Home consoles had taken a serious downturn since the fall of Atari. The biggest video game developer cluttered its most famous system, the Atari 2600, with rushed, unpolished, unsatisfactory games like Pac-Man, E.T The Extra Terrestrial and suffered a beyond repair reputation hit after the releases of Beat'Em & Eat'Em and General Custer's Revenge.
After a failed deal with Atari, Nintendo marched into the 1985 Consumer Electronics Show in Las Vegas with the Famicon, marketing it as an Advanced Video System. No one, however, was interested. Unable to change people's belief that video games were a passing fad, Nintendo sold few home consoles.
Undaunted, Nintendo came back to the next CES convention in Chicago, later that year and rebranded their Famicon as the Nintendo Entertainment System, marketing it as a toy complete with "R.O.B.", a robotic operating helper, and a light gun, which functioned much like an arcade shooter. Despite all the rebranding, Nintendo once again failed and with the emergence of the more powerful Sega Master System, Nintendo lost the home gaming market in Japan as well as in North America, if they ever had it.
Less than a year later Nintendo filed bankruptcy after failed attempts to produce a successor to the Famicon in Japan, leaving Sega as the only successful gaming company still active. Home computers, however, carried the gaming torch, while innovation in game consoles stagnated. Short-lived rivals to the Master System, included the TurboGrafx-16, which sold only 2.5 million consoles and the return of Atari with the Jaguar, which was an even bigger failure selling less than 250,000 consoles, putting the first big video gaming company out of business for good.
Without a serious competitor, Sega was allowed to own the home console market, despite disgruntled third-party companies like Konami, Square and Capcom, who did not like working for Sega's outdated hardware and the company's inability to abandon the Master System and make a new updated console that could support the technological advancement since the system's launch in 1985.
Eventually, gaming fully shifted towards the computer as many expected. PCs were capable of much better sound and graphics than any home console. Third-party developers flew towards companies like Microsoft and Apple. Classics like Final Fantasy VI, Mega-Man 6 and Castlevania: Rondo of Blood all made their debuts in 1993 on PCs. The companies that left Sega, were credited as the ones who took gaming out of it's stagnant state, allowing for people to see that gaming had changed from the old Atari days of the early 80's.
Sega would ultimately drop out of the home console business, not seeing a sizable market to make an updated version of their Master System and the PC being a better hub for video game development. In 1995, Sega announced their first home computer, called The Genesis, to compete with Microsoft and Apple. The Genesis did well enough in the market to win over some interest in third-party developer's again, but Sega never fully committed to returning to gaming and looked at computers as a safer and easier way to make money.
Today games are looked at as a hobby or as an incentive to buy a computer. Companies like Squaresoft, Konami, Bandai and Capcom dominate the market and are known as the "resurrecting fathers" of modern day gaming.
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In reality: Nintendo was a success in their rebranding efforts. In partnership with Worlds of Wonder, Nintendo was able to garner a following and have a tight grip on the new era of gaming that would last for a decade. Nintendo is credited with saving the gaming industry and people often wonder what if they had indeed failed like their skeptics predicted.
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Vinny Jace blogs at The Unoriginal, where he writes about a whole variety of things from sports, movies, video games, etc.