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Microsoft’s impending  Xbox One has been in the news recently thanks to some very restrictive new features. The main issue has been the introduction of an online only state of play. Draconian anti-piracy additions were also announced. The result was an extraordinary online backlash from fans which forced Microsoft to recant in order to quell the uproar. In comparison, rivals Sony have enjoyed a very smooth ride with their PS4, but Nintendo (who launched their next generation effort, the Wii U, in late 2012) have struggled with poor sales due to a lack of third-party support.

It’s an unusually difficult time for some of the leading industry stars, and their combined troubles reminded me of one of the most notorious business disasters in history. It occurred in 1982 and was courtesy of Atari (the leader of its day), Steven Spielberg, and E.T. the Extra-Terrestrial; a promising deal which ended with millions of games cartridges buried in a desert in New Mexico. It’s a lesson in patience and the need for a quality end product, something completely ignored over 30 years ago. Here’s how it all went horribly wrong.

Promising Beginnings

The story began in June 1982, when Steven Spielberg’s E.T. was released and became a gigantic global hit. By July Atari was pressing Warner Communications (who happened to own Atari) to grant them the licence for an official game to tie in with the movie; the film studio and Spielberg were persuaded until they gave Atari the rights. At the time Atari was the largest of a handful of manufacturers making video games consoles and games, which were in their second generation after the trailblazing Pong/Space Invaders/Donkey Kong revolution. The Atari 2600 (pictured above) although somewhat archaic looking, was cutting edge back in the early ’80s.

Even in these early days there was immediately a problem with timing. To ensure enough stock could be manufactured in time for the Christmas market, the game had to be developed from scratch — and finished — in just five weeks. This would not leave much time for bug checking, playtesting, and opinion-gathering from external sources. To get around this Atari placed their leading man, Howard Scott Warshaw, on the job. Due to the colossal success of the film, the game was expected to be a major hit so the pressure must have been immense.

An Epic Business Disaster

Atari produced around 4 million cartridges of E.T. (the exact figure has never been officially revealed). Although they never expected to sell them all, they considered a degree of overproduction sound if it meant people could be guaranteed to make a purchase in any store — and retailers were encouraged to get their orders in early. Indeed, sales figures were initially impressive, and in countless Christmas stockings in America children were opening up gift-wrapped E.Ts and excitedly firing up their Atari 2600.

Encouragingly there were no spelling mistakes on the title screen, but after this gamers were met with a basic, infuriating challenge. With little over a month to develop E.T, Atari opted for a simple quest system, whereby the eponymous alien would walk around screens collecting parts for a special handset. Collect all the parts and you’d be able to phone home. One of the challenges was avoiding numerous pits, which were avoided only somewhat precariously. Poor game design meant it was far too easy to fall in, and worse was to follow. Getting out of the pits (which involved levitating out of the hole) proved to be troublesome and gamers would repeatedly fall back into the pit, during which time digital antagonists (scientists and FBI agents) would appear from nowhere and abduct E.T – after this you would lose all the collected phone parts and have to start all over again.

The combination of abduction/pit falling/pit levitating quickly became overwhelmingly frustrating (and no doubt rage inducing for many young minds), and angry parents were soon driving back to stores and demanding a refund. Unhappy retail stores were then left to send the cartridges back to Atari.

The Fallout

With customers returning unsold cartridges in their millions, E.T. posed an immediate problem for Atari. A game with an RRP of $49 was being sold for a dollar in bargain baskets, and by the time Atari pulled the plug, losses of $100m were being mooted. The shockwaves spread more widely than this; people felt betrayed not only by Atari, but also by Warner for allowing such a substandard title to be foisted upon them.

The direct result of E.T’s impact continued through to 1983. The console market took a seismic hit, losing 90% of its value. Although there were clearly a number of competing factors for this drop (most notably the growing popularity of home computers such as the Commodore Vic-21 and Commodore 64, and the ZX Spectrum), E.T. is generally regarded as a leading cause. There was also an inundation of dreadful games on the market, the only difference between them and E.T. being they weren’t produced in such large numbers.

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About Alex Morris

Alex Morris is a writer and social media manager for He spends his time reporting about the business and technology industries, whilst maintaining the company's social media accounts. He has been a business writer, and blogger, since completing an MA in Journalism in 2007.

10 Responses to How E.T. the Extra-Terrestrial Nearly Destroyed the Video Game Industry

  1. David Hennessy says:

    Thanks for the memories! I think I actually owned this. As E.T. would say: “Ouch!”

  2. Haha, they should do a film of this story. Looking forward to the documentary at any rate.

  3. kingofcontent92 says:

    I love video games, but I don’t know about its history. Thanks for sharing this.

    • kylel999 says:

      It’s a bit misleading though.

      The author does great job in showing the real aspect that caused the drop. The home PC market grew and the console market failed to capture a new generation of gamers.

      Kids like me got heavily into computers and ignored many of the shovelware titles (E.T. barely scratches the surface) and bit hardily into the Apple of forbidden home computer potential. There was, until the NES came out, a generational gap between kids who played Atari and those who came after us. Later generations of games and consoles followed us as gamers as a demographic. It still does.

      We have seen something very similar this generation of games with a spike in PC sales and enthusiasm toward the end of the extended cycle. It will most likely be the death of SNE if the console cycle extends another 8 years.

      FYI. I still have my ET, my Atari, and my ti-99.

      • BIGSTEIN says:

        im guessing your virginity as well

      • Alex Morris says:

        Thanks Kyle, apologies if I missed any details. I’m 28 so wasn’t around at the time, but the story has interested me greatly since the early 1990s. Back then E.T. was an urban myth amongst my friends at Primary School and many of us were unsure if the game was even real.

        Thanks to the internet age I’ve been able to read fully into it all.

      • lokilasher says:

        Ahhh, the good ol TI tape drive computer??? Man I can remember sitting for and hour loading games lol!

  4. Fishdicks says:

    check out angry video game nerd – all this info was ripped from there anyway

    • Alex Morris says:

      Nice South Park reference. The story is reasonably well known amongst the gaming community. I first learned about the antics of Atari and E.T. in an edition of Digitiser (a TV based gaming magazine famed for daily updates and surreal humour) back in the early 1990s.

      A bit of online research with old newspaper articles and you can piece together the story – it’s not ripped from the Angry Nerd’s section, as fun as his videos are.

  5. lokilasher says:

    Dont forget that awesome (sic) “pac-man” release for the 2600…even though it was piss poor, me and my cousin loved to see who could get top score….that is until “Ladybug” for Colecovison came out! (Im old as frick)

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