Epilogue: A Date Which Will Live in Infamy
On December 8, 1982, Warner Communications announced its latest projections for the fourth quarter and 1982 fiscal year. As late as December 7, the company continued to assure analysts that Warner would experience yet another banner year with video game sales driving the firm to 50% growth over 1981. Atari had revised its earnings projections downward significantly on November 17, but Warner executives felt they were still on target.
On the evening of December 7, Atari revised its numbers down again. Warner was forced to issue a press release stating growth was now projected at a mere 10%–15%, the first time its growth rate had slumped year-over-year in 31 quarters.1 Warner stock fell 17 points by the end of the day.2 By the next day, it was 45 points lower than before the announcement. On December 13, Manny Gerard stepped before analysts at a meeting in New York City and was savaged by a group that felt deceived by the company’s previous rosy projections. The Warner executive could offer no better excuse than to say the company was lulled into a false sense of security by previous successes and that they were “just dumb.”3
It would take some time for the full ramifications of the Atari announcement to become clear, but by the middle of 1983, everyone realized that the video game industry in the United States was completely collapsing. At the annual shareholders meeting of Warner Communications in May 1983, Steve Ross promised that, despite a $45 million first quarter loss, Atari would return to profitability before the end of the year. Weeks later, Atari reported a staggering second quarter loss of over $310 million.4 Warner itself lost $283 million in the quarter, the worst showing in the company’s history and triple already gloomy Wall Street forecasts.5
The damage was not limited to Atari. Just weeks after Warner announced its devastating second quarter loss, Mattel revealed it would lose significantly more than $100 million in the first half of the year due to problems with Mattel Electronics.6 In September, the company announced it would lose over $156 million in the second quarter alone, well more than initial projections.7 In November, Activision announced a quarterly loss of $4.1 million and laid off 25% of its work force.8
By the end of 1984, both Atari and Mattel had pulled out of the home console business entirely. Meanwhile, coin-operated video game sales had already started slowing in 1982, and in 1983 coin drop was cut nearly in half from $4.3 billion to $2.9 billion. In 1984, coin drop dipped below the level achieved in 1980, the first year of the video game boom.9 After a 10-year period in which consumers went from spending nothing on interactive entertainment to roughly $7 billion per year, video games finally looked to be the flash in the pan skeptics had predicted since the collapse of the first ball-and-paddle market in 1974.
Outside the United States, however, the picture was not nearly so grim. In the United Kingdom, a new home computer market was just starting to take hold, and significant government backing for computer education was poised to nurture a burgeoning population of teenage bedroom coders who would nurture a vibrant video game ecosystem throughout Europe. Meanwhile, in Japan, where video game mania was not diminished by the corporate apocalypse occurring across the Pacific, coin-operated amusement firms that had grown rich licensing their games to U.S. companies were ready to assert complete control over their own destinies and bring a new generation of arcade hardware and video game consoles to both their own domestic population and to the devastated video game market in North America.