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Slow-selling inventories, price discounts and huge advertising costs have caused the manufacturers' profits to vaporize. Industry experts predict that perhaps one-fourth of the video-game competitors will go out of business. Says Michael Ayers, director of corporate communications at Activision: "A lot of guys who got in for the fast buck are going to disappear." Some firms have already flashed the GAME OVER sign. Quaker Oats closed its U.S. Games division in April after a year in the market. "None of our games became a hit," says Spokesman Ronald Bottrell. "Instead of pouring in a lot more capital, we decided to drop it." Data Age, a small company in California's Silicon Valley, filed for Chapter 11 protection under the bankruptcy laws after video fans showed little enthusiasm for such games as Bugs and Sssnake.
A similar shake-out is happening on the arcade scene. The number of videogame parlors more than doubled between 1980 and 1982, to 10,000, and the machines popped up in motels, supermarkets, pizza joints and college dorms. The concentration of players in the once teeming arcades, however, has become increasingly sparse, and at least 2,000 of the parlors have closed down this year. In Los Angeles, where the competition is particularly fierce, some arcades are selling eight game-playing tokens for $1 instead of the usual four. Christopher Kirby, a consumer-electronics analyst for the Sanford C. Bernstein investment firm in New York City predicts that one-fourth of the arcades still open in the U.S. will be forced out of business within a few years. Sales of new machines to the parlors have stalled. Ira Bettelman, vice president of a major arcade-game distributor in Los Angeles, complains of being burdened with inventories of "flops," like Congo Bongo, which he now sells for 40% of its original $2,500 price.
The market for home video games may also be approaching a saturation point. Even some incorrigible joystick junkies are getting a bit jaded. Says Rawson Stovall, 11, an Abilene, Texas, sixth-grader who writes a weekly newspaper column for the Universal Press Syndicate under the name Vid Kid: "A lot of manufacturers flooded the market with some poor products. My friends are confused and disappointed by all of the stuff out there. A lot of the games are just not very exciting any more."
While trying to keep customers excited, the video-game industry is being buffeted by the boom in home computers, which can be used to play electronic games. Price wars have pushed the cost of some home computers, including models from Commodore and Texas Instruments, below $200. As a result, Atari and Mattel machines that do nothing but play games are becoming less attractive and must often be discounted. An Atari 2600 game player, which once cost $150, is now available for as little as $59.95.