North American video game crash of 1983 in the context of Market saturation

The Magnavox Odyssey 2 (stylized as Magnavox Odyssey), also known as Philips Odyssey 2, is a home video game console of the second generation that was released in 1978. It was sold in Europe as the Philips Videopac G7000, in Brazil and Peru as the Philips Odyssey and in Japan as Odyssey2 (オデッセイ2 odessei2). The Odyssey 2 was one of the five major home consoles prior to the 1983 video game market crash, along with Atari 2600, Atari 5200, Intellivision and ColecoVision.

In the early 1970s, Magnavox pioneered the home video game industry by successfully bringing the first home console to market, the Odyssey, which was quickly followed by a number of later models, each with a few technological improvements (see Magnavox Odyssey series). In 1978, Magnavox, now a subsidiary of North American Philips, decided to release an all-new successor, Odyssey 2.

In the history of video games, the 3rd generation of video game consoles, commonly referred to as the 8-bit era, began on July 15, 1983, with the Japanese release of two systems: Nintendo's Family Computer (commonly abbreviated to Famicom) and Sega's SG-1000. When the Famicom was released outside of Japan, it was remodeled and marketed as the Nintendo Entertainment System (NES). This generation marked the end of the North American video game crash of 1983, and a shift in the dominance of home video game manufacturers from the United States to Japan. Handheld consoles were not a major part of this generation; the Game & Watch line from Nintendo (which started in 1980) and the Milton Bradley Microvision (which came out in 1979) that were sold at the time are both considered part of the previous generation due to hardware typical of the second generation.

Improvements in technology gave consoles of this generation improved graphical and sound capabilities, comparable to the golden age of arcade games. The number of simultaneous colors on screen and the palette size both increased which, along with larger resolutions, more sprites on screen, and more advanced scrolling and pseudo-3D effects, which allowed developers to create scenes with more detail and animation. Audio technology improved and gave consoles the ability to produce a greater variation and range of sound. A notable innovation of this generation was the inclusion of cartridges with on-board memory and batteries to allow users to save their progress in a game, with Nintendo's The Legend of Zelda introducing the technology to the worldwide market. This innovation allowed for much more expansive gaming worlds and in-depth storytelling, since users could now save their progress rather than having to start each gaming session at the beginning. By the next generation, the capability to save games became ubiquitous—at first saving on the game cartridge itself and, later, when the industry changed to read-only optical disks, on memory cards, hard disk drives, and eventually cloud storage.