Why Riot Games’ Entertainment Ambitions Stalled Beyond ‘Arcane’

of top executives at Riot Games. But the conversation was less about the state of video games and more about their ambitions than to produce TV and film. They were coming off the successful launch of their first animated series on Netflix, and we're signaling they wanted to do more now that series is back for a second season, which got me wondering why we hadn't seen any other entertainment from this company. Well, now that I've done some asking around,

I've got plenty to share. Stick around. We'll be back in just a moment with an exclusive update that goes inside Riot Games. Welcome back to Strictly Business. November ninth marks the return to Netflix of the animated series Arcane. To return Piece to the City, you Must Declare Martial Law, top side is the real enemy.

the Emmy for Outstanding Animated Series. So when I sat down almost exactly two years ago with Riot Games co founder and chief product officer Mark Merrill, as well as its lead entertainment executive Shanna Spenley to talk about their ambitions in the entertainment space, I was not surprised to hear they had big but preliminary plans to do more productions, even outside in animation and even in movie form. But two years later, yours what did end up surprising me?

Nothing seemed to come of all that ambition. So I got to checking back with sources in and around the company to understand just why that was. And that's what I'll explore in great detail today, along with some excerpts from that twenty twenty two interview with Riot Games. First, let me just hit some of the key points we'll

be exploring further in this episode. What I learned about Riot's efforts and entertainment was that despite hiring a team of executives experienced in the ways of entertainment to focus on building out a slate of programming based on Riot intellectual property, just like Arcane, not a single project beyond that show has been fully developed. Riot is no closer to putting project into production as season two of Arcane begins than when season one ended, and by the way,

there won't be a season three of Arcane either. Why did Riot Games not end up making good on its ambition, Well, there's a number of key reasons. When the CEO who was driving the entertainment effort back then, Niccolo Laurent, unexpectedly stepped down last year, new leadership pulled back on its entertainment plans. The entertainment division also faced plenty of skepticism up and down a company that had many who preferred to keep Riot focused on its core competency in video games.

That entertainment division was also practically dissolved as part of a broader restructuring that the company announced last year under a new CEO. But in an interview with Mark merrill I conducted recently over me email, he defended Riot's track record in entertainment and said the company was still very much committed to producing for TV and film, but on

its own timeline. Now, before we dig in any further, let's provide some background about Riot Games, for which beating Hollywood at its own game is really far from a first priority. The bread and butter is its video game business, responsible for driving an estimated three billion dollars in top line revenue last year, and the allion's share of that comes from the game that put Riot on the map back in two thousand and nine when it first launched,

called League of Legends. Now, for those living under rocks who have never heard of this gaming behemoth, here's Mark Merrill from my twenty twenty two interview explaining what League of Legend is all about.

engagement really comes from the fact that you're leveling up, you're trying to kill other players. Essentially, if you it's sort of mode analogous to say basketball, where you know the court and the rules are relatively simple, but every game is different because there's so much player express creativity and so League has you know, little over three billion monthly hours of engagement, you know, just playing the game.

And so one of the things that's also important to understand about League is that it is a very hardcore game, and that it is you know, we always thought about it as a targeting niche, and it turned out that, especially on a global stage, you know, that niche was much larger than we ever anticipated. And so the game operates as a service. It's completely free, and you know, you never have to spend any money in the game

if you don't want to. And our business has really premised upon actually selling cosmetic virtual goods, and so it was incredibly difficult to raise money back in two thousand and six and thousand and seven when Brandon and I are twenty four and twenty five start in the company, because you know, as one VC put it. They're like, wait, you're going to have a multiplayer online battle arena game

where college age kids are killing each other online. And then the way you're gonna make money, they're gonna playdress up all and we're like, kind of but not really, and they're yeah, good luck with that, and so you know, but it turned out to work.

the League of Legends intellectual property. The show was the brainchild of Christian Link and Alex Yee, members of Riot's players support team, who had no experience producing a TV show, but they drew from the Legends mythology, and in twenty sixteen, Riot took a flyer on them and gave them permission to create a pilot with a company called Fortisch, which was a Paris based animation studio that the company had worked with on previously, but for nothing as big as

a television show, and they were lucky enough to strike gold right out of the gate. Our Kane was a hit for Netflix. We're going to take a quick break, but when we're back more on Riot Games, Our Kine and the entertainment strategy that hasn't quite gotten off the ground. We are back and I am going to continue my exploration into riot games. With the success of Arcane putting riot games on the Hollywood map, it's a no brainer

that ambition soon kicked in for more. The company recruited some experienced entertainment executives from Disney, Paramount, HBO, Max, and most notably Netflix, which is where SHAWNA. Spenley came after fifteen years as a marketing executive there. She was named president of Global Entertainment at the end of twenty twenty, and she in turn brought other Netflix executives in to

work on this new slate of programming. Back in twenty twenty two, I talked with Spenley and Merrill about what it took to put together a successful team in entertainment.

So I think from our perspective, we're really excited to learn and develop together with game executives, and we're coming into it with a partnership frame of mind. So it's not it doesn't feel odd at all, does it. I mean, it feels like we are building a really strong team that partners together across both.

of course is just is really hard. And so that's where you know, again, I think the luxury of being able to take time and find the right team and sort of experiment and learn has been tremendously helpful.

rich animation pipeline. But that's that's one medium, and you know there are other, of course mediums that may be able to do an incredible job of telling these stories also, and those are things that we're committed to exploring.

for these interconnected, intertwined universes. So we can only aspire to tell you know, phenomenal and great stories with this vast world that we've that you know, they've created that I get the pleasure of working inside of our team. It's interesting. It's like we're not trying to tell too big of a story too quickly. We really like these little pockets of the universe. But I think, I think we have a very long runway with IP like this.

As you all know, Star Wars is forty fifty years old, Lord of the Rings older, and so multi generational IP like this should go on for fifty to one hundred years, and so we want to be really patient and treat it with care.

do that. But you know, I think we're benefited again by the ability for us to really think long term and try to be focused on again investing in the IP rather than exploiting the IP for sort of a short term benefit.

And that strategy was a notable deviation from an era of video game inspired entertainment that preceded the current hot streak. This subgenre, if you'll call it, is enjoying from everything from Max's The Last of Us to the twenty twenty four were hit in cinemas this year. Five Nights at Freddy's Studios were often criticized for their ham handling, handling of properties they didn't really understand well enough to translate

to entertainment. Prince of Persia comes to mind, Super Mario Brothers from nineteen ninety three, and do you remember those Dwayne Johnson that Doom movie in two thousand and five. I barely do myself. However, what made sense and theory didn't work as well in reality at Riot. For one thing, there was a disconnect between the entertainment team brought in to bring Lorentz Laurent's vision to reality and the rest

of the company. Multiple sources I spoke to noted that there were many skeptics who never bought in from a management team with which the entertainment division never really gelled to the Riot rank and file, many of whom were

hardcore gamers who largely saw entertainment as a distraction. By May twenty twenty three, the CEO of Riot announced he was leaving, and he was replaced by President Dylan Jadeja, who insider say immediately began to reverse course on Laurent's entertainment expansion, citing a renewed focus on the core gaming business. The entertainment division, which was once one of five Riot operating divisions with the company called Pillars, was essentially disbanded.

Leaders of various parts of the entertainment business scattered to other parts of the company. In August of this year, the company announced a restructuring that basically split development work on its live action and animation efforts. At the same time, SHAWNA. Spenley stepped down, referring to her exit in a memo as a bittersweet decision. Just weeks later, she was rehired at HBO Max, where she is now the CMO looking elsewhere.

It is interesting to note that the cost of Arcane was two hundred and fifty million dollars, which is far and away making it the most expensive animated series ever on linear TV or streaming that covers eighteen episodes over two seasons. Now, Arcane will certainly, almost certainly, I should say,

not be profitable for Riot. It's next impossible the company is going to be able to make up for the fact that despite a three million dollar per episode license fee that Netflix paid for worldwide distribution rights and another three million that Riot's parent company, ten Cent brought in

for China. The fact is all sorts of ancillary revenue streams that weren't available during the first season of Arcane will probably not come up, will probably come up short in its attempt to help recoup the deficit of season two, though company. The company does believe that break even is a potential scenario as well. Now in terms of that two hundred and fifty million dollars, that is something that

is covered across programming and marketing. Sources familiar with details of the production said that the cost of the first nine forty minute episodes ran north of eighty million, and the second batch of nine that are beginning to air now on Netflix cost nearly one hundred million. That's not

even the most eyebrow raising part. It is estimated that Riot spent sixty million dollars of its own money to just promote the first season of Arcane, which is exponentially more than a studio would typically spend for a show it isn't distributing, certainly more than what Netflix spent itself.

The company reason that it was going to have to find audiences outside of the typical places that TV watchers discover television as much of the turbulence as Riot has experienced in recent years trying to get entertainment off the ground. It hasn't discouraged the company. Mark Merrill, who did agree to respond to questions via email, did reaffirm his commitment to continuing in entertainment, and I'll read the quote he

gave me quote. Our ambitions in entertainment haven't changed. We were never attending to operate like a traditional studio with traditional timelines. What did change as we learned more was our expectations of ourselves. We realized that getting it right takes a lot more time than we did originally expected, and so we recalibrated our development, output goals and teams

with that in mind. And as for that two hundred and fifty million price tag, could not get the comment, could not at the company to confirm, but Merrill himself did say, we're more than comfortable with the spend it took to deliver a show that was worthy of our player's time. So there you have it, the story of Arcane and Riot Games and what has gone on with an entertainment strategy that has gone basically a wall over

recent years. Who knows what the future will bring. For more on Riot Games than Arcane, I would refer you back to Variety dot com, where a feature story includes many of the elements we covered in this podcast, but also some things that we did not, including an early negotiation gone wrong with the famous Russo Brothers, the architects of the Avenger franchise, and more commentary from Mark Merrill

addressing all the different allegations made in this story. Thanks for tuning in, appreciate the time, Thanks for listening.