Lessons from Crashes Past

by Adam Pratt, Arcade Galactic & ArcadeHeroes.com

While we might be an industry of game-playing professionals, not every-one in the biz would call themselves a “gamer,” or at least a “hardcore gamer.” I don’t even think I can call myself the latter these days since since I don’t have the time or interest to spend hours a day playing video games or pinball.
“Neverland” can’t last forever.

Even though I’m big into arcade games, I still pay a lot of attention to the home scene, and some interesting things are happening over on that side of the aisle. However, much of it isn’t positive; some could be to our advantage, while other parts serve as a warning.

Some of you may be old enough to remember when the games industry tanked back in ’83 and ’84. That mainly affected North America – not so much Japan and Europe – although the split of Atari and the bankruptcy of other companies did have a worldwide impact. Things went south again around 2001-2005, and even in Japan, arcades suffered a lot as consoles like the PlayStation 2 and Xbox rose to prominence.
We adapted and survived those times, but with every downturn, the culture of arcades and the players themselves changed. And in the home game business, other changes caused a ripple effect in what consumers preferred for entertainment, leading to pivots.

Perhaps the biggest shift of all occurred with the advent of smartphones and “free-to-play” games. About the same time, we began to see the rise of “AAA studios” – companies that could – and would – throw many millions of dollars at the production budget of just a single game. These companies would often buy up smaller studios, mirroring the trend in other industries (e.g., movie studios). The downside is that this would usually gut these places of the talent that had made the valuable hits in the first place. Today, digital downloads are main-stream, including both DLC (DownLoadable Content) and entire games.

As the development focus shifted from arcades to game consoles, key aspects of traditional gameplay – such as high scores and lives – have been entirely removed from most home titles, and many games have become more like interactive movies. Yes, there’s been significant effort to play the nostalgia card seen in developments like the Arcade Archives, retro compilations and retro game consoles (some of which can play your old cartridges). But none of those have had the same impact on culture as they did when those games were brand new.

There’s also the rise of “indie” games, which has resulted in thousands of new games being released across all sorts of plat-forms each year. We’ve seen quite a few indies make a jump into arcades, although most only make a single game, then move on to something else.

If you ask AI about the video game industry’s trajectory, it’d likely claim that it’ll just be worth more and more billions as the years go on. Given that big studios like Microsoft and Sony have spent billions of dollars acquiring smaller studios over the past decade, that would make sense, right?

Indicators from the ground, though, are not so grand. In fact, they show that we are already in a market contraction. Microsoft’s Xbox division took years to achieve some profitability, but that didn’t last long, and it’s fallen back into losses again. They were in the news recently for laying off 3,200 people across their divisions. They are hardly alone in that. Layoffs in the industry have become common, so much so that there is a Wikipedia article titled “2022-2026 video game industry layoffs,” and there are a few websites dedicated to tracking them, including gaming layoffs.com.

There are many examples of AAA game failures, and among them, Sony spent $400M on a game called Concord, only to cancel it after two weeks. Ubisoft blew an estimated $650-850M on producing Skull & Bones, another “live service” game no one played. What this and several other enormous flops have in common is that consumers don’t like “live service games,” where companies nickel-and-dime players for every possible in-game purchase to have the alleged “full experience.” Despite player sentiment, that sector of the games business is driven by suits pursuing dollar signs; they can’t imagine anything else. Collapse is the inevitable result.

Nintendo has also been struggling to repeat the success of the Switch with Switch 2, but they’re still in a decent spot thanks to how well the original Switch did and low debt. Valve, which operates the wildly popular Steam platform, is the only company that seems unaffected by most troubles. I say that with caution since they’re going to launch a new console soon that’s quite expensive, and their VR headset flopped.

There’s also the pressure of ever-increasing component costs, for example, RAM and SSD drives. Sure, it’s fun to make AI memes that turn George Costanza into Joe Rogan, but when everyone does it, the demands on the backend cause prices for these things to go up. That hurts all of us.

Now, let’s add anti-consumer practices to the mix, such as removing users’ paid-for digital purchases from the store and declaring an end to physical media (something Sony did), and a lot of people are not finding the “fun” in electronic games these days.

True, much of this article mainly affects the home side, which is where the bulk of the development and consumer dollars are being spent. But as many of us have seen over the past few years, we aren’t immune from contractions. We might be able to take advantage of the home side’s stumbles, however. To do so, we need to recognize what’s going on and be honest about it.

Revisiting the Past

In my last article for RePlay, I mentioned getting back into writing a history book about arcades. I’m still working on the 1970s but I’ve been contemplating making it go through 1985 or ’86 when arcades made a comeback. I have already written a bit on the ’80s, including a well-sourced chapter on the “Crash of ’83.” Walking through this information brought me to contemplate further where we are today, drawing parallels and distinctions.

Now to be fair, I was just a baby during that era, so I’ve had to rely on sources from the time and people who lived through it. In my research, I discovered that the official narrative – that the home game industry collapsed after Atari released the terrible E.T. for the Atari 2600 – is almost completely bogus. E.T. was the straw that broke the camel’s back, but that camel had been overloaded with problems for some time. The same “rhythm” of history is playing out now on the consumer side for similar reasons, but with much more money at stake.

Three big factors that played into the crash of ’83 are also impacting things right now: oversaturation, diminished quality, and inflation.

Regardless of non-arcade platform you prefer to play on (phone, PC, Switch, PlayStation, Xbox, etc.), there are thousands upon thousands of games made available to pick from every year. Most gamers, myself included, have a “backlog” of games they bought for their Steam account that they’ve never played. Back in 1983, there were a lot of competing computers, and a game bought for a Commodore 64 wouldn’t work on an IBM, and so on. You also had over seven consoles to choose from. The 2600 saw hundreds of games hit store shelves; arcades had over 300 new releases hit distribution in 1982 alone.

Video games were every-where, and people of all ages and backgrounds seemed to be into them, and so to fill demand, arcades ended up on every street corner. On the coin-op side, this created government problems, including taxes and fees, and, in the case of Mesquite, Texas, an outright ban that reached the Supreme Court.

Right now, one of the biggest problems with mak-ing a consumer game in 2026 is discovery, given the sheer amount of content available. Once your game is brought to market, how will people find it? Getting noticed today requires either a crap-ton of money or pure luck. If you are at a AAA company, you’ve got the bucks for a marketing budget and already have millions of followers. For everyone else, though, you have to pray that some big streamer discovers your game and plays it for their multitudes of viewers.

Social media has also “siloed” our culture, changing the effectiveness of word of mouth. We don’t have the same kind of shared societal experiences that we used to have. Even someone with 2 million followers or subscribers can be completely unknown to the rest of society, whereas in the ’80s, fame meant people who hadn’t even seen your movie or TV show knew who you were to some degree.

Back in the ’80s and ’90s, there was a term for terrible games: “shovelware.” There was quite a bit of shovelware available on the Atari 2600, and also in the arcade. Game makers looking for a quick buck would copy the game style of a hit like Pac-Man, Space Invaders or whatever else was hot at the moment. Today, we call it “slop,” with non-arcade games made by just about anyone thanks to a low barrier to entry in game development (user-friendly game engines and their asset stores). Like the 1980s, it’s a big problem when a AAA studio puts out slop. Consumers feel cheated, and eventually, it breaches the “trust thermocline.”

When AAA studio games flop, their companies lose millions of dollars. Then there’s the snowball effect resulting in eventual mass layoffs, studio closures and a breach of trust among the playing and paying con-sumer.

Inflation was a big problem at the end of the ’70s (which included for a time “stagflation”) and into the early ’80s. (It started to come down around 1984). Similarly, today we’ve seen inflation go on a roller coaster ride since 2020 with the boom in AI causing the component pricing crisis. This affects arcades, too, pushing the days of more affordable game prices further and further out. More expensive machines mean higher costs per credit for the players. There’s only so much that they’ll tolerate, especially as other expenses like rising gas and food prices continue to squeeze budgets.

One phenomenon that is different this time is how people engage with entertainment, particularly given shortened attention spans. The “training” of kids’ brains on free, short-form content has changed how entertainment has been designed.

Many Hollywood shows and movies get criticized for being repetitive. This is because many viewers are paying more attention to their phones than what they’re “watching” on the screen. With the show content often relegated to back-ground more than entertainment, creators need to repeat show elements to get the point across. This has changed what interests people in arcades, too – redemption, prize games, boxers and the like are our iteration of short-form content.

Our Strengths

So, what’s the solution to the game sector’s woes? I wish I knew. I can tell you that the people whose litany of bad decisions brought us into this mess, won’t be the ones who get us out of it. Last time, it took the rise of various Japanese developers, combined with a robust home computer gaming scene and conversion kits in arcades, to revi-talize the overall feel of games. (That was after the fallen promise of LaserDisc games that also bankrupted several arcade companies instead of turning things around.)

To a degree, VR rhymes with that history, but outside of some grand innovation and a series of killer apps, it’s hard to see it changing for the better. Zuckerberg certainly won’t burn another $80B chasing that rabbit around, but I still hold out hope that we might see some shift in capital interest towards mixed reality (MR). Already, we’ve seen good things from exploring that tech, with things like projection-mapped pool tables and immersive reality rooms like the QBIX from Inowize. There’s still a lot to do in the mixed reality world, however.

Arcades have already been relying a lot on cranes, but that can easily become an oversaturated niche and a negative with players if payouts and prizes are terrible. Derivative and pirated games are also popping up more frequently, and a caution for those foolish enough to operate them is that their short-term gains will erode consumer confidence.

In my view, our industry’s best bet is to keep playing to our strengths. As con-soles approach the $1,000 mark and games cost $80-$100 each in some cases (plus DLC and live-service slop), we can easily demonstrate value for the price of our experience. Put yourself into a consumer’s shoes and honestly analyze your venue. What value does it give you? Would you be satisfied in spending $50 or $100 on a visit there? If you can’t answer “yes,” you need to make adjustments.

Another strength is that arcades – and their route-operator brethren’s stops – are also social centers, places where you can have a unique kind of experience with other people. Tournaments, parties and other events will not go out of style (so long as they are managed properly). Multiplayer games fit this well. Add to this the fact that most of our games are “coin-op” exclusives. You can’t get the same thing at home. This is especially true with games that have a simulator angle to them.

I also suggest that you put humor into your marketing, even going so far as to poke fun at any negatives out there. When Sony announced the end of physical media, Domino’s U.K. took advantage and mocked them, claiming they’d go all-digital with pizzas. They channeled the anger that many consumers felt over the decision into positive buzz and sales for Dominos.

There aren’t any silver bullets to avoiding disaster. What’s crucial is that we act within our spheres of influence rather than waiting to be acted upon. This is true at the location operations level, but it also includes developers making games and attractions that people want to play. I don’t know when we’ll see our next Space Invaders or Street Fighter II that draws massive crowds, but development will most certainly require creativity. From my more recent experience on the development side of things, I’ve noticed that IP licensors are becoming more and more stifling to work with, hindering creativity…the very thing that will result in a successful game. The result is that developers walk on eggshells with their licensors in the vain attempt to please everybody.

To quote Captain Kirk, “Risk is our business.” But there’s a critical addendum: Our business must be fun. If we remember that, we’ll come out of this stronger and better than ever.

Adam Pratt is the owner and operator of Arcade Galactic near Salt Lake City, Utah, and also publishes the Arcade Heroes blog site. He can be reached at [email protected].