Why Riot Games’ Entertainment Aims Stalled Beyond ‘Arcane,’ the Priciest Animated Series Ever (EXCLUSIVE)

When the TV series “Arcane” returns to Netflix on Nov. 9, it will be difficult to top its first season. In addition to collecting four Emmy Awards in 2022, including outstanding animated program, it was the No. 1 TV show in 85 countries served by the streaming service.

Nevertheless, this second season had already been announced as the show’s last, though it was initially budgeted for a five-season arc. What’s more, it’s the only TV or film content ever generated by Riot Games, the company that produced “Arcane,” despite the fact that the Los Angeles-based gaming powerhouse set an ambitious course roughly five years ago to expand further into scripted entertainment.

Best known as creator of the “League of Legends” franchise from which “Arcane” was adapted, Riot hired multiple executives from top media companies with the understanding they were building out a full-fledged entertainment division to assemble a slate of live-action and animated TV and films based on Riot intellectual property.

Then-CEO Nicolo Laurent made his goal clear, going so far as to pledge in an interview that he was building the “entertainment company of the 21st century.”

But for all that talk of its aspirations, Riot has virtually nothing to show for it beyond “Arcane,” which sources revealed will have cost the company approximately $250 million to produce and promote over 18 total episodes, making it far and away the most expensive animated series ever on streaming or linear TV. The profligate spending and unrealized ambitions are a reflection, according to sources in and around the company during that period, of the company’s inexperience navigating the intricacies of entertainment production.

Nevertheless, Riot co-founder and chief product officer Marc Merrill reaffirmed Riot’s commitment to producing high-quality film and TV but acknowledged a learning curve.

“Our ambitions in entertainment haven’t changed,” Merrill wrote in an email responding to questions for this article. “We were never intending 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’d originally expected, and so we recalibrated our development, output goals and teams with that in mind.”

As for the $250 million price tag, Merrill declined to confirm but said, “We’re more than comfortable with the spend it took to deliver a show that was worthy of our players’ time.”

Despite its missteps in Hollywood, Riot has been a juggernaut in the video game world since the 2009 launch of “Legends,” an online multiplayer PC game that has drawn 180 million monthly active players around the world (including related spinoffs). While “Legends” costs nothing to play, the lion’s share of the estimated $3 billion in topline revenue Riot generated last year comes from the sale of “skins,” or virtual merchandise sold in-game, a common source of revenue for many live services in gaming.

In addition, the company has successfully expanded into esports and music from its sprawling headquarters scattered across multiple buildings in Santa Monica. Just a few years ago, Riot was said to be one of the biggest lessees of office real estate in Los Angeles, its signage featuring the company logo of a closed fist looming on various edifices over a multiblock stretch on Olympic Boulevard.

“Arcane” was the brainchild of Christian Linke and Alex Yee, members of Riot’s player support team with no experience producing who had an idea for a TV show drawn from the “Legends” mythology. In 2016, Riot took a flier on them and gave permission to create a pilot with Fortiche, a Paris-based animation studio that had worked with the company previously but only on music videos and other short-form promotional materials.

Sources familiar with details of the production pegged the cost of the first nine 40-minute episodes at north of $80 million; the second batch of nine about to air has a price tag approaching $100 million. What drove the cost far beyond typical animation expenses, insiders say, were both a labor-intensive approach and frequent cost overruns triggered by delayed script deliveries after the second season was put into production with only a fraction of the season written.

But even more eyebrow-raising than the production cost was that Riot spent $60 million of its own money to promote the first season of “Arcane,” exponentially more than a studio would typically spend for a show it isn’t distributing — and far more than Netflix itself spent. Reps for the streaming service declined to comment for this article.

The outlay is all the more questionable considering Riot already had a massive subscriber base via “Legends” and other games to promote the series on the cheap but paid up for extravagant stunts like a takeover of the Burj Khalifa skyscraper in Dubai. While second-season marketing costs aren’t known, they’re estimated to be far less than the first.

For a company generating billions of dollars with miniscule margins on virtual products, the expense didn’t discourage Riot from stretching into Hollywood. Emboldened by the success of “Arcane,” Laurent saw expanding into entertainment as a means of increasing the valuation of Riot and diversifying it the way the company had already done by successfully taking “Legends” into esports. 

But there were expensive stumbles made early in Riot’s efforts. As early as 2020, sources said the company successfully enlisted Anthony and Joe Russo, sibling producers who architected the “Avengers” franchise at Marvel, to develop a film project set in the “Legends” universe. Then when Riot reconsidered the creative approach it had requested of the Russos, a badly negotiated agreement resulted in Riot having to pay them $5 million to walk away from the project due to a deal point that would have tied the company to a script that was no longer what they wanted. Reps for the Russo’s company, AGBO, declined to confirm the heretofore unreported deal, as did a rep for Riot.

Riot recruited experienced execs from Disney, Paramount, HBO Max and most notably Netflix, which yielded a well-regarded 15-year marketing veteran, Shauna Spenley, who was named president of global entertainment at the end of 2020. She in turn brought other Netflix execs, including Brian Wright, who came on as chief content officer, and Emily Briggs, global head of entertainment finance and strategy.

Spenley made clear she saw Riot as ground zero for the inevitable intersection of entertainment and games but pledged patience in properly exploiting the Marvel-scale trove of hundreds of game characters at her disposal. “We can only aspire to tell phenomenal and great stories with this vast world that they’ve created,” she said of Riot in an interview with Variety in 2022. “But I think we have a very long runway with IP like this.”

What was notable regarding Riot’s approach was that the company held onto the intellectual property it wanted to develop into TV and bet that whatever it lacked in experience of producing long-form video content could be compensated for by expertise from the outside.

The strategy was a notable deviation from the era of gaming-inspired entertainment that preceded the current hot streak this subgenre is enjoying, from “The Last of Us” to “Five Nights at Freddys.” Studios were routinely criticized for their ham-handed handling of properties they didn’t really understand well enough to translate to entertainment, from 1993 fiasco “Super Mario Bros.” to the doomed “Doom” adaptation led by Dwayne Johnson in 2005.

However, what made sense in 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 Laurent’s vision to reality and the rest of the company. Multiple sources noted skeptics who never bought in, from a management team with which Spenley & Co. completely didn’t gel to the Riot rank-and-file, many of whom were hard-core gamers who largely saw entertainment as a distraction from the company’s core competency.

But there was also the challenge of the company’s founders, Merrill and Brandon Beck, who were observed to be skittish about commitment to a full development slate in light of the high creative standards they’d applied to everything Riot.

Merrill countered that their thinking evolved on getting projects made, but it sprung from the company’s tightly held convictions about maintaining quality control. “We definitely recalibrated our expectations for output, but to us, that’s okay — like making an incredible game, we believe the most important thing is to get it right,” he said via email.

Riot observers say Laurent was able to put his plan into action because the founders themselves did not have any ongoing executive oversight of the company at the time, leaving him to drive his agenda without interference. But a representative for Riot disputed this, saying Merrill and Beck remained involved even during a relatively hands-off period.

By May 2023, Laurent announced he was leaving, citing a wish to return to his native France with his family. (He did not respond to a request for comment on this article.) He was replaced by Riot president Dylan Jadeja, who wasn’t averse to the entertainment business but renewed the company’s focus on gaming..

Merrill maintains there was never really a significant strategic shift and that Laurent’s “21st-century entertainment company” message has long been misinterpreted: “Nicolo used the phrase pretty broadly when talking about the future and often coupled it with ‘… with games at the center.’ ”

However, the entertainment division, once one of five Riot operating divisions — known in its corporate parlance as “pillars” — was essentially disbanded. Leaders of various parts of the entertainment business were scattered to other parts of the company. Ambitious plans were scrapped to build out a section of the company’s home in the ElementLA building to house the team and impress Hollywood, but a Riot rep disputed the project was ever beyond preliminary consideration by the company.

The Riot rep also noted that the entertainment division was not singled out and that the dissolution of the department was a byproduct of a broader mandate under Jadeja to remove silos across the company and foster collaboration.

Cutting back on entertainment would be received as a welcome acknowledgement of the increasingly difficult video game market in the wake of the pandemic, as consumer gaming activity began to fall back to pre-COVID levels. In January, Riot cut 530 jobs, a sizable layoff to be sure but consistent with the deep cuts many leading companies in the gaming industry have been making in early 2024. Another smaller round of cuts was made in October.

Nevertheless, with many of the departing employees toiling on the company’s core products, de-emphasizing entertainment played well internally. But for all the previous regime’s talk, entertainment was never actually a significant cost center for Riot; internal estimates say it contributed to no more than 2% of operating expenses.

In August, the company announced a restructuring — the “recalibration” Merrill referenced earlier — that effectively split development work on its live-action and animation efforts. Also announced was the departure of Spenley, who referred to the exit as a “bittersweet decision” in a memo she circulated internally. Weeks later came the announcement she had signed on as CMO of Max. Few were surprised, given the perception her division had essentially been pulled out from under her; Spenley declined comment for this article.

In the new split structure, live action was designated as part of the company’s research and development arm. “We view this work as R&D, so we want to nurture it separately and explore what’s possible over the long term,” Jadeja explained in an internal memo Variety obtained.

Nevertheless, Riot is no closer to putting a project into production as season 2 begins than it was when season 1 ended. While various writers have come and gone, not a single script ordered got anywhere near a greenlight for so much as a pilot or was even far enough along to have any directors or stars attached.

Merrill noted that Riot has bought an entire season’s wort of scripts for a live-action limited series drawn from “Legends” IP from Justin Piasecki, who Variety named one of its top screenwriters to watch in 2023.

Another project that has a chance at seeing the light of day might be a feature animation project “Arcane” co-creator Linke has in the works. In press interviews to support the second season, he has floated the possibility of more projects to come drawn from the “Legends” IP universe.

While Riot reps and sources point to activities like relatively recent scouting locations and concept-art renderings, they’re understood to be exploratory measures at best. But Merrill is steadfast in his belief that the world has not heard the last of Riot on the production front.

“I understand why that change could feel to some folks like we’re moving away from our aspirations in entertainment, but that’s absolutely not the case,” he stated via email. “We have projects in development and are just as excited about the possibilities in TV and film as we’ve ever been.”

“Arcane” will almost certainly not be profitable for Riot, despite the $3 million per episode license fee Netflix paid for its worldwide distribution rights, with the exception of China, where Riot parent company Tencent will kick in another $3 million per episode. All sorts of ancillary revenue streams including skin sales and merchandise that weren’t available during the first season of “Arcane” will attempt to help recoup the deficit in season 2, but breaking even is seen as the best-case scenario.

Taking its entertainment efforts to the next level may take more time for Riot. Still, this is a company that has seen big change play out before. Riot gained notoriety for a workplace culture steeped in sexism thanks to a 2018 lawsuit that was settled for $100 million at the end of 2021. But the company has made huge strides to clean up its culture in recent years; just last week, The Hollywood Reporter crowned Riot the best place to work in Hollywood.

Meanwhile, expectations are high for the second season of “Arcane,” though Netflix may find the potential audience could be diluted by the fact that five partially completed episodes were pirated and leaked online in August, visible with a “For Internal Use” watermark.

In an August memo announcing the restructuring, Jadeja reaffirmed his commitment to the mission set in place by his predecessor, but it was qualified by a candid admission that seemed to acknowledge the bumpy road Riot has traveled. “Our ambitions in entertainment remain high,” he wrote, “but creating an entertainment portfolio with the standards we hold is … really hard.”