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Squid Game, Dave Chappelle and How Netflix Measures the Success of Its Productions

Oct 22, 2021 9:17 AM 5 min read

Netflix has been having an eventful October.

Its South Korean survival drama series Squid Game is now a runaway success, becoming the OTT platform's most-watched show ever.

Meanwhile, its wildly popular stand-up special The Closer, featuring American comedian Dave Chappelle, found itself in the eye of a social media storm over allegations of transphobia and "mean-spirited" jokes.

Amidst all these developments, Bloomberg reported a startling fact: Chappelle’s 62-minute special cost Netflix $24.1m - more than the $21.4m it took to make Squid Game, a nine-episode undertaking with a season run-time of 485 minutes.

Off the top, this distinction seems plausible for the simple reason that Chappelle is a celebrity in high demand, with a large fan base, and whose previous shows on Netflix were big hits (which explains his lofty price tag). Squid Game, on the other hand, was a show written and directed by Hwang Dong-hyuk, who was relatively unknown before now (and comes with a remarkable life story!).

However, a show like Squid Game still involves a large cast, multi-camera setups, many costumes, many sets and filming locations, music, copyright and countless other expenses. How, then, did Netflix end up deeming a one-man stand-up special to be worth a heftier investment than an entire television show?

The Metrics that Matter

Netflix, like its OTT peers, is typically tight-lipped about viewership data. The numbers it considers to judge if a show or movie is a success are notoriously hard to find.

In 2019, the public was given a partial look through this veil. That year, the UK Parliament was examining the impact of subscription video-on-demand (SVOD) services on the British television industry. Netflix was called upon to shed light on the ways it gauges viewership.

The company revealed three metrics it uses:

  1. Starters: “households that watch two minutes of a film or one episode”
  2. Watchers: “households that watch 70% of a film or single episode of a series”
  3. Completers: “households that watch 90% of a film or season of a series”

#1 and #3 are reported particularly important for Netflix: “We believe that these two metrics will give our creative partners a broader understanding of how members engage with their title from start to finish.”

Which is fair. After all, producers will naturally want to invest in shows and movies that viewers want to watch and finish.

Netflix, however, has a habit of highlighting the former.

The company’s quarterly reports always tout the success of its recent productions, boasting about how many millions of subscribers “chose to watch” that particular production.

But what does “chose to watch” mean? Since January 2020, a subscriber who watches just two minutes of a film or episode (“starter”) - “long enough to indicate the choice was intentional” - is deemed to be a viewer. Before that, one who watched at least 70% of a title (“watcher”) was counted as a viewer.

When Netflix announced the change in the way it views “views”, it argued that its “new methodology is similar to the BBC iPlayer in their rankings based on “requests” for the title, “most popular” articles on the New York Times, which include those who opened the articles, and YouTube view counts. This way, short and long titles are treated equally, leveling the playing field for all types of our content including interactive content, which has no fixed length.”

Obviously, this move is helpful if you’re looking to beef up your numbers in an increasingly competitive market. And that’s what it did - the new metric boosted Netflix’s numbers by a convenient 35%.


Coming Back to Today…

Squid Game is Netflix’s most successful production yet. The show has been "viewed" by over 111 million subscriber households in the four weeks since it premiered on September 17th. Of course, as we’ve seen above, these numbers can be misleading, but the title is a smash hit nonetheless. The second-most watched show, Bridgerton, clocked in only 82 million households in its first four weeks.

Despite Chappelle’s star-power and talents, his specials, while being the company’s most-watched stand-up shows, still lag behind Squid Game. But classifying these titles based on the number of viewers alone doesn’t paint the full picture. Because Netflix, given it doesn’t display ads, can afford fewer viewers - as long as it has a growing number of paid subscribers, who are the main source of the company’s revenues.

To understand this, we need to look at a metric Netflix likely obsesses over more than any other - adjusted view share (AVS), which it describes as its “primary measure of a title’s impact”.

The exact formula for AVS is not in the public domain, but it factors in a title’s viewership, adjusted for the “value” of its viewers. So, a subscriber who isn’t very active on Netflix and only comes online to watch a select list of shows/movies/specials is considered more “valuable” than one who binges every night.

If you extrapolate lifetime AVS, you arrive at a title’s “impact value”, its likely overall contributions to Netflix. Similar to the Life Time Value of a subscriber (LTV) metric often used in service businesses such as telecom. 

Now, AVS may be a smarter gauge than, say, efficiency score, which is simply a measure of value over cost. A title with an efficiency score of 1x generates as much viewership as it cost to make; anything above 1x shows that it raked in profits and vice-versa.

Chappelle’s earlier specials had an efficiency score of only 0.8x. Other comedians on the platform already had titles with above-1x efficiency. But Netflix still found it logical to sign a hefty new contract for The Closer.

That’s because Chappelle’s impact value was a robust $19.4m. He has a penchant for attracting new viewers...and ergo, subscribers, even though his specials are an expensive investment. For Netflix, this is a bill worth footing.

FYI: For optimum paisa vasool, you might think the way to go would be low-cost productions with high efficiency scores. But that might not give you many cult hits. Think of it - Game of Thrones cost a fortune to make, but nobody at HBO is regretting the money splurged thanks to the impressive RoI. On the contrary, a high-cost, high-efficiency set-up might (and that’s a big “might”) generate more viewer interest, but pursuing this route runs the risk of making producers more debt-laden than the contestants on Squid Game! There was a time when Wall Street often frowned at lofty content investments (by Netflix and even AT&T-owned HBO) and its negative impact on free cash flow generation. However, those concerns seem to have somewhat dissipated as subscriber progression accelerated and the stock prices surged. 


The Bottom Line

Anyway, that’s why The Closer cost more than Squid Game. And that’s why, despite the internet backlash against Chappelle’s alleged insensitivity and the employee protest against the special from within the company, Netflix has refused to “cancel” The Closer.

In internal memos, co-CEO Ted Sarandos has cited “creative freedom” and the title being an “important part of our content offering” to argue against boycotts. However, the crux of the argument is financial - Chappelle, simply put, brings in the big bucks.

Also, with an impact value of nearly $900m, we can surely expect possible future seasons of Squid Game to be given the Chappelle treatment!


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