Netflix Earnings Results: Q3 2021

It’s been a tale of two Netflixes over the last few weeks, as a long-anticipated Dave Chappelle special drew sharp condemnations from staffers and critics alike and as the South Korean sleeper hit “Squid Game” became a global sensation, making it the streamer’s most-watched series to date. (Both detail a grim view of the world.)

Neither contributed much to the company’s results in the third quarter, which ran through Sept. 30 (“Squid Game” debuted in the last week of September and Mr. Chappelle’s special became available in October), but Netflix gained 4.4 million new subscribers in the period, beating its own estimate of 3.5 million. Netflix now has 222 million customers, about 67 million of them in the United States. The company booked $7.5 billion in revenue and $1.4 billion in profit, slightly better than expectations.

Both shows do matter to the company’s current quarter, for which Netflix anticipates adding 8.5 million new customers, one of the biggest quarterly forecasts in the company’s history. Netflix also said it expected to generate $365 million in profit on $7.7 billion in sales. In other words, as far as Wall Street is concerned, what controversy?

Mr. Chappelle’s show became a rare public relations nightmare for Netflix as critics saw it as a hostile invective toward the transgender community rather than the boundary-pushing stand-up routine that Ted Sarandos, the company’s co-chief executive, defended it as. Employees have threatened to walk out in protest on Wednesday, and some in the creative community have called out Mr. Sarandos.

Jaclyn Moore, the head producer for the Netflix series “Dear White People,” said she would no longer work for the company if “they continue to put out and profit from blatantly and dangerously transphobic content.”

Then there’s “Squid Game.” The dystopian series pits indebted citizens against each other in a set of children’s games where losers die and the winner walks away with millions in cash. The show has stormed the globe and has become one of Netflix’s most valuable new franchises, inspiring memes and costumes just in time for Halloween.

“A mind-boggling” 142 million accounts watched at least the first two minutes of the show in its first month, making it the No. 1 program in 94 countries, including the United States, the company said. “The breadth of ‘Squid Game’s’ popularity is truly amazing.”

A set of leaked internal documents revealed that “Squid Game,” which cost $21 million to make, is worth at least $891 million by one Netflix metric, according to a recent report in Bloomberg News. The story revealed for the first time how Netflix determines the value of its programming, a mystery that has long frustrated Hollywood’s producers.

Unlike traditional television, where economics are governed by ratings and cable licensing fees, Netflix has a completely different set of financial goals. It has no live programming, no commercials, no prime time. Unlike network TV, Netflix doesn’t make more money when viewers watch more hours of programming. It makes more money when people sign up.

The company can estimate whether subscribers joined to watch a specific show or even if a program kept customers from leaving. Based in part on that data, Netflix ascribes an “efficiency” metric to a show based on the value of each viewer, according to the documents leaked to Bloomberg. “Squid Game” has a very high “efficiency” rating, akin to a profit measure.

Netflix’s share of the streaming pie has continued to shrink as competitors like Disney+, AppleTV+ and HBO Max have entered the market. The company’s “demand interest” — a measure of the popularity of shows and streaming services created by Parrot Analytics and a key barometer of how many new subscribers services are likely to attract — has started to fall. Netflix’s share of interest dropped 2.5 percentage points to 45.8 percent in the third quarter, while Disney+ and AppleTV+ gained in market share, the measurement firm said.

Netflix said it would start disclosing different data points on viewership such as hours viewed and would no longer report the number of accounts watching a particular program.

Netflix is looking for new ways to keep customers glued to its service and has started experimenting with games. The company recently acquired Night School Studio, the producer of the story-based game Oxenfree.

“It remains very early days for this initiative and, like other content categories we’ve expanded into, we plan to try different types of games, learn from our members and improve our game library,” Netflix said on Tuesday.