With 'Squid Game,' Netflix Captured 'Lightning in a Bottle': Sarandos

With Netflix Q3 net paid subscriber additions finishing about 25% better than projections (see 2110190070), the company thinks it’s getting toward the “tail end of the COVID choppiness of the pull-forward of sub growth” that began with 2020's Q2 lockdowns, said Chief Financial Officer Spencer Neumann on a Tuesday video earnings interview.

The Netflix business “remained healthy” in Q3, with churn at “low levels,” lower even when compared with the 2020 quarter or the pre-pandemic third quarter of 2019, said Neumann. “Retention was very healthy and viewing was up.” As the third quarter progressed into September, “we saw acceleration in our growth, which is what we had been hoping for and expecting, but it was good to see as we got into the strength of our schedule,” including the mid-September debut of Squid Game, he said.

Netflix is forecasting 8.5 million net paid additions for Q4, about flat compared with the 2020 quarter. If Netflix meets the projection, it will have finished 2021 with 18.4 million paid net adds, about 49.7% fewer than the 36.6 million adds in 2020.

“You can't come off the craziness of COVID and be confident of the next two years,” said co-CEO Reed Hastings when asked to predict long-term subscription growth. The Netflix installed base of 200 million+ homes is “pretty small, compared to pay-TV households,” he said. “Plenty of room for growth.”

The streaming industry “is developing at a great pace,” with “all kinds of devices and competitors” helping fuel and sustain that market growth, said Hastings. Squid Game is the “biggest TV show ever” to debut on the Netflix platform, said Tuesday’s shareholder letter. A “mind-boggling” 142 million homes globally watched the show in its first four weeks, it said. “The breadth of Squid Game’s popularity is truly amazing.” The show of South Korean origin is ranked the top Netflix title in 94 countries, including the U.S., it said.

How a show “can go viral,” as Squid Game did, “is really hard to predict, but it's super powerful when it happens,” said co-CEO and Chief Content Officer Ted Sarandos. “The show has to deliver the goods to be able to deliver that much viewing.” It took Squid Game creator Hwang Dong-hyuk “10 years trying to sell the show,” he said.

The Netflix team in South Korea “recognized something” in Squid Game “that nobody else did,” including senior management, said Sarandos. The team in Seoul also “created an environment for that creator to make a great show,” he said. “Sometimes you think you've got lightning in a bottle and you're wrong, and sometimes you think you've got a great green show that turns out to be lightning in a bottle for the world.” Netflix teams “are doing that around the world,” he said. “The thing that they're mostly focused on is a great windfall when these things happen, but they're mostly focused on a bunch of shows you never heard of.”

The “one thing” Netflix can promise international creators “is the possibility of having a Squid Game experience, where the star of your show in Korea can go from 400,000 social media followers to 15 million in five days,” said Sarandos. “That can happen on Netflix because we have this really engaged fan base,” plus a user interface that “helps them figure out how to find the show they're going to love,” he said. “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.”

Sarandos wasn't asked on the live video, and didn't address, Wednesday's planned employee walkout to protest his defense of allegedly transphobic and homophobic content on Dave Chappelle's Netflix comedy special, The Closer. “Stand-Up for Solidarity” organizers staged a rally outside a Netflix facility in Hollywood Wednesday in support of the walkout. Sarandos ultimately told the Wall Street Journal that he "screwed up" when he defended the special.