Second Generation Video Game Consoles: The First Home Machines

Key Points

• After the initial success of gaming console devices released by Atari, Megavox and Coleco between 1972-78, many players decided to enter the market.
• The second generation of video game console were programmable, and it gave rise to third party game developing companies.
• After Atari settled the lawsuit with Activision, a new concept of licensing began in the gaming industry.

Despite Sony PlayStation’s prominence in the console market, Microsoft’s Xbox Series X can be considered a perfect machine. The most powerful hardware today goes to show just how much the ninth generation of consoles has evolved from its earlier variants; particularly second-generation video game consoles.

These laid the foundations for the modern gaming consoles as we know them. Join us on a trip through the history of gaming. We’ll discuss second-generation video game consoles, why they mattered, and how they’ve helped shape the gaming industry.

Beginnings: First Generation Video Game Consoles

Before we dive into what made the second-generation video game consoles great, let’s address the generation that came before them. The first generation of video game consoles represented machines that were capable of running just one or two pre-built games. They were also coded into the game’s hardware. In most cases, that was a version of Atari’s well-known Pong game.

In the early 1970s, having a bicolor game with very limited sound was considered remarkable. But by 1983, those systems were considered obsolete. The biggest problem was the lack of diversity when it came to gaming titles. And since most consoles were shipped with only one or two titles, this couldn’t be avoided.

Changing the Business Model

Shortly after its formation in 1972, Atari was the first company to realize that making dedicated consoles was a poor business model. The companies would spend exorbitant amounts of money, only to have their product superseded by the competitor’s newer offerings. Thus, the company recognized the need for some type of programmable video game console.

Luckily, a year prior, Intel had designed its first microprocessor, the Intel 4004. It served to distance future gaming consoles from the use of simple logic chips. This allowed gaming companies to build software around the microprocessor, rather than fit a login into the console’s circuitry. Both Atari and Alpex saw potential in this emerging technology, since it offered a very low-cost solution to the problem.

The First Programmable Console

Alpex was the first to launch a programmable console, known as Fairchild Channel F. It helped introduce and establish the use of ROM cartridges. These provided the software for the programmable console — in this case, the game. The cartridges consisted of a ROM chip, which stored the game. It also supported the circuitry clad in a hard casing, which allowed it to withstand the physical insertion into the console.

Older generations of gamers might remember blowing into the gaming cartridges every time the game would start acting up. It was believed that blowing air into the game cartridge would remove any dust particles preventing adequate contact. This was actually nothing more than a myth.

Competitive Drive

Following Fairchild’s release in 1976, Atari introduced its own programming console in 1977, the Atari Video Computer System. The console that would later become known as Atari 2600 also had more powerful hardware than the Fairchild Channel F. It offered 64 bytes, more RAM, better image resolutions, and 16 times more color. It also had better audio.

The success of these two systems, especially the Atari 2600, prompted other emerging console manufacturers to follow their lead. Naturally, at first, some consoles continued using the cartridge system, but it still came with built-in games. As far as gaming history goes, the only console that proved successful at this was the RCA Studio II. It was released in 1977 and discontinued in 1978, after being made obsolete by Channel F and Atari 2600.

The Golden Era of Arcade Video Games

Interestingly, the dawn of the second-generation video game consoles coincided with the golden era of arcade video games. In fact, gaming companies were also game developers at the time. They quickly recognized the popularity of their home video game consoles, and began porting their arcade game releases to the second-generation consoles.

For example, Space Invaders, a game that accidentally invented game difficulty curves, was released in 1978 for arcade machines and ported to Atari 2600 in 1980. In fact, it quadrupled Atari 2600’s sales, which ended up selling over 30 million units worldwide. Other gaming manufacturers adopted the same policy of releasing and porting gaming titles exclusively for their own consoles.  

Activision: The First Third-Party Game Developer

However, that all changed in 1979 when four Atari programmers left the company and established the world’s first third-party game developer — Activision. With Activision, three out of five notable gaming platforms, Fairchild Channel F, Atari 2600, and Magnavox Odyssey 2, in a generation that had approximately 15, was already established.

Intellivision was released in 1980, and ColecoVision in 1982. At the time when Activision released its first Atari 2600 games, called Kaboom! and Pitfall! Of course, Atari didn’t like the fact that their former employees were now making a profit using their system. And so, the company sued Activision on the grounds of theft of trade secrets and violation of NDAs. The two companies eventually settled out of court in 1982.

The Dawn of Licensing

This brought about another change in gaming; Activision agreed to pay a small licensing fee to Atari for every game they sold for the console. This not only established Activision as the third-party developer for the console but also heavily influenced a working model for licensing other third-party developers.

This actively legitimized the viability of third-party game developers for second-generation video game consoles. Activision’s success only emboldened numerous competitors to penetrate the market. However, these were venture capitalists with very little experience and skill that could compete with Activision.

Game Market Crash

In 1982, there were only 17 third-party game development companies, and by 1983 that number skyrocketed to more than 100. Unfortunately, this flooded the limited and competitive gaming market with some pretty horrible gaming titles, which led to market saturation and an eventual video game market crash in 1983.

The crash had abruptly ended the reign of second-generation video game consoles, but not before they made their mark in gaming history. The second generation might’ve experienced a few tough years, but it endured until 1992, two years after Intellivision officially pulled the plug on its console.

This means that it had survived both the crash and the release of third-generation of consoles, which began with the release of the Nintendo Famicom. This also includes the subsequent release of the legendary Nintendo Entertainment System (NES), all of which were built on the legacy left by the second generation of video game consoles.

Second Generation Video Game Consoles: Key Milestones

Fairchild Channel F pioneered the pause menu in video games. It was also the first console to use a CPU and a cartridge, but it faded compared to the action-oriented Atari. Still, the advancement made by both companies directly shaped the gaming world as we know it. All computers nowadays use CPUs as more effective computing units.

Atari’s loss of publishing control brought about even more change, since it was partially responsible for the game market crash. After all, the Atari system wasn’t protected, which allowed anyone with a basic knowledge of digital electronics to reverse-engineer the system and produce games. Nintendo fixed this during the era of the third-generation video game consoles.

Evolving Cartridges

The company also implemented lockout chips into their cartridges, which had to match the console in order to work. This prevented people from using unlicensed games and fought against software piracy, which was rampant in the East Asian gaming markets. This move established Nintendo as the only NES games manufacturer, though the company started licensing out to third-party developers later on.

It’s worth pointing out that the cartridges stayed in use up until the mid-90s, when optical discs finally superseded them. This was a massive improvement on the anti-piracy front, since lockout chips weren’t difficult to circumvent. However, anti-piracy protection written on a non-editable optical disc proved to be too much for the reverse engineers of the time.

Razorblade Business Model

Atari’s loss of publishing control also gave birth to an interesting business model. By segregating the gaming hardware from the software, a razorblade business model was adopted by console manufacturers. This became apparent in the later generations of consoles, where manufacturers would sell their products at a loss while collecting profits from third-party gaming releases.

This was perhaps best apparent with Sony’s PlayStation 3 console, which the company admitted selling at a loss. However, the console was significantly better than the Xbox 360 and had fewer bugs and production errors than its competitors. Sony leveraged its system’s overall stability and gaming performance to release exclusives, which recuperated the company’s profits.

Paired with the success of PlayStation 2, which still has a pretty dedicated fan base, the success of PlayStation 3 propelled Sony as the most-prominent console manufacturer. While its success can’t be denied, most gaming consoles today owe their success to the second-generation video game consoles and their technical strides.

Up Next

• The Absolute Best Atari RPGs of All Time: Want to know which are the best role playing games on Atari? Here are the ones most preferred by gamers.
• The History of Nintendo Entertainment System (NES) Emulation: How did Nintendo come into existence? Here is a short, interesting piece on the history of Nintendo.
• The 7 Absolute Best Xbox RPGs of All Time: What are the best role playin games to play on Xbox? Find out here.