By 1977, the market was flooded with cheap clones of Pong. Due to the sheer amount of cloned devices, none saw sustainable sales. Companies, faced with obsolete and aging stock, started to sell their systems at a loss causing a crash in the price of the devices and leading to many companies pulling out of the games market. Only two were able to weather the storm, Atari and Magnavox, but both reported losses in 1977 and 1978.

However, in 1978 a new game, Space Invaders, was released by a company named Taito. The game was a huge commercial success allowing Taito to create a US office and paving the way for a renaissance in video games. Atari licensed Space Invaders for their new machine, Atari 2600. This console revived the home video-game market, backed by the success of Space Invaders.