Business
Riot’s $250-million ‘Arcane’ TV series was a Netflix hit, financial miss
When Riot Games first decided to make a TV show inspired by its hit game “League of Legends,” the video game publisher took the unusual step of developing and financing the project on its own. While most of its peers license titles to Hollywood studios that have experience making TV, Riot wanted to maintain full control.
The company envisioned the show, which streams on Netflix, as a gift to fans, one that would also drive more people to play “League of Legends.” Now 15 years old, that game remains one of the most popular titles on the planet, but its player base is slowly shrinking.
Riot believed the show would be the first of many produced by its new entertainment division, which would transform the Los-Angeles based company into the next Walt Disney Co.
But “Arcane” went way over budget. Riot invested unprecedented sums and years developing the project. In addition to the production costs, the company put tens of millions of dollars more into marketing the show, as well as on a campaign for awards. All told, Riot spent about $250 million on two seasons of the series, “League of Legends” executive producer Paul Bellezza said in an interview with Bloomberg.
Netflix paid Riot about $3 million an episode to air the show, with Tencent Holdings Ltd., the Chinese technology giant that owns Riot, paying an additional $3 million for the rights to show it in China, according to Variety. Those payments amounted to less than half the total cost.
Four people with knowledge of “Arcane’s” production said the company didn’t have a robust plan to recoup the cost of the show before it launched. A spokesman for the company said that while the show itself wasn’t profitable, it added to the business in other ways. The company had one of its highest grossing revenue periods in the past month. “‘Arcane’ was a success when we look across all our internal measures,” the spokesperson said, adding that the second season is “on track to be at least break-even for us financially.”
Riot fired 11% of its staff at the start of the year, saying it wanted to put games back at the center of its business. The company scaled back its Hollywood ambitions in recent months, ending “Arcane” and pausing development on other adaptations.
Riot reorganized its entertainment division and President Shauna Spenley left, as did Ken Basin, the author of a book about how to make TV shows who served as head of operations for the film and TV unit.
“If they had seen an absolutely ginormous increase in revenue, in profit, they would have done more,” said Simon Pulman, who co-chairs the media and entertainment group at the law firm Pryor Cashman LLP. “It’s as simple as that.”
Video game publishers have turned their biggest hits into films for decades. The early results were poor. Nintendo Co. had such a negative experience with 1993’s “Super Mario Bros.” that it took the Japanese company three decades to allow another to be released. Yet, in recent years, the adaptations have started to win over audiences and critics. Universal Pictures’ take on “Mario” last year grossed nearly $1.4 billion at the box office.
Publishers have historically licensed their characters to Hollywood studios, offloading much of the financial risk. Lately, publishers have been mulling over how to bring those theatrical audiences back into their games, where they can spend money on digital items.
Riot has a history of spending generously on keeping its millions of players engaged and happy. Riot’s esports arm wasn’t profitable more than a decade after launching, for example.
The company decided to finance “Arcane” to ensure the quality of the project. In 2020, it hired Spenley, who previously worked at Netflix Inc., to build out its team. She then hired Brian Wright, another former Netflix employee. Riot doubled the size of the group tasked with connecting its games to the entertainment industry to more than two dozen people. Managers expecting to bring in new employees were told to budget for $250,000 a person.
“For us, what’s most important is fostering long-term player engagement and retention,” according to a Riot spokesperson. “Riot’s focus has always been on creating games and experiences that players want to enjoy for years, and ‘Arcane’ is part of that larger vision.”
“Arcane’s” very existence was controversial among some employees. Some Riot employees resisted the mandate to funnel resources into the show, according to six current and former staffers. The pricey passion project, backed by former Chief Executive Nicolo Laurent, sapped precious resources from “League of Legends,” Riot’s most important business. Laurent was trying to increase Riot’s valuation by diversifying beyond games.
The first season of the show was a critical success, earning four prizes at the 2022 Emmy Awards. It also topped Netflix’s chart of the most-watched titles in dozens of countries.
Yet interviews with Riot Games employees and industry analysts indicate it was a commercial failure for the company. Riot spent so much of its own money developing and marketing the show that it didn’t make money from the production. The show also failed to convert many new players or get existing players to spend more money on “League of Legends.”
Leaders on “Arcane’s” first season didn’t give Riot’s in-game item designers enough time to make new, “Arcane”-themed items or characters for sale in the game. While new players signed up for free “League of Legends” accounts, not very many stuck around, according to two people with knowledge of sign-ups. The game is famously complicated to learn and its community can be hard on new players.
“We were really surprised with the success of Season 1,” Bellezza, the “League of Legends” executive producer, said. That’s “why we probably missed an opportunity to do some in-game activations around it.”
Between its first and second seasons, Tencent started asking questions about what “Arcane” was adding to Riot’s core video game business, according to two people with knowledge of the relationship.
For the show’s second season, Riot planned to redouble efforts to funnel “Arcane” fans into “League of Legends,” where they could purchase themed digital items. The game is free but earns billions of dollars yearly through the sale of in-game cosmetics and characters, according to current and former employees.
This time Riot gave employees two years instead of just a few months to produce digital goods players could spend on. Eight new costumes based on “Arcane” characters were released since November, each selling for the equivalent of $10 to $14.
One skin for protagonist Jinx, which players can purchase chances to win, may cost up to $250, according to some estimates. Another character, Ambessa, costs the equivalent of $9.30. A high-budget music video accompanied her launch. Many employees questioned whether Riot would have been better off just improving its video game and designing items employees knew players would like.
Over the last few years, video game companies are asking more questions about how to get fans of their games’ TV and movie adaptations to play their games, said Pulman.
Hasbro Inc. spent years producing and financing film and TV projects based on its toys, including the successful “Transformers” film franchise. While the company will still license its games for projects, it won’t fully finance them anymore. For its upcoming Netflix series based on the Magic: The Gathering card game, Hasbro is taking a more targeted approach to attracting new audiences.
“Just getting an epic show isn’t enough,” said Rebecca Shepard, vice president of the “Magic” franchise. Hasbro is considering digital play experiences and merchandise for existing players as well as people who might be intimidated by the card game.
D’Anastasio writers for Bloomberg.
Business
U.S. Space Force awards $1.6 billion in contracts to South Bay satellite builders
The U.S. Space Force announced Friday it has awarded satellite contracts with a combined value of about $1.6 billion to Rocket Lab in Long Beach and to the Redondo Beach Space Park campus of Northrop Grumman.
The contracts by the Space Development Agency will fund the construction by each company of 18 satellites for a network in development that will provide warning of advanced threats such as hypersonic missiles.
Northrop Grumman has been awarded contracts for prior phases of the Proliferated Warfighter Space Architecture, a planned network of missile defense and communications satellites in low Earth orbit.
The contract announced Friday is valued at $764 million, and the company is now set to deliver a total of 150 satellites for the network.
The $805-million contract awarded to Rocket Lab is its largest to date. It had previously been awarded a $515 million contract to deliver 18 communications satellites for the network.
Founded in 2006 in New Zealand, the company builds satellites and provides small-satellite launch services for commercial and government customers with its Electron rocket. It moved to Long Beach in 2020 from Huntington Beach and is developing a larger rocket.
“This is more than just a contract. It’s a resounding affirmation of our evolution from simply a trusted launch provider to a leading vertically integrated space prime contractor,” said Rocket Labs founder and chief executive Peter Beck in online remarks.
The company said it could eventually earn up to $1 billion due to the contract by supplying components to other builders of the satellite network.
Also awarded contracts announced Friday were a Lockheed Martin group in Sunnyvalle, Calif., and L3Harris Technologies of Fort Wayne, Ind. Those contracts for 36 satellites were valued at nearly $2 billion.
Gurpartap “GP” Sandhoo, acting director of the Space Development Agency, said the contracts awarded “will achieve near-continuous global coverage for missile warning and tracking” in addition to other capabilities.
Northrop Grumman said the missiles are being built to respond to the rise of hypersonic missiles, which maneuver in flight and require infrared tracking and speedy data transmission to protect U.S. troops.
Beck said that the contracts reflects Rocket Labs growth into an “industry disruptor” and growing space prime contractor.
Business
California-based company recalls thousands of cases of salad dressing over ‘foreign objects’
A California food manufacturer is recalling thousands of cases of salad dressing distributed to major retailers over potential contamination from “foreign objects.”
The company, Irvine-based Ventura Foods, recalled 3,556 cases of the dressing that could be contaminated by “black plastic planting material” in the granulated onion used, according to an alert issued by the U.S. Food and Drug Administration.
Ventura Foods voluntarily initiated the recall of the product, which was sold at Costco, Publix and several other retailers across 27 states, according to the FDA.
None of the 42 locations where the product was sold were in California.
Ventura Foods said it issued the recall after one of its ingredient suppliers recalled a batch of onion granules that the company had used n some of its dressings.
“Upon receiving notice of the supplier’s recall, we acted with urgency to remove all potentially impacted product from the marketplace. This includes urging our customers, their distributors and retailers to review their inventory, segregate and stop the further sale and distribution of any products subject to the recall,” said company spokesperson Eniko Bolivar-Murphy in an emailed statement. “The safety of our products is and will always be our top priority.”
The FDA issued its initial recall alert in early November. Costco also alerted customers at that time, noting that customers could return the products to stores for a full refund. The affected products had sell-by dates between Oct. 17 and Nov. 9.
The company recalled the following types of salad dressing:
- Creamy Poblano Avocado Ranch Dressing and Dip
- Ventura Caesar Dressing
- Pepper Mill Regal Caesar Dressing
- Pepper Mill Creamy Caesar Dressing
- Caesar Dressing served at Costco Service Deli
- Caesar Dressing served at Costco Food Court
- Hidden Valley, Buttermilk Ranch
Business
They graduated from Stanford. Due to AI, they can’t find a job
A Stanford software engineering degree used to be a golden ticket. Artificial intelligence has devalued it to bronze, recent graduates say.
The elite students are shocked by the lack of job offers as they finish studies at what is often ranked as the top university in America.
When they were freshmen, ChatGPT hadn’t yet been released upon the world. Today, AI can code better than most humans.
Top tech companies just don’t need as many fresh graduates.
“Stanford computer science graduates are struggling to find entry-level jobs” with the most prominent tech brands, said Jan Liphardt, associate professor of bioengineering at Stanford University. “I think that’s crazy.”
While the rapidly advancing coding capabilities of generative AI have made experienced engineers more productive, they have also hobbled the job prospects of early-career software engineers.
Stanford students describe a suddenly skewed job market, where just a small slice of graduates — those considered “cracked engineers” who already have thick resumes building products and doing research — are getting the few good jobs, leaving everyone else to fight for scraps.
“There’s definitely a very dreary mood on campus,” said a recent computer science graduate who asked not to be named so they could speak freely. “People [who are] job hunting are very stressed out, and it’s very hard for them to actually secure jobs.”
The shake-up is being felt across California colleges, including UC Berkeley, USC and others. The job search has been even tougher for those with less prestigious degrees.
Eylul Akgul graduated last year with a degree in computer science from Loyola Marymount University. She wasn’t getting offers, so she went home to Turkey and got some experience at a startup. In May, she returned to the U.S., and still, she was “ghosted” by hundreds of employers.
“The industry for programmers is getting very oversaturated,” Akgul said.
The engineers’ most significant competitor is getting stronger by the day. When ChatGPT launched in 2022, it could only code for 30 seconds at a time. Today’s AI agents can code for hours, and do basic programming faster with fewer mistakes.
Data suggests that even though AI startups like OpenAI and Anthropic are hiring many people, it is not offsetting the decline in hiring elsewhere. Employment for specific groups, such as early-career software developers between the ages of 22 and 25 has declined by nearly 20% from its peak in late 2022, according to a Stanford study.
It wasn’t just software engineers, but also customer service and accounting jobs that were highly exposed to competition from AI. The Stanford study estimated that entry-level hiring for AI-exposed jobs declined 13% relative to less-exposed jobs such as nursing.
In the Los Angeles region, another study estimated that close to 200,000 jobs are exposed. Around 40% of tasks done by call center workers, editors and personal finance experts could be automated and done by AI, according to an AI Exposure Index curated by resume builder MyPerfectResume.
Many tech startups and titans have not been shy about broadcasting that they are cutting back on hiring plans as AI allows them to do more programming with fewer people.
Anthropic Chief Executive Dario Amodei said that 70% to 90% of the code for some products at his company is written by his company’s AI, called Claude. In May, he predicted that AI’s capabilities will increase until close to 50% of all entry-level white-collar jobs might be wiped out in five years.
A common sentiment from hiring managers is that where they previously needed ten engineers, they now only need “two skilled engineers and one of these LLM-based agents,” which can be just as productive, said Nenad Medvidović, a computer science professor at the University of Southern California.
“We don’t need the junior developers anymore,” said Amr Awadallah, CEO of Vectara, a Palo Alto-based AI startup. “The AI now can code better than the average junior developer that comes out of the best schools out there.”
To be sure, AI is still a long way from causing the extinction of software engineers. As AI handles structured, repetitive tasks, human engineers’ jobs are shifting toward oversight.
Today’s AIs are powerful but “jagged,” meaning they can excel at certain math problems yet still fail basic logic tests and aren’t consistent. One study found that AI tools made experienced developers 19% slower at work, as they spent more time reviewing code and fixing errors.
Students should focus on learning how to manage and check the work of AI as well as getting experience working with it, said John David N. Dionisio, a computer science professor at LMU.
Stanford students say they are arriving at the job market and finding a split in the road; capable AI engineers can find jobs, but basic, old-school computer science jobs are disappearing.
As they hit this surprise speed bump, some students are lowering their standards and joining companies they wouldn’t have considered before. Some are creating their own startups. A large group of frustrated grads are deciding to continue their studies to beef up their resumes and add more skills needed to compete with AI.
“If you look at the enrollment numbers in the past two years, they’ve skyrocketed for people wanting to do a fifth-year master’s,” the Stanford graduate said. “It’s a whole other year, a whole other cycle to do recruiting. I would say, half of my friends are still on campus doing their fifth-year master’s.”
After four months of searching, LMU graduate Akgul finally landed a technical lead job at a software consultancy in Los Angeles. At her new job, she uses AI coding tools, but she feels like she has to do the work of three developers.
Universities and students will have to rethink their curricula and majors to ensure that their four years of study prepare them for a world with AI.
“That’s been a dramatic reversal from three years ago, when all of my undergraduate mentees found great jobs at the companies around us,” Stanford’s Liphardt said. “That has changed.”
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