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Netflix estimates that its latest mega-hit “Squid Game†will bring the company, according to Bloomberg, a value of nearly 900 million US dollars, which underscores the stroke of luck that a mega-hit can generate in the streaming age.
Netflix differs from movie studios and TV networks in that it doesn’t generate sales based on specific titles, but uses its catalog and a steady drumbeat of new releases to lure customers in every week. However, the company has a wealth of data about what its customers see and uses it to determine the value of individual programs.
“Squid Game†is notable for its popularity as well as its relatively low cost. The South Korean show, about indebted people in a deadly contest for a cash prize, had an impact value of $ 891.1 million, a metric the company uses to gauge the performance of individual shows. The show cost just $ 21.4 million to produce – about $ 2.4 million per episode. These numbers apply to season one only and are taken from a document detailing Netflix’s performance metrics for the show.
The document underscores how successful that one show has been for Netflix and provides the clearest picture yet of how the world’s most popular online television network judges the success of its programming. Netflix has published selected viewership figures for a handful of television shows and movies, but does not share their more detailed metrics with the press, investors, or even the programs’ own creators. Guessing the popularity of a particular show has become a parlor game in Hollywood, despite the fact that Netflix has started posting dates in Dribs and Drabs.
A lawyer representing Netflix said in a letter to Bloomberg that it would be inappropriate for Bloomberg to disclose the confidential information in the documents that Bloomberg is reviewing. “Netflix does not discuss these metrics outside of the company and is taking significant steps to protect them from disclosure,” said the attorney.
Some of the numbers are self-explanatory and reflect data that Netflix and other services are already reporting. Approximately 132 million people watched at least two minutes of “Squid Game” in the first 23 days of the show, breaking the Netflix record for “Bridgerton”. The two-minute number is the one that Netflix releases for some shows to the public. The company said 111 million people started the show earlier this month, but that was based on data that is a bit older.
While Netflix has announced the number of people starting a show, it has yet to reveal how many people remained to see more of the show (stickiness) or how many people finished the series (completion rate). Linear TV channels report the average number of people who watch a show during its duration, which makes the Netflix two-minute numbers seem excessive in comparison.
In the case of Squid Game, Netflix estimates that 89% of people who started the show watched at least 75 minutes (more than one episode) and 66% of viewers or 87 million people finished the series in the first 23 Days. All in all, people spent more than 1.4 billion hours watching the show, which was produced by Siren Pictures.
The audience figures should cheer up investors who have found enthusiasm for Netflix again after several bumpy months, also because “Squid Game” was so popular. The company reported its slowest subscription growth since 2013 in the first half of the year, blaming the lack of new hit shows for some of its problems. It also blamed the coronavirus for slowing television and film production. The stock has been down for much of the year and lagged the market.
But the company’s stock has risen nearly 7 percent since Squid Game was released on Sept. 17, valuing the company at $ 278.1 billion. Even critical investors expect the company to either raise its third quarter performance or its fourth quarter guidance – if not both.
“We believe Netflix has found a solid and profitable strategy in its content internationalization efforts, and Squid Game is a perfect example of this,” wrote Michael Pachter, an analyst at Wedbush Securities, in an October 14 release. Pachter was the loudest skeptic of Netflix among Wall Street analysts. “This and the ‘Seinfeld’ start in the fourth quarter should provide a solid cushion.”
Some of the metrics Bloomberg sees are more idiosyncratic, and it’s impossible to tell from the document what data Netflix uses to calculate each formula. “Squid Game” scored 353 points on the Adjusted View Share or AVS, which not only reflects how many people saw it, but also how valuable those viewers are. (An AVS greater than 9 or 10 is already considered high.) Viewers who are new customers or who use Netflix less often are considered more valuable, as it suggests that these shows are a reason they weren’t canceled.
AVS is the point at which Netflix begins rating a show by current and former employees, and Impact Score is an estimate of the AVS lifespan of a show.
What makes Squid Game even more valuable is its popularity in relation to its low cost. The show cost less than a recent Dave Chappelle special or just a few episodes of “The Crown”. Netflix measures this using a metric called efficiency, which measures viewership (or AVS) versus cost. According to the document, the show has a 41.7x efficiency when an efficiency of 1x is considered solid. Chappelle’s “Sticks & Stones” was at 0.8X, as reported by Bloomberg this week.
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