Golden Age of Arcade Video Games - Business

Business

The golden age was a time of great technical and design creativity in arcade games. The crash eventually came to an end following the success of Taito's Space Invaders (1978), which sparked a renaissance for the video game industry. The era saw the rapid spread of video arcades across North America, Europe, and Asia. The number of video game arcades in North America, for example, more than doubled between 1980 and 1982; reaching a peak of 13,000 video game arcades across the region (compared to 4,000 as of 1998). Beginning with Space Invaders, video arcade games also started to appear in supermarkets, restaurants, liquor stores, gas stations and many other retail establishments looking for extra income. Video game arcades at the time became as common as convenience stores, while arcade games like Pac-Man and Space Invaders would appear in most locations across the United States, including even funeral homes. The sales of arcade video game machines increased significantly during this period, from $50 million in 1978 to $900 million in 1981, with 500,000 arcade machines sold in the United States at prices ranging as high as $3000 in 1982 alone. By 1982, there were 24,000 full arcades, 400,000 arcade street locations and 1.5 million arcade machines active in North America. At around this time, the home video game industry (second-generation video game consoles and early home computer games) emerged as "an outgrowth of the widespread success of video arcades" at the time.

In 1980, the U.S. arcade video game industry's revenue generated from quarters tripled to $2.8 billion. By 1981, the arcade video game industry in the United States was generating an annual revenue of over $5 billion (equivalent to $12.52 billion in 2012), with some estimates as high as $10.5 billion for all video games (arcade and home) in the US that year, which would be three times the amount spent on movie tickets in 1981, and equivalent to $26.3 billion in 2012. The total revenue for the U.S. arcade video game industry in 1981 was estimated at more than $7 billion (which would be $17.53 billion in 2012), though some analysts estimated the real amount may have been much higher. By 1982, video games accounted for 87% of the $8.9 billion in commercial games sales in the United States. In 1982, the arcade video game industry's revenue in quarters was estimated at $8 billion (equivalent to $18.87 billion in 2012), surpassing the annual gross revenue of both pop music ($4 billion) and Hollywood films ($3 billion) combined that year. It also exceeded the revenues of all major sports combined at the time, earning three times the combined ticket and television revenues of Major League Baseball, basketball, and American football, as well as earning twice as much as all the casinos in Nevada combined. This was also more than twice as much revenue as the $3.8 billion generated by the home video game industry (during the second generation of consoles) that same year; both the arcade and home markets combined added up to a total revenue between $11.8 billion and $12.8 billion for the U.S. video game industry in 1982, equivalent to between $27.84 billion and $30.2 billion in 2012. In comparison, the U.S. video game industry in 2011 generated total revenues between $16.3 billion and $16.6 billion.

Prior to the golden age, pinball machines were more popular than video games. The pinball industry reached a peak of 200,000 machine sales and $2.3 billion revenue in 1979, which had declined to 33,000 machines and $464 million in 1982. In comparison, the best-selling arcade games of the golden age, Space Invaders and Pac-Man, had each sold over 360,000 and 400,000 cabinets, respectively, with each machine costing between $2000 and $3000 (specifically $2400 in Pac-Man's case). In addition, Space Invaders had grossed $2 billion in quarters by 1982, while Pac-Man had grossed over $1 billion within a year by 1981 and $2.5 billion by the late 1990s. In 1982, Space Invaders was considered the highest-grossing entertainment product of its time, with comparisons made to the then highest-grossing film Star Wars, which had grossed $486 million, while Pac-Man is today considered the highest-grossing video game of all time. Many other arcade games during the golden age also had hardware unit sales at least in the tens of thousands, including Ms. Pac-Man with over 115,000 units, Asteroids with 70,000, Donkey Kong with over 60,000, Defender with 55,000, Galaxian with 40,000, Donkey Kong Junior with 35,000, Mr. Do! with 30,000, and Popeye with 20,000 units. A number of arcade games also generated revenues (from quarters) in the hundreds of millions, including Defender with more than $100 million in addition to many more with revenues in the tens of millions, including Dragon's Lair with $48 million and Space Ace with $13 million.

The most successful arcade game companies of this era included Taito (which ushered in the golden age with the shooter game Space Invaders and produced other successful arcade action games such as Gun Fight and Jungle King), Namco (the Japanese company that created Galaxian, Pac-Man, Pole Position and Dig Dug) and Atari (the company that introduced video games into arcades with Computer Space and Pong, and later produced Asteroids). Other companies such as Sega (who later entered the home console market against its former arch rival, Nintendo), Nintendo (whose mascot, Mario, was introduced in 1981's Donkey Kong), Bally Midway Manufacturing Company (which was later purchased by Williams), Cinematronics, Konami, Centuri, Williams and SNK also gained popularity around this era.