 31 in 1983).
1980: $6/($4.5)
1981: $61/$7.5
1982: $21/($2.9)
1983: $108/$2.8
1984: $135/($2.2)


Note too that in 1983 and 1984, a good amount of the total revenues came from Outdoor Spots Inc. More significantly, in December of 1984, Centuri’s board of directors voted to drop video games entirely, a clear indication of how poorly they were doing.

Finally, while reliable production runs for individual games are hard to come by, the numbers we have indicate that the top selling coin-op video games from before 1983 sold far more copies that those in 1983/84. Since it is public, I'll use Wikiepedia's list rather than my own (though I feel mine is more complete). Of the top 25 games on that list, 18 were released between 1979 and 1982, 6 were released after 1990, and one was released in 1986. The top selling game released in 1983 27th and sold just 16,000 copies. Sure, some of the 1982 releases were still collecting quarters in 1983 and 1984. And Pole Position was basically a 1983 game (I'd guess it was the bestselling 1983/84 game, with around 21,000 produced), but to me that only illustrates the fact that the "golden age" was over. 

In summary, then, I don’t see how anyone could plausibly claim that there was no crash in the arcade video game industry in 1983 and 1984 – though maybe I’m not looking at it the right way.

 

 

11 comments:

  1. Well, there are really two separate issues here. Was there a crash, and was that crash related to the collapse of the home market. There is no doubt an industry shakeout occurred in coin, but I do not believe it was related to the console market crash.

    Coin-op's problems started in the middle of 1982 when new game sales began to stagnate. This is also when coin-drop peaked, since Playmeter is, I believe, an August to August reporting period. Bally/Midway did not feel much of a crunch in 1982 because Ms. Pac-Man was selling so well, but some of the smaller manufacturers were starting to feel the heat. By 1983, the market was clearly overextended and over saturated on the operator side, so arcades and street locations began to fold. Since many of these operations were buying games on credit from distributors, they defaulted on payments, which sent a shock straight back through the whole chain that began to impact the bottom line of the manufacturers.

    The arcade market bottomed out in 1984 and then began to rise again. I think conventional wisdom is that Karate Champ began a surge in the popularity of martial arts games, Gauntlet introduced 4-player coin drop, Hang On and Outrun became immensely popular in larger arcades, and Williams revitalized pinball with special-effects-heavy games like Space Shuttle and Fun House. By 1988 or so, redemption games greatly boosted the fortunes of the coin market as well. Video Games never really completely recovered from the crash, providing closer to 45% or 50% of total arcade revenues by the end of the decade rather than 90%, but there were spikes around specific products like Double Dragon and, of course, Street Fighter II. So to summarize, market crash starting in mid 1982 with recovery (for coin generally, not necessarily video) beginning in 1985. Of course, you have access to more data specifically focused on the coin industry than I do with RePlay and Playmeter, so you might have some deeper insights on some of those issues than I do.

    Consumer, meanwhile, was soaring high in 1982, though this was partly because Atari was doing a very good job of hiding a soft market in its financial data. The problem in coin appears to have been largely driven by an over expansion on the operator side driven by the immense and faddish popularity of Pac-Man, while the problem in consumer appears to have been an over expansion on the development side once third-party publishing really started to take hold. Too much product on the market drove prices so low that publishers could not recoup development costs. This price crunch grew even worse when most of the new companies established in 1981 and 1982 to create games collapsed and could not compensate retailers for unsold stock, which meant they pretty much had to resort to dumping. In 1983, cartridge sales peaked, but dollar value began to enter a sharp decline due to heavy discounting. The market bottomed out in 1985, when the dollar value hit its low point. In 1986, the market began to recover largely thanks to Nintendo, with Atari also playing a key role in bucking up the low end of the market (Sega was really a nonentity in all of this. Most people erroneously believe that Sega came in second to Nintendo in this period, but Atari cleaned their clock in the late 1980s). So to summarize, over saturation of product leads to a market crash starting in 1983 with recovery beginning in 1986.

    Now, I have oversimplified greatly and left out several other important factors for both coin and consumer, as a complete analysis of these market crashes would take far more space than a single blog comment. I struggle, however, to find a significant causal link between the two market crashes, which happened on slightly different cycles and were primarily driven by failures in different links in the supply chain. Anyone who says there was no crash in coin though, like the Wikipedia user you mentioned, is clearly mistaken.

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    1. Thanks for the excellent comments.
      What caused the coin-op crash is a very different topic and could take up a post or three on its own.
      I was mainly writing to combat the notion that there was no coin-op crash. I was particularly annoyed by the Wikipedia post because, as often seems to be the case with its video game articles, it seems as if someone who really wasn't very knowledgable on the subject had altered the article without doing any research.
      Interestingly, in 4/83 RePlay asked operators why they thought people weren't playing video games as much, asking them to choose from 4 reasons. Strangely, operator saturation wasn't even on the list (though it was discussed in a number of articles and I agree that it was a major cause).
      The top choices were: video games were just a fad (38%), failure of new games to attract players (27%), competition from home games (21%), and the recession (14%).
      They asked again in 4/84 with 37% opting for the fad explanation, 30% blaming it on a tight economy, 22% on home games, and 7% on poor appeal of new games. Asked who was most responsible, 43% blamed the manufacturers, 13% operators, 7% players, 6% lawmakers, 4% distrtibutors, and 27% "all of the above".
      I don't know how much the first question really tells us, however, since it seems clear that those were the only four choices they offered.
      I certainly agree that operator saturation was a huge issue, as was operator economics. In 1984, Play Meter reported that the average video game had to make $105 a week for 12 months for the operator to break even. The fact that the games actually made $53 a week with a shelf life of 8.5 months was a recipe for disaster.
      As for operator saturation, other than buying games on credit, another issue was that many of the new operators that came into the industry in the boom years had no coin-op experience.
      The problems in coin-op were actually recognized as early as 1981, or even earlier.
      There have been a number of other contributing factors mentioned: competition from the Japanese (who could make games much cheaper), failure of manufacturers to reinvest money into game development (many branched out in to casinos, amusement parks etc.), increasing regulation and legal barriers, etc.
      One blogger mentioned a factor I don't recall hearing anyone else bringing up: the fact that, due to societal changes, parents were no longer willing to leave their kids at arcades unsupervised (though that was related to the whole banning thing). Not sure I agree with that one, but it was an interesting suggestion.

      One of the explanations I've always found dubious is the "Atari did it" theory, which claims that Atari's crash-and-burn took down the entire video game industry, including coin-op. That may be true for consumer, but I don't think it works for coin-op. Yes, Atari had a big share of the coin-op market, but not THAT big.
      I also agree that the arcade video game industry never really recovered. Yes, there were some very popular/excellent arade video games produced after 1984, like Gauntlet, Street Fighter II,, Dance Dance Revolution, etc. but not nearly as many as in the early 1980s and they didn't dominate the coin-op industry. (Plus, IMO, arcade video games just weren't the cultural phenomenon they were in the golden age - but that may just be because I was a kid back then).
      The diversification in the industry is another interesting topic.
      Even in 1983, operators were starting to turn back to the "three Ps" (pool, pinball, and phonographs) but more importantly, IMO, was the new types of games that were appearing. Not just redemption games, but things like dart games and even video poker (though a lot of traditional operators avoided them). A number of operators even turned to pay phones after the AT&T breakup (though this was more out of desperation).

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    2. "Even in 1983, operators were starting to turn back to the "three Ps" (pool, pinball, and phonographs) but more importantly, IMO, was the new types of games that were appearing. Not just redemption games, but things like dart games and even video poker (though a lot of traditional operators avoided them). A number of operators even turned to pay phones after the AT&T breakup (though this was more out of desperation)."

      Oooh, payphones!

      And yeah, nothing says fun like the 3 P's!

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  2. Nothing much to add after Alex's post. My concern is the opposite of yours Keith. Not that someone was denying there was a coin-op crash (which seems silly if they actually were), but that it usually gets mushed in to the consumer crash when those are two different industries and crases. The crash of '83-'84 was a consumer industry crash, coin had already been going through it's own. Gary Stern first introduced me to the idea of the coin crash (during a visit back in 2002) and how (in his opinion) the coin industry was just starting to come out of it's own crash when the consumer industry was getting hit hard with it's own. The reason being because they were on different cycles - because they're separate industries. I'm thinking that's most likely the context the person you quoted from Wikipedia meant, and he'd be right in that context: the "crash of '83-'84" as it's known was a consumer crash. Coin had it's own.

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    1. Thanks. Maybe I was misreading his intention.

      Part of the problem is that the comment referred to "the video game crash of 1983" without specifying that he was talking about the consumer crash only.
      There was a "crash" in both consumer and coin-op in 1983. It may not have started in coin-op in 1983 but then again, it may not have started in consumer in 1983 either (Atari consumer was having issues in 1982).

      A lot of people use the term "the video game industry" when they seem to be talking about consumer only (and specifically consoles). There also seems to be a bias toward consoles in video game history in general (if so, it's understandable since the arcade video game industry isn't nearly what it was in 1980s and there probably isn't nearly as much interest in coin-op history).

      Why the coin-op crash occured or when it started are separate issues and I'm not sure there is a definitive answer. I've had industry people tell me that they saw it coming in 1981 or 1980 (or even that it started then) but you always have to be careful talking to people years after the fact when hindsight (and even memory) is colored by later events. That's why I try to look at actual numbers and opinions at the time. Though even here you have to be cautious. Yes, there were voices in 1980 and 1981 portending doom and gloom, but there had been similar naysayers since the days of Pong all the way up to 1984.
      One reason I like the trade magainzes and their annual polls/year-in-review articles is because they give a good overview of what operators and others were feeling at the time.

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    2. When people are talking about the "crash of '83/'84" (as a title) they're usually referring to the famous consumer crash. Though again, most do not realize that was a consumer specific crash and are lumping everything together, which is why that guy was most likely differentiating.

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  4. I would also pose in relation to your statement about "Atari taking the video game industry down" being a myth, that the notion of there being a "video game industry" itself at the time is a myth. What you had instead were various industries that had video games in them. Coin, Computer and Consumer were all separate industries with their own resources, markets, cycles, etc. You had some companies that were in multiple industries like Atari, but Atari can really only be held responsible for taking down the consumer industry (of which it owned 80% of according to news reports at the time).

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  5. A while back I put together a graph showing the number of new arcade titles released each year based on data from KLOV. When I first did the graph I expected to see a big drop in 83, but instead it just levels off, but I think this still supports what you are saying in this article when you look at the rapid increase in he number of titles leading up to 82/83. Anyone looking at this graph would have to conclude something big happened to the industry in those years.

    http://atarihq.com/danb/images/arcade.jpg

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  7. The video game crash had affected me, as my dad told me after the new report of the crash of videogames on tv, that "it's over, no more videogames, it's just a fad, the arcades will all close and videogames will be gone forever." My dad always called me a videogame freak, as I was always playing the Atari2600 whenever I visited him.
    True it was sad that a lot of video arcades and amusement centers had closed it's doors for good. Even I remember going to the Smithaven mall where Time out was and coming there one day to see an empty arcade. My heart was broken and I just starred behind the closed gates and just reminisced on my youth and how much I loved and remembered the arcade and the many games they had and enjoyed playing.
    Since then, a few indoor fleamarkets had an arcade, but didn't last long as they all closed and left as well. I always thought that the mall wasn't a mall at all without the video arcade, and even today I still don't feel the same about going to the malls to shop.

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