Second generation consoles (1977–1983)

Main article: History of video game consoles (second generation)

In the earliest consoles, the computer code for one or more games was hardcoded into microchips using discrete logic, and no additional games could ever be added. By the mid-1970s video games were found on cartridges, starting in 1976 with the release of the Fairchild 'Video Entertainment System (VES). Programs were burned onto ROM chips that were mounted inside plastic cartridge casings that could be plugged into slots on the console. When the cartridges were plugged in, the general-purpose microprocessors in the consoles read the cartridge memory and executed whatever program was stored there. Rather than being confined to a small selection of games included in the game system, consumers could now amass libraries of game cartridges. However video game production was still a niche skill. Warren Robinett, the famous programmer of the game Adventure, spoke on developing games "in those old far-off days, each game for the 2600 was done entirely by one person, the programmer, who conceived the game concept, wrote the program, did the graphics—drawn first on graph paper and converted by hand to hexadecimal—and did the sounds."^[21]
Three machines dominated the second generation of consoles in North America, far outselling their rivals:

• The Video Computer System (VCS) ROM cartridge-based console, later renamed the Atari 2600, was released in 1977 by Atari. Nine games were designed and released for the holiday season. While the console had a slow start, its port of the arcade game Space Invaders would become the first "killer app" and quadruple the console's sales.^[19] Soon after, the Atari 2600 would quickly become the most popular of all the early consoles prior to the North American video game crash of 1983.
• The Intellivision, introduced by Mattel in 1980. Though chronologically part of what is called the "8-bit era", the Intellivision had a unique processor with instructions that were 10 bits wide (allowing more instruction variety and potential speed), and registers 16 bits wide. The system, which featured graphics superior to the older Atari 2600, rocketed to popularity.
• The ColecoVision, an even more powerful machine, appeared in 1982. Its sales also took off, but the presence of three major consoles in the marketplace and a glut of poor quality games began to overcrowd retail shelves and erode consumers' interest in video games. Within a year this overcrowded market would crash.

In 1979, Activision was created by disgruntled former Atari programmers "who realized that the games they had anonymously programmed on their $20K salaries were responsible for 60 percent of the company's $100 million in cartridge sales for one year".^[22] It was the first third-party developer of video games. By 1982, approximately 8 million American homes owned a video game console, and the home video game industry was generating an annual revenue of $3.8 billion, which was nearly half the $8 billion revenue in quarters generated from the arcade video game industry at the time.^[23]