BUS602: Marketing Management

In 1966, an engineer at Sanders Associates, a small New Hampshire-based electronics company, developed Odyssey, the first home video game system. A ball-and-paddle game that could be played on a TV set, the Odyssey achieved limited commercial success. Its successor Pong, however, did extremely well in arcades and the home market. Nolan Bushnell, founder of Atari, oversaw the development of Pong and introduced the home version in 1975. Atari sold 150,000 copies of Pong in the first year. 

Electronics manufacturers quickly saw the benefits of producing a console that could play multiple games. In 1976, Fairchild, a U.S. electronics company, developed the first console of this kind naming it the Fairchild Channel F. Atari quickly followed suit with its 2600 VCS ("video computer system"). In late 1977, Atari released the VCS for $199 with a library of nine titles. Each cartridge cost $5-$10 to manufacture and retailed for $25-$30. 

By 1979, many other electronics and toy companies were entering the home console market including Mattel, Coleco, RCA, and Philips Electronics. Despite the new entrants, Atari represented two-thirds of the home console market in the United States. Home versions of hit arcade games such as Space Invaders and Asteroids grew the game industry into a $3 billion business by 1982. 

By the end of 1983, however, the industry had collapsed. The market had been saturated with multiple consoles and poor quality software, killing consumer appetite for games altogether. In one notable example, Atari developed E.T., a game based on Steven Spielberg's hit movie by the same name. With only one month to deliver a game in time for the holiday season, the development team created an extremely poor title. Atari took such an enormous loss on E.T. due to unsold inventory and a large licensing fee that it ended up dumping five million of copies into a landfill in New Mexico. In 1983, Atari posted a $536 million loss and the company was sold at a substantial discount in 1984. The video game market was moribund for several years after the collapse until Nintendo came and took the U.S. market by storm.