BLOG

Squid serves up Netflix boost

October 27, 2021

Watch 1st season on Squid Game series on ipad screen close up view

Greg Sigel

SVP – North America

Netflix may be losing market share to its rivals, but the company still has several aces up its sleeve. And harnessing the power of its localised content engine may arguably be the best of them. The subscription video on demand (SVOD) market leader signed 4.4m new subscribers in the third quarter of 2021, surpassing expectations of 3.5m and doubling the number it accrued in Q320. Revenue was up 9% year on year to US$7.5bn, while average revenue per membership also increased 5% year on year in constant currency.

Netflix’ third quarter was helped by considerable interest in the Korean fictional drama Squid Game. And it was probably no coincidence that the Asia Pacific region that incubated the TV series was the most significant single contributor to Netflix subscriber growth, accounting for more than half of Netflix’s new customers (2.2m)[i]. Europe, the Middle East and Africa (EMEA) added a further 1.8m and Latin America around 300k. Even the US and Canada, which lost around 400k customers in the previous quarter, added 70k new subscribers.

Netflix now has almost 214m global paid memberships, 74m of which (35%) come from the US and Canada, two countries which between them are responsible for the highest proportion of revenue (US$3.3bn), up 9% year on year in Q321 and accounting for 44% of the total. While the APAC region is growing fastest, it remained Netflix’s smallest overall contributor in subscriber numbers (14% of the global total) and revenue (11%) in Q321. However, at its current pace of expansion, it could be in line to overtake Latin America (18% of subscribers and 12% of revenue) within the next twelve months.

The runaway success of Squid Game has boosted Netflix’ confidence for the fourth quarter too. The company reported that 142m accounts watched at least the first two minutes of the show in its first month, making it the most-watched Netflix program in 94 countries, including the US[ii]. Management now predicts a net add of 8.5m subscribers over the next three months, the most extensive forecast in its history. If that comes to pass, it will represent a significant uptick in performance that will go some way to offsetting an underwhelming year with Netflix management blaming coronavirus linked delays to its unique content production schedule for the shortfall.

Losing SVOD market share

The timely appearance of Squid Game and other original films and television series will be a welcome shot in the arm for Netflix, which is now regularly outpaced by rivals such as Disney+ and AppleTV in terms of new subscriber additions. Reports suggest that while it took Netflix ten years to reach 100m subscribers, Disney+ did the same in just 18 months, for example. Disney is yet to report subscriber numbers for its latest financial quarter and financial year ending 3rd October 2021. Still, it signed 12.4m new customers in the three months to July, significantly more than Netflix in a comparable period (see Disney+ clocks impressive growth).

Netflix was, of course, a pioneer in its field, and Disney was a relative latecomer in a subscription video on demand (SVOD) market, which was already well established and subsequently amplified by pandemic lockdown restrictions that came into force at the beginning of 2020. Even so, Netflix forecast for weekly global paid net adds for 2021 (19m) is now lower than any year since 2016.

Disney to double down on streaming

For its part, Disney looks intent on migrating most if not all of its media content onto streaming platforms as the proportion of screen time viewers spend watching linear TV continues to decline in North America and elsewhere.

Press reports that Disney will shortly spin-off its ESPN sports channels have been denied by the company[iii], but jettisoning a brand firmly tied to long-term linear TV contracts could make sense for the media company with seemingly little interest in live broadcasts.

ESPN is predicted to lose significant subscriber and advertising revenue over the next few years. Executives also point out that transitioning to a streaming platform is more challenging to do with sports than for ready-made movies and TV series due to live broadcasting and rights acquisition requirements. Disney’s route to an all-streaming platform by dropping ESPN, including migrating other linear assets like ABC, FOX, and NatGeo to Disney+ and Hulu – looks like a smoother journey.

ESPN has several assets which will likely appeal to potential suitors – including rights to Monday Night Football until 2033 and a contract that lets it stream NHL games until 2028. The channel may also lend itself well to sports betting, which other sports broadcasting companies are already exploring but don’t sit well with Disney’s family-friendly ethos.

Netflix: the new Disney

And while Disney moves to become more like Netflix, it appears Netflix is heading in the opposite direction. By expanding beyond SVOD provision, the company plans to offer a broader range of more inclusive entertainment content and services to its subscribers, much like Disney already does.

Last month, Netflix acquired the Roald Dahl Story Company, for example, with plans to create new user experiences around popular children’s classics, including Charlie and the Chocolate Factory, Matilda, The BFG, and Fantastic Mr Fox. That strategy now includes merchandising after Netflix signed a deal with Walmart[iv] which will see it sells toys, baking kits and t-shirts linked to seven of its shows.

Netflix also acquired indie games developer Night School Studio as it preps its entry into the video games market (read more analysis in our recent blog – Netflix prioritises mobile for gaming subscriptions). The SVOD specialist has also earmarked a move into the lucrative mobile games arena to expand its revenue outside of SVOD provision. It has reputedly begun testing its games in select countries[v] , but executives have warned it will be some time before commercial services bear fruit.

SVOD core component of operator bundles and DCB revenue

SVOD subscriptions are a vital component of the content bundles which telcos and mobile network operators (MNOs) offer to their customers to aid acquisition and retention, often billed as part of the tariff and via direct carrier billing (DCB). Research company Omdia documented a healthy rise in the number of SVOD partnerships between carriers and content service providers like Netflix and Disney+ in the first quarter of 2021.

The number of tariff bundling deals which involve subscriptions being added to users’ bills has grown 28% since the end of 2019. There is a growing list of tariff bundling offers that see subscriptions included in the price of specific mobile tariff plans, valid for as long as the user stays on that plan (more detail in our recent blog Telcos signing more video bundling partnerships than ever).

Netflix is the clear global leader in the number of active live partnerships, but Discovery+, Disney+, Amazon Prime Video all signed more new deals with carriers between October 2020 and March 2021. Omdia also calculates that the volume of carrier billed revenue from SVOD services is second only to that made by games. So the ongoing expansion of the Netflix and Disney+ subscriber and revenue base is likely to be good news for telcos and MNOs going forwards.


[i] Netflix Adds 4.4M New Subscribers in Third Quarter, Surpassing Projections, Hollywood Reporter, 19th October 2021

[ii] Netflix beats estimates and expects even better results thanks to hits like ‘Squid Game.’, New York Times, 19th October 2021

[iii] Report: Disney is Considering Spinning-Off ESPN, Cord Cutters News, 19th October 2021

[iv] Netflix’s ‘Squid Game’ T-Shirts Are Coming to a Walmart Near You, Bloomberg, 11th October 2021

[v] Netflix posts solid beats on earnings and new subscribers, CNBC, 19th October 2021

Related Posts