Are We Headed for a Second Video Game Crash?

Who doesn’t remember 1983? It was the year that Thomas Sankara became the president of the Republic of Upper Volta. It was the year McDonald’s debuted the “chicken” McNugget. And it’s the year that video games, once a viable and promising business, went (in economic terms) completely tits-up.

Custer's Revenge - tits up

Quoth Wikipedia:

There were several reasons for the crash, but the main cause was supersaturation of the market with hundreds of mostly low-quality games which resulted in the loss of consumer confidence.


Confession: i actually loved this game when i was a kid.

Because i hail from the copy/paste school of online research, i’ll allow Wikipedia to elaborate:

Unlike Nintendo, Sega, Sony, or Microsoft in later decades, the hardware manufacturers in this era lost exclusive control of their platforms’ supply of games. With it, they also lost the ability to make sure that the toy stores were never overloaded with products. Activision, Atari and Mattel all had experienced programmers, but many of the new companies — rushing to join the market — did not have enough experience and talent to create the games.

King Kong Atari 2600

Think you might want to add some – you know – *stuff* to this one, fellas?

Essentially, when Activison cracked the nut that allowed them to make games for the proprietary Atari 2600 system, that opened the floodgates for inferior knock-offs and low-quality carts. If there’s an Atari or Activision game on the shelf selling for $60, and a bin full of carts selling for $1 apiece right next to them, Joe Uneducated Mom is probably walking out with an armful of shovelware than a copy of Pitfall II.

Doomed to Repeat It?

Can you think of another period in history when there was a “supersaturation of the market with hundreds of mostly low-quality games?” Can you name a time when we have $60 games competing with a bin full of titles selling for $1? i can. It’s called “NOW”.

Fart App

We’ve transcended figures of speech: at some points the selection becomes, quite literally, shitty.

i’m no economist, but i have heard the phrase “supply and demand” bandied about. What we have now is an oversupply and an under-demand. There are too many people making games, and not enough people to play them – and more importantly, not enough people willing to pay fair market value for them. When the president of Nintendo takes to the stage at GDC 2011 and implores people not to sell their games for a buck, something alarming is happening. And when you get a trend of people reducing the cost of their games from $1 to FREE because $1 was too expensive, it’s time to consider jumping ship. And then setting that ship on fire.

When you have every community college boasting a over-subscribed video game program of one kind or another, but recent reports suggest that graduates’ success at landing an industry job is 12%, there’s a problem. Something ain’t right. The dam’s got to burst.

Out of Control

Am i out to lunch here, or are we headed for another catastrophic, landfill-full-of-E.T.-carts crash of the industry? And if we do crash, what will that crash look like? If you are an economist and you think i’m out to lunch, please tell me why.

49 thoughts on “Are We Headed for a Second Video Game Crash?

  1. Seantron

    As I’ve been completing 2 games on my own I’ve been feeling the exact same way. And also as tons of recruiters are begging me to work on Mobile games, I think you are exactly right. But I think there is an easy way out of this mess too.

  2. Mo

    I’m no full-fledged economist but I did get my degree on the subject. I think the gaming market is definitely heading for a decline but it won’t be a crash. At least, not like the one around the time I was born. (Feel old yet?) The problem with that era was that games were so new that there weren’t nearly as many aficionados.

    The “true” gamer nerds these days are far too versed in the industry to choose 60 bad games over a good one. I say “true” in the most general sense, even people who don’t know much about the industry can still do minor research and see what games are worthy.

    This opens up the topic of the internet and, with it, game journalism. Because there are review sites and bloggers (such as yourself), the people will remain, at least marginally, educated about the gamer world.


    1. Ryan Henson Creighton

      Not quite. With all of the people making games these days, we can’t rely on the “core” (read: “niche”) gamer population. That’s what’s screwed the console scene – a small group of very vocal and well-informed gamers, fueled by so-called journalists (who are actually just game enthusiasts with a spellchecker) demanding bigger and better and longer game experiences for the same amount of money, and publicly abusing companies who couldn’t launch on time or on spec … and worse, very vehemently bashing companies who DID launch on time and on spec.

      No – for games to survive, the audience has to expand … but that expanded audience’s introduction to gaming should not be through free-to-play and $1 titles, because it sets an expectation. People are being trained that games are cheap. They ain’t.

      1. zipdrive

        What? For games to survive, the audience must expand? why? Have you seen the audience for boats, roses or art photography expanding much in recent years? Do you think all games will disappear if this expansion does not happen?

        Yes, there’s a glut of games on mobiles and it’s not trivial to find the best games, but the spread of the net, with fellow gamer opinion and professional critics in it, makes it pretty easy to know what’s good. I don’t see 60$ sales crashing since the introduction of the 1$ game, or even free web games flash games, for that matter. Do you?

        1. Ryan Henson Creighton

          i think i see it more as two separate silos – big-ticket games and small-ticket games – and within those silos, “crashes”. By “crashes”, i mean that increasingly, it will be more difficult to play in the space. It’s already very costly and challenging to build a console game, but you have certain lower-quality, smaller players working within that space. i think they’ll fall by the wayside. Likewise, in the $1 game arena, it’s becoming increasingly more difficult to play in that space, because it’s coming down to who has the marketing dollars to rise above the noise. So it will cease to be a space that just anyone can play in any longer, despite the comparatively low barrier to entry to actually develop content. The importance and cost of marketing will trump the importance and cost of development.

  3. Iain

    Between north America, western Europe, and the new markets opening up in places like China and Brazil, there really is no shortage of demand. Just make better games, games that people actually want, then people will buy your games and not other peoples games. This means doing market research/analysis, just like any other business.

    1. Ryan Henson Creighton

      People don’t buy $10 games in the face of $1 games. This is how Wal Mart has achieved dominance. Why pay more for essentially the same stuff, when the average uneducated consumer doesn’t have a very attuned sensitivity to quality?

      1. Whiteboypolka

        I would submit for your approval, a little game by the name of Bastion. $15 instead of $10, but still successful. Also, I seem to recall Minecraft receiving some small attention, which even after a price hike is a modest $20.

        Quality still sells.

  4. Anthony Moralez

    I think your premise that shelves of $60 games are competing with bins of $1 games is completely off base. There is no direct competition between some massive AAA title like HALO and something like Fruit Ninja that my kids play on their iPod Touch. They are two different markets. There is of course some overlap, but they are on different platforms to begin with. Unlike in 1983 when $1 games compete with $60 games for the same console, we have $60 games for high end consoles and PCs and we have cheap and free games for iOS, android, and the browser. We also have plenty of shareware and great games for cheap on services like Steam and GOG. My point here is that games are not all lumped together anymore. We have a diversity of platforms and markets that they serve.

    Now if you want to talk about the App Store game market crashing, that’s quite possible. I’d guess the shovelware makers bail first because they can’t make it work on mountains of trash. It may also force out some good indie devs in the process, but they’ll learn a valuable business lesson about price wars and maybe we see them again.

  5. Nicholas Lovell

    I think you are right, we are headed for a crash. Unlike Anthony Moralez, I think that iOS is going to be the area that survives, not the first to collapse.

    The key difference this time is that, for most formats, there is no cost of distribution. You can distribute for free and it costs you nothing (if you distribute on the App Store, they swallow the cost of distribution). You can then identify the people who love what you do and allow them to spend a lot of money on your game (an average of $14 per transaction for US smartphone users, according to Flurry).

    On the other hand, if you are dropping $200 million on a single title (the launch budget of Modern Warfare 2, including marketing, distribution, manufacturing and console royalty, but excluding retail margin), you are in a different place. You are under much more threat.

    Console gamers often respond by saying “but I’ll always buy consoles, and AAA games”. That’s not enough. It won’t take everyone to shift to free-to-play games; it will just take *enough* people. How many is enough? It’s hard to say where the tipping point is but I estimate somewhere between 20% and 50%.

    That might precipitate the crash that you are talking about, even while half the market is still buying AAA games like crazy.

  6. paul

    I really don’t know much about economics but I do know how to type into a textbox on the internet!

    I would guess that the main difference between then and now is the information available. I remember getting games for the atari 2600 and at that time the game was judged totally based on it’s cover. I remember something like “Hey, I like the movie Krull and here’s a game that let’s my throw that crazy 5 sided blade. Mom puhleease can we get it!?” There really wasn’t any way to do any kind of research though (no Atari Power, no internet, no reviews, no game rentals) so the odds that they’d buy a crappy game that my brother and I would abandon really quick seemed to be quite high. Hence, lot’s a crappy games + lot’s of people getting no value for their money – any way to determine quality = Video Game Crash of 1983.

    Having said all that – seems like there’s a run on making games right now because of all the success stories and dev tools promising folks they can make a game in a weekend and be totally rich. Maybe that’s not exactly what they are saying but it’s the vibe I get. So, in my totally unqualified opinion, there may be a crash, but maybe not because the market is getting flooded with crap…

  7. Mark

    I get the feeling console games are too inconvenient and too expensive in the face of all the free knockoffs in the app store. I have enjoyed countless hours of free iOS games and am not inclined to buy many more.

    I suppose the way to hook all the free-to-players like me is to go the micro-transaction route after you’ve proved you’re selling something I want.

  8. FuzzYspo0N

    It is definitely interesting looking back in history, but I agree with the comment above.

    “But I think there is an easy way out of this mess too.”
    And it is…?

    Why sit on a chair rubbing your chin, pointing out the doom of an industry with no posed solutions? It makes it seem pretty similar to the opinionated gamers with spell checkers to me… :)

  9. Bwakathaboom

    I think the driving theme for the next decade is going to be the “economies of scale” collapsing in on themselves. There are limits to how much you can scale before inertia takes over and the costs of doing business skyrocket.

    Look at the state Hollywood is in. With budgets surpassing $200 million dollars for production alone, they’re entering a territory where you have to earn almost a billion dollars(!) to see a profit. They’re stuck and getting desperate.

    Games are in this territory now, too, but they lack the multi-tiered revenue stream of movies. A blockbuster film has theatrical (split between 3D and 2D), DVD, PayTV, premium cable, basic cable, streaming markets, etc. And the investment to move a product between those revenue streams is minimal.

    Compare that to an X-Box game which *only* earns revenue from the X-Box. To make a PC version costs six figures in retooling, a PS3 version is another million dollars minimally. The game must essentially be redeveloped for each platform.

    I think this collapse will essentially be the death of consoles. There’s just no benefit to getting wrapped up in a system where it costs $100+ million to make a product and bank your entire business on the first 6 weeks of sales.

  10. Bwakathaboom

    And if GoogleTV or AppleTV start hosting retail games like OnLive – or you can stream that quality of game to an iPad (like an OnLive app) then it’s really over for the consoles.

      1. Richard Davey

        And yet the Wii outsells the iPad 5 to 1. There will always be a market for a “gaming device” that hooks into your TV. Google TV has pretty much failed (so far) so won’t take this crown just yet, and not everyone wants to game on mobile/desktop. The difference between now and the 80s is the size of the gaming market. It’s insanely larger now than it ever was then, with a huge range of diverse mini-markets within it (facebook games, microtransactions, freemium, download titles, boxed retail, sponsored, in-apps, game ads, etc etc). The cost of AAA titles is indeed high, and I think they are feeling the crunch more than any other sector, but there’s no such thing as a “video game” any more, so an 80s style crash is out of the question.

        1. bob_d

          “there’s no such thing as a “video game” any more, so an 80s style crash is out of the question.”
          That’s an important point. The video game industry in ’83 was producing a pretty homogenous product, largely indistinguishable from each other. (Due to both technological limitations and recycled gameplay.) They also all relied on exactly the same revenue model that became increasingly problematic with low-cost competition. The AAA space right now is in a mini-collapse for some of the same reasons, but the diversity of the industry means that no generalizations can be made. Consoles are going to continue to take a pounding, but that just makes the PC and phone/tablet segments more important.

          “And yet the Wii outsells the iPad 5 to 1.”
          Err, not so much. In fact, almost the opposite. Although the Wii outsold other consoles by at least 2:1, it only sold some 9 million units in its first 18 months, as compared to 28 million iPads sold over (not quite) 14 months. If we look at the period of time since the iPad was released (and the Wii was already established as the most popular gaming console), the iPad has still been selling about twice as well as the Wii, despite the huge price difference between the two. That the Wii U has been designed to be more like an iPad is not a good sign for the health of consoles, frankly.

  11. Chris Harshman

    There may be some merit, but the gaming market is really divided up and only certain areas at this time are really prone to these issues without some radical outside influence.

  12. Mike Kasprzak

    Yaaaaay! We’re all gonna diiiieee!

    We also today have fantastic means of communication. I think we are already smack-dab in the middle of something new, not a crash, but an ever expanding bubble. A continuous stream of non successes (if your gauge is covering living expenses), but a high enough frequency of success stories that we just can’t discourage the people that need discouraging from participating in a no-win scenario… At least, we can’t stop them from re-mortgaging, taking loans, taking the big gamble before they are ready.

    Few success stories are truthful in the economics of how successful they really are, or how many failures lay in their wake.

  13. Mike

    I’ll throw in my $0.02. I haven’t exactly carefully researched this opinion or anything, so take it with a grain of salt:

    When “video games” crashed, it was also the _golden_age_ of arcades, it was the heyday of the Commodore 64 and Apple ][, and a couple years later the NES came out and everything quickly got as great as it ever was and much better! So if my vague sense of the timing on these things is right (I was born at the end of 82 so I didn’t really experience this stuff myself), the video game crash was really only the crash of the home consoles. Now there are more platforms and ways to get games than ever! So if there’s is going to be a crash, _what_ is going to crash?

    I kind of _want_ a crash to happen (“death to the games industry, long live the games”, in Costikyan’s words), but the shitty games of today aren’t shitty enough, expensive enough to make, and the flood of games doesn’t really stop a relative few hits from becoming super successful. We may well see slow declines, but a crash seems very unlikely.

    1. Rob

      Yes, a lot of this and what Rich said earlier.

      Also it’s worth noting how incredibly localised the “great” crash actually was. It was the death knell of a particular way of working in a particular place at a particular time.

      The “flood of cheap crap” (for want of a better phrase and apologies if that comes across as an offensive reduction, it’s not supposed to) is often bandied around as the absolute be all and end all cause of the crash but really, it’s just one tiny data point of many that caused things to collapse in the way they did.

      If it were the sole or majority reason, we wouldn’t be here. Because everywhere else, across the world, over hundreds of formats since, we’ve flooded the market with crap. Home computers had crap galore, the next generation of home consoles had crap galore, arcades had crap galore and ever onwards.

      Mastertronic would have killed home computing. Codemasters, Firebird and Alternative, all jumping on the bandwagon selling their wares for prices barely more than your average iPhone game would have caused a crash. It’s only a very brief period where the flood of crap was priced at a premium (yet even then, Pheonix Games and the like still managed to carve a perfectly fine business entirely based on flooding the market with crap at a low price! However, I suspect it’s also possibly a reason why the second hand market opened up and flourished the way it did but that’s a theory for another day)

      The times we’ve sat with xDirtCheap games attempting to compete with yExpensive games in such stark contrast isn’t just now, it’s pretty much the entire time we’ve been selling games for bar a tiny, tiny period of time. And yes, there’s more crap now than ever before (also more brilliant things!) but there’s more devices, more ways to game, more people who game.

      But that’s going back to Rich’s point again and he’s already been beautifully concise on the matter.

  14. Megan Fox

    It could certainly happen on iOS and similar marketplaces, but unlike in 1983, there’s more than one market. Even if consumer confidence in the open markets – iOS, Android, Facebook, etc – crashes due to over-saturation, the walled garden markets should be largely unaffected. The consumers and consumer expectations are quite separate.

    The fallout you’d see would be more one of staffing, where jobs would be increasingly difficult to get as the market was flooded with talent – but in terms of products and profitability, the effect would likely be nil to positive.

    … but even then, I really wouldn’t expect a crash. Instead, we’re just seeing more and more independent studios in those markets being ignored in favour of the top selling safe bets. We’ve got metrics in place to inform consumers now that simply did not exist in 1983, and they’re just funneling the sales to the top of the pile. On that, there’s already been plenty of analysis – it really isn’t anything new.

  15. Porter

    I definitely agree that we’re in dangerous territory right now, but I feel that there are too many people paying attention, and too many players in the game to let it all fall apart. We’ll likely hit some bumpy roads, but only some will fall off the wagon, while others will pimp out its wheels with diamonds.

  16. Matthew Fabb

    While giving away games for free might hurt Nintendo and console games selling titles for $40+ each, it might not exactly be hurting mobile games. A lot of mobile games even when they are being sold, are making more money from in-app purchases or ads. Now there has been some shady instances of people, especially kids not realizing this was real purchases, but that seems to have passed now that iOS asks for their passwords again. Monetizing free games, means the game has to be really good, because if the user stops playing it after a few seconds, then little money is made. When games are played and replayed over a longer amount of time, then more money is made off of these types of games.

    Also note that the smartphone market continues to have crazy amount of growth (I think in 2010 it was over 30%). All the time there are people who are upgrading their basic feature phones for smartphones and the industry has a very long way to go before it plateaus. While I don’t think the tablet market will grow as much as the smartphone market, it also has a huge amount of potential to grow to a lot more.

    So when looking at supply and demand and the demand grows by 30% each year, it’s hard to see that the crash will be too hard.

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  18. Sam

    “Because i hail from the copy/paste school of online research, i’ll allow Wikipedia to elaborate:”

    “i’m no economist, but i have heard the phrase “supply and demand” bandied about.”

    If you’re not even going to pretend you know what you’re talking about, why bother writing the article? Pointless speculative journalism based on pop culture knowledge of the 1983 crash, zero economic understanding and two Wikipedia quotes?

    The internet is full of uneducated morons passing off trivial, off-hand thoughts as worldly insights or exciting predictions, and this is still at the bottom of that pile. Stop filling the internet with your shit. Leave the economics to the economists.

    1. Ryan Henson Creighton

      First time visiting Untold Entertainment, Sam? Pointless speculative journalism it ain’t. We’re just a small step above something you might read on a (somewhat) funny coffee mug.

  19. KeyboardNeanderthal

    Not an economist, but I’d like to argue with the Wikipedia premise. Wasn’t the whole (US) economy in a bit of slump in the early 80s? Recession in ’82. I’d imagine that all sales of luxury goods (like games) would suffer and would be late to recover. The games industry at the time would have it hard with or without shovelware and, as is wont in a free market, at such times companies go bust.

    Ignoring that, I’d go with Anthoy Moralez. Does anybody actually have any research showing that bargain-bin takes money away from AAA or indie or otherwise? I’d say that you should be careful not to confuse business models. A gaming company can choose (to try) to be a swill-monger, a triple-A-behemoth or an indie author (read in faux-french) and whatever they choose, they’ll be competing with companies of roughly the same kind.

    1. Ryan Henson Creighton

      i thought video games were supposed to be one of those so-called “recession proof” industries, because the value of a game ($60 for 20+ hours of entertainment) can’t be matched by movies, sports, or other forms of entertainment?

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  22. Infernal

    I think the nintendo plea was against these small games that are selling for $1 that reflect similar content to games nintendo wants sold for $25 on their mobile platform of which the most recent version was failing due to a price on the level of full fledged consoles. No longer will people settle for spending that kind of money on games that others can implement through java/flash and go direct to market without suffering through Nintendo’s approval system. I see xbox live also soon to experience this problem where developers will drop the system in favour of Steam to the PS3 due to ridiculous approval/delay times to get content onto xbox live (let alone patches.. look at what happened to Monday Night Combat because of Microsoft’s delays in approving their patches).

    Will this stop people from buying $10 games that have appropriate content for $10? I don’t believe so, but that’s just my opinion. I expect throwaway/super simple games for $1. For $10 I expect something similar to AudioSurf or Beat Hazard (I am not affliated with either) or maybe even Magika (way more fun than $10)

  23. Russell Burrows

    Pauses Fallout New Vegas PS3

    As long as there are games like this then there will be buyers who want a three to six month experience for a paltry sixty dollars.

    The only “crash” is for Television watching as folks like me are tired of the ads and boreing TV “shows”.

    Television watching for me for 2011/2012 is close to zero in favor of SKYRIM!!, Rage, Borderlands 2, Resistance 3, Far cry 3, etc.

    With fewer eyeballs the only things crashing are Television viewing numbers, movie goers and radio listeners in favor of time being spent on GAMEING consoles.

    Shakes head at article and goes back to playing.

    1. Ryan Henson Creighton

      Looks like Fallout New Vegas is doing much for your spelling. #ohSnap!

      Just kidding, Russell. Thanks for your comment.

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  26. James

    Well, we don’t have an oversaturation of consoles, but I still do believe a crash is possible, for some different reasons:

    Big-name companies are now becomming like Atari themselves. Activision and Capcom is releasing the same game over and over again, instead of game-and-patch approach. Who would want to buy Marval vs Capcom again just for a few extra characters? This may be similer to see “Pac-Man” again on an Atari 5200 after the same game on the Atari 2600 with new colors and new graphics and all that s___. But this time, it’s not that there’s an oversaturation of consoles, it’s the fact that the industry is over greedy and the DRM and online passes along with buggy and lame games that could be the next crash.

    Now what’s going to come out of the crash? Perhaps we may not see $60 static games anymore, but rather, relying on user generated content and DLC that makes “modular” games.

  27. Lance Zimmerman

    I think you are a little out of touch. I work in the gaming industry, and the problem is not that there are games for $1, but that the AAA games are more often then not, not very well made. The big players feel that they can not compete with the indies because they want there old ways back, they want to be the gate keepers. They don’t want to innovate, that takes too much work. People are getting sick of paying $60 for crap, and I’m not talking about niche gamers only.
    The gaming industry is currently among the fastest growing industries, with a larger GNP then the movie industry. I don’t know where you are getting your information.

    1. Ryan Henson Creighton

      Let me clear a few things up:

      – “Gate keepers” is usually a term reserved for portal or platform owners (Big Fish, Facebook, Apple, etc).
      – “Their” is the possessive form of “they”, not “there”.
      – When you split up two independent clauses with a comma, it’s called a comma splice, and it’s ugly. Try using a period to start a new sentence or, if the sentences are related, you can use a semi-colon.
      – i assume you work in the games industry, not the gaming industry – unless you work in casinos or build slot machines?
      – i also work in the games industry. Not sure what you meant to imply?
      – “Then” is temporal. “Than” is comparative. Each time you used “then”, you meant “than”.

      In sum: don’t be uppity, you little pimple. Creighton can dish it out.

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  30. George Butter

    There was also a crash in 1977, so this would make it the third crash. The crash in 1977 was also caused by over saturation of shit games. Today there are shit games being produced. We are not however headed for a video game crash. The reason being in both 1977 and 1983 there were also a shit load of devices/consoles. Today we have four major platforms; PC, Xbox360, Playstation3 and Nintendo Wii. We also have minor platforms such as tablets and mobile phones. These days games cannot be released for Xbox, Playstation and Wii without permission. Therefore the quality of game won’t drop below a certain level. Now that video gaming is such a large industry and it is well publicised, especially through the internet it’s difficult for someone that uses these major devices to buy a game that they are not impressed with. Finally the video game crashes in the past have not necessarily been bad for the consumer; just the industry. A video game crash is like natural selection; the weaker companies that were producing poor products went bankrupt. Leaving the consumer with fewer but better choices. The next generation of consoles is soon to arrive, boosting the quality of video games to new heights. Producing video games of this standard require large budgets. Budgets that only the existing brands can acquire. Brands that have the knowledge and creative expertise to create beautiful games.

    1. Ryan Henson Creighton Post author

      i differ with a number of your points. We have more than four major platforms. You forgot to count web. Android and iOS are not “minor platforms” today, by any stretch of the imagination.

      “The quality of game won’t drop below a certain level.” Sounds like you haven’t taken a very close look at Wii shovelware or any WalMart discount bin lately.

      The next generation of consoles is sure to boost the SPECS of video games – not the quality.

      A game’s budget does not directly determine its quality either.

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