Time for a little history lesson. Most of you already know about this period, but it was a very strange (traumatic, even) time to be a gamer, and since I was there, I'm going to add my own two cents for the Internet record.
From a 2009 perspective, it's hard to believe that today's robust videogame industry was very nearly strangled in its crib back in the mid-1980's. The industry had grown very big very quickly, but for a number of reasons that growth could not be sustained. The Great Crash (roughly 1983-1985) knocked a number of innovative companies into bankruptcy, and caused many talented game creators to seek more reliable lines of work.
Like all such events, it wasn't very clear what was going on for those of us living through it at the time. My memories are fuzzy, and I can't point to any single turning point -- it was more of a slow, depressing slide into a quiet period. The most immediate impact looked like a positive one for the average gamer -- a huge market correction was taking place, and games that previously sold for $30 now sported a more reasonable $5 asking price in discount bins across the country. Consoles and 8-bit computers were dropping rapidly in price as well. The kicker, of course, was that after those games and consoles had cleared through the retail channels, nothing followed. NOTHING. Arcades shut down, game magazines ceased publication, and many, many companies went under.
What seems to have happened is this: The industry grew too fast for its own good, tomorrow was assumed to be inevitably brighter than today, and quality suffered as everyone from Quaker Oats to 20th Century Fox jumped into videogame publishing. Gamers were confused by a surplus of mediocre titles, and grew wary after investing in such highly-touted but poorly-received titles as the Atari 2600 Pac-Man and E.T. cartridges. The home technology was also showing its age as arcade technology rapidly evolved -- the games that worked well on the dominant consoles were beginning to pale in comparison to arcade games, but there was no new, affordable hit hardware ready to provide a conversion platform. So a lot of gamers simply stopped buying new games - they contented themselves with their existing collections, or moved on to other interests. The arcade industry lost the home-version revenue stream, and as general interest waned and arcades disappeared, fewer coin-op games were released. The industry everyone had seen as a fad turned out to actually have BEEN one, or at least it appeared so for a time.
Retailers were badly burned by the glut of unsaleable games, so they got rid of what they had and stopped carrying them altogether. Many of these stores had stocked up blindly, anxious to cash in on video games without considering what they were carrying or evaluating the longer-term picture -- the first time I ever saw the Colecovision for sale in my hometown was at an Osco drugstore. As retailers turned tail, dumped inventory and ceased ordering, video and computer game companies were stuck with rapidly aging unsold product and mountainous debt obligations, taken on when the industry seemed to have nowhere to go but up. The sudden revenue shock was fatal to many business plans founded on a model of constant growth.
So everything disappeared -- not all at once, but within the space of a year or so it became apparent that videogames as we had known them were utterly dead. The videogame kiosks at K-Mart and Prange-Way were replaced with towel displays, and the local arcades shut their doors or converted into family Skee-Ball parlors. I remember reading an article about the crash DURING the crash, in one of the final issues of Computer Entertainment magazine, itself a hasty rejigging of the classic Electronic Games magazine, trying to survive as the industry shifted and foundered. But the computer gaming scene was not yet big enough to sustain a glossy, mass-market magazine by itself, and it soon disappeared as well.
Few game companies were well-capitalized enough to truly survive those tough years. Atari survived as a brand, but ended up split into two companies, one for computers and one for arcade games. Mattel and Coleco turned their attention back to toys of the non-electronic variety. Magnavox dropped the Odyssey line and kept selling TV sets.
Almost all of the videogame cartridge publishers went under -- they had too much money tied up in physical inventory to survive the rapid downturn, and well-heeled parent companies had little interest in supporting their videogame divisions once the bonanza dried up. Activision made it through, largely by shifting support to the Commodore 64 and continuing to market its stellar back catalogue via mail order. Aided by greater manufacturing flexibility, and perhaps deeper commitment to the market, most of the bigger computer game companies lived on; Sierra On-Line, Lucasfilm Games, Electronic Arts, Origin Systems, Broderbund, Strategic Simulations Inc. and Infocom were among the survivors. Many once-prominent publishers and developers were absorbed by other companies, or simply threw in the towel and closed down -- Imagic, Adventure International, Datasoft and Synapse Software were no more. And the small, kitchen-table publishers of the early computer game scene vanished overnight, never to return.
Fortunately, it wasn't a permanent setback. The fad turned out to have been a phase. The immature videogame industry had grown too quickly to survive in its original form, but the seeds of its future had been sown. Seeds like a pre-crash hit called Donkey Kong...