The Impact of Squid Game on Netflix's Revenue: Calculations and Allocation

Levi Miller

Updated Thursday, February 15, 2024 at 7:06 PM CDT

The Impact of Squid Game on Netflix's Revenue: Calculations and Allocation

Netflix's Methodology for Calculating the Impact of Squid Game

Netflix calculates the impact of Squid Game on their revenue by analyzing the number of new or reactivated accounts that occurred since the show was announced. They estimate how many of these accounts were specifically influenced by Squid Game. Additionally, they analyze the number of accounts that did not cancel during this time and attribute the retention to Squid Game. These calculations help Netflix determine the number of subscriptions that continued because of the show.

Rigorous Calculations and Factors Considered

While Netflix uses loose numbers and data to estimate the impact of Squid Game, internally they have more rigorous calculations to determine the exact return on investment for different products. They consider factors such as the viewing habits of new accounts, demographics, and the release or removal of other content to model likely outcomes if Squid Game had not been added. By taking these factors into account, Netflix aims to provide a comprehensive analysis of the show's impact on their revenue.

Assigning Value to Streaming Titles

Netflix assigns value to a streaming title based on metrics like hours watched and first streams. However, there is no set rule for determining the worth of these metrics, as each streaming company uses its own internal formulas. Companies like Netflix tweak these formulas to present their titles in the best possible light, highlighting their success and impact. This allows them to accurately assess the value of Squid Game and other shows in their lineup.

Calculating Revenue Generated by Squid Game

There are multiple ways to calculate the revenue generated by Squid Game. One method is to consider the percentage of total watch time attributed to the show. Another approach is to evaluate the value of new subscribers who were specifically influenced by Squid Game. Additionally, hypothetical theater earnings can also be taken into account. By considering these various factors, Netflix can estimate the financial impact of Squid Game on their overall revenue.

Revenue Breakdown and Allocation

Netflix's revenue from subscribers is the top line metric, while other allocations like ads, merchandising, and partnership deals have a smaller impact on overall revenue. It's important to note that the extra revenue generated by Squid Game is not "stolen" from other shows. Netflix attributes a portion of a new account's subscription to Squid Game and other new content, or they may count the entire subscription amount for both shows. This ensures a fair distribution of revenue across their content catalog.

Lack of Transparency and Complexity

The specific breakdown of earnings between shows and Netflix's cut is not publicly disclosed in the available information. The calculations and allocation of earnings can vary depending on the internal formulas and strategies employed by Netflix. This lack of transparency highlights the complexity and evolving nature of assigning value to streaming titles. Each streaming company uses its own metrics and formulas to measure success, making it challenging to compare revenue figures across platforms.

Netflix's Goal and Future Investments

Netflix's goal is to determine the return on investment for different shows and products. They track percentages and data to make informed decisions about future investments. The $900 million figure associated with Squid Game's earnings is not explained in detail, and it is unclear whether it represents actual money or estimated revenue based on subscription fees and projected subscription duration. Nonetheless, Netflix's calculations and allocation of earnings provide valuable insights into the financial impact of Squid Game and other popular shows on their revenue.

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