Third Generation: 1982–1984
The third generation of video games became known as the "dark ages," due not to any new technology, but rather to the precipitous drop in sales that started in 1982. The crash was caused by too many derivative or poor-quality game cartridges from too many manufacturers. Many third-party game developers went out of business during this period, and even established companies lost money on unsold inventory.
At the peak of the previous generation, the video game industry was grossing upward of $3 billion a year in America alone; in 1985, at the end of the third generation, video game sales reached only $100 million worldwide. The situation was so dire that Atari's stock dropped 32% in a single day (December 7, 1982) after it announced that VCS holiday sales would not meet company expectations.
The most prominent third-generation game system was Coleco's Colecovision. Launched in 1982 at a price of $199, Colecovision featured high-quality graphics and utilized an 8-bit Z-80A microprocessor with 8K RAM. Colecovision's main claim to fame is that it offered high-quality versions of arcade favorites Donkey Kong, Defender, Frogger, Joust, Spy Hunter, and Zaxxon.
Atari responded to Coleco by releasing the $299 Atari 5200 SuperSystem, which was based on the graphics and audio chips found in the Atari 400 personal computer. Games for the 5200 were essentially improved releases of older 2600 (VCS) games; this lack of new games failed to excite consumers, and the 5200 was lost amid the overall market crash of 1982.