Squid Game sets Netflix to better-than-expected Q3

Squid Game

The phenomenal success of Korean thriller series Squid Game helped Netflix to beat forecasts for Q3.

The company recovered from two consecutive underwhelming quarters to add 4.38 million paid subscribers for a total of 213.6 million worldwide. This surpassed internal projections of 3.5 million additions, with almost half of the new adds coming from APAC.

Netflix has forecast 8.5 million paid net subscriber additions for Q4.

Revenue increased by 16% to US$7.48 billion, with earnings per diluted share up 83% to US$3.19.

In a letter to shareholders, the company noted that “a lighter-than-normal content slate in Q1 and Q2 due to COVID-related production delays in 2020” was behind the underwhelming H1. The letter goes on to praise the shows and movies released in the quarter, and predicted “our strongest Q4 content offering yet.”

Squid Game success

Nothing has been more of a success story for Netflix in 2021 than Squid Game. The Korean series had already been reported as Netflix’s biggest ever series launch, but the company revealed that 142 million households globally had watched at least two minutes of an episode as of the end of September. That translates to two-thirds of all subscribers.

On an investors call, co-CEO Ted Sarandos celebrated the series and said that it is a good indictment of the exposure that international content creators can experience by partnering with the streamer.

Reed Hastings

He said: “The one thing we can promise international creators is the possibility of having Squid Game experience, where the star of your show in Korea can go from 400 thousand social media followers to 15 million in five days.

“It’s that kind of thing that happens on this – that can happen on Netflix because we have this really engaged fan base and we have this UI that recognises and helps them figure out how to find the show they’re going to love. Even if they’ve never watched the show from Korea, I think it’s an amazing proof point of the content, but it’s also an amazing proof point of the delivery system that helps people find content.”

Fellow co-CEO Reed Hastings also followed up on the company’s recent investments in the video game space, and presented a hypothetical situation in which original content can get even more exposure via different multimedia experiences. He said: “Imagine 3 years from now and some future Squid Game is launching and it comes along with an incredible array of interactive gaming options and it’s all built into the service. And then, of course, you’ve got your off-Netflix aspects, the experiences that we’re building out, consumer products, all of that coming together.”

Such is the hype around Squid Game that Hastings appeared during the earnings interview wearing the show’s now iconic green tracksuit.

Measurement changes

As part of its earnings release, Netflix also said that it will start to report viewership statistics measured as the total number of hours viewed of a programme during its first 28 days on the platform. 

Ted Sarandos

This marks a significant change for Netflix, which has been historically criticised for obfuscating viewing metrics with potentially misleading statistics. Currently, the company counts a ‘view’ as an account watching at least two minutes of a show or movie.

In its letter, Netflix said: “Later in the year, we will shift to reporting on hours viewed for our titles rather than the number of accounts that choose to watch them. There is some difference in rankings, as you see below, but we think engagement as measured by hours viewed is a slightly better indicator of the overall success of our titles and member satisfaction. It also matches how outside services measure TV viewing and gives proper credit to rewatching.”

The company also noted that its title metrics will become more readily available outside of earnings reports “so our members and the industry can better measure success in the streaming world.”

Addressing controversy

Things have not however been entirely smooth sailing for Netflix during the quarter however.

Netflix has been embroiled in controversy over Dave Chapelle’s high-profile comedy special The Closer. The special has been heavily criticised for anti-trans rhetoric and Netflix’s trans employee resource group (ERG) has planned a walkout on October 20 as a result.

The Closer

Much of this situation has been exasperated by Netflix itself, which earlier this week fired the employee who was behind the walkout. 

This came after co-CEO Ted Sarandos backed the special and published a memo in which he argued that “we have a strong belief that content on screen doesn’t directly translate to real-world harm.”

Sarandos however has appeared to back down slightly in an interview with Variety that was published shortly after the earnings release. 

The exec admitted that “I screwed up that internal communication” and that “I should have led with a lot more humanity.”

He continues to defend the special on the basis of “creative freedom and artistic expression,” but said that he failed to recognise that “I had a group of employees who were definitely feeling pain and hurt from a decision we made – and I think that needs to be acknowledged up front before you get into the nuts and bolts of anything.”

Ultimately however, Sarandos fails to agree with the ERG’s assertion that comments made in The Closer constitute hate speech and said “I do not believe it falls into hate speech.”