Squid Game shows how Netflix has mastered the art of retaining subscribers

Netflix TV Series ‘Squid Game’ on Laptop Computer Arranged in Brooklyn, New York City, USA | Bloomberg

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TTV fans have been ready to try just about every new streaming TV service. But “Squid Game” shows how Netflix Inc. has uniquely mastered the art of keeping subscribers.

Netflix beat expectations Tuesday by announcing 4.38 million new net members for the third quarter, with strong momentum coming from the Asia-Pacific region as the United States and Canada return to growth. But even these results do not fully reflect the “Squid Game” phenomenon of the past few weeks, which perfectly demonstrates how Netflix has turned serendipity into a reliable business strategy. This contrasts with the industry’s risk-averse fixation on familiar franchises and reliable old ones.

In mid-September, just before the end of the quarter, Netflix released a Korean-language series featuring no globally recognizable actors and a fiercely dystopian storyline that was turned down by studios for years because it sounded too grotesque. . And yet the lure of a bizarre plot, a mysterious title, and a high degree of FOMO has fueled curiosity for the “Squid Game” around the world, making it Netflix’s greatest series to date. this day.

In early October, Netflix’s mobile downloads exploded. Apptopia estimates that the app was downloaded 777,000 times on October 4, the highest number since the start of the year. “Squid Game” has since been parodied on NBC’s “Saturday Night Live”. Imitation mobile games dominated the iPhone charts. And spooky, series-themed costumes should be everywhere this Halloween. “Squid Game” even featured James Bond on its opening weekend at the movies. Due to the show’s success and a pickup from other Covid-19 production delays last year, Netflix expects app registrations to rise to 8.5 million in the fourth quarter.

According to closely watched internal documents that were uncovered by Bloomberg News this week, Netflix also estimates that “Squid Game” generated $ 891 million in “impact value.” What this means is not entirely clear: Netflix calculates what is called an Adjusted View Share (AVS) based on the audience and estimated value of those viewers; the AVS lifespan of a program becomes its impact value, Bloomberg reported.

This formula for deriving value in the absence of box office ticket sales, ad revenue, or any other traditional measure of performance indicates how the industry can determine financial success going forward. It also shows how a series that might be viewed from the outside as a flash in the pan can instead be a major profit driver. For subscription services, the most profitable investments are productions that motivate a bored customer to take an interest in them again rather than cancel.

In an attempt to translate Netflix’s metrics into language investors can understand, Matthew Harrigan, analyst for Benchmark & ​​Co., estimated that the company had acquired around 7 million members of “Squid Game.” Those users, if they never cancel, translate to $ 4 billion worth of Netflix, he wrote in a report earlier on Tuesday. This equates to 1% of Netflix’s market cap.

Netflix has been criticized for not having enough lasting franchises like Marvel and Star Wars. Having these would certainly help its efforts to expand into merchandise licensing, which is one of Walt Disney Co.’s most profitable businesses. Yet while these franchises may have helped Disney + attract many subscribers, its narrow focus could also limit the ultimate size of its subscriber base. Even for viewers who favor a specific genre, the overwhelming majority of their viewing time is spent on services with broad menus, according to a recent survey by Parks Associates.

Netflix still expects free cash flow to break even this year. Even one of the stock’s biggest bears, Michael Pachter of Wedbush Securities Inc., estimates that Netflix will generate an additional $ 1 billion in free cash flow each year to reach $ 9.4 billion by 2030. Disney’s operations have generated about $ 6 billion a year on average for the past decade, according to data compiled by Bloomberg.

Streaming is an expensive business, and it will be difficult for Hollywood to replicate the favorable conditions that have made it so wealthy in the era of cable TV and movie theaters. Now it’s a matter of preventing that suspended subscriber from falling. Stop millions from doing it and companies like Netflix could rake in billions. –Bloomberg

Read also : ‘Squid Game’ beats top U.S. shows, becomes Netflix’s biggest series launch

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About Oscar L. Smith

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