How exactly did ET "destroy the industry"?

The industry bottomed out for a few years for a number of reasons. ET wasn't one of them. However, since it came out around that time it became a symbol.

A bunch of clones came out that could read and play Atari cartridges, leading to over saturation of the market. In addition, many game companies sprung up making cheap game cartridges that would work on the Atari. This drove down cartridge prices and ate into profits.

Atari also wasn't innovating fast enough. Their 5000 series console was released 2 years behind their competition. By that time, most gamers had moved on to playing more sophisticated games on the Amiga, PCs, etc. A modern equivalent would be what happened to Blackberry.

I wouldn't say that ET wasn't the worst game ever, but it was a bad game. It was also one of the hardest games put out by Atari because it was frustratingly easy to die or get stuck in a pit.

Still, it was the lack of innovation, increased competition, and poor business decisions that doomed Atari.

As for the documentary, it was an interesting look at an era. However, there was too much back slapping at the end. It felt like they were campaigning for some sort of rock star recognition that they felt was unfairly denied. Sorry guys, programmers do not get that sort of recognition.

And no matter how many times they say it, ET was not a good game, it was a bad game...

By the time ET came out everyone was pretty sick of the format. Huge pixelated images that did stupid things, when games like pong and asteroids had been in the arcade market for years. A back story just didn't cut it anymore. It took injecting the story into the game, like with Zelda and Mario, to jump start things again.

Atari screwed themselves by trying to diversify too much. Instead of focusing on games, they tried to compete in the pc market. I spent hundreds on Atari 400 and 800 crap, with cartridge programs and cassette drives. I'd write my own programs in basic and it would take 20 minutes to try and save - and only would about 60% of the time.

When the Atari 1200xl came out I said screw that and picked up an old 8088 pc, and I think everyone else did the same thing. Unlike an Atari, you could open the thing up and modify. Like add a 1 meg hard drive and not have to boot off a floppy.

The graphics were actually worse than the Atari pc's, but having the flexibility of dos, and not having to buy really expensive cartridges for stand alone programs made up for it. Atari might have been able to catch up, but OS like Gem and MS 3.0 made it just that much worse. Then when the ps1 came out with MS 3.1, Atari was a goner. A "fast" pc with the graphical OS look of an Atari. Game over.