Netflix’s Squid Game: Season 2 Surge

1. Summary

• The overwhelming success of Netflix's 'Squid Game' Season 2 epitomizes the platform's strategic investment in premium content to maintain its position in the highly competitive streaming industry. With an investment of around 1 billion KRW, four times that of its predecessor, Netflix hoped to replicate or exceed the first season's financial success. This meticulous investment appears to have paid off, as Season 2 quickly soared to unprecedented viewership heights across 93 countries, including major markets like the United States, France, and the UK, just two days after its release. The report examines how 'Squid Game' has become vital in driving Netflix’s performance against a backdrop of declining Monthly Active Users (MAU) and mounting pressure from emerging competitors like Tving and Wave. The production and marketing strategies underline the importance of 'killer content' in Netflix's bid to rejuvenate subscriber growth and secure profitable returns.

2. Netflix's Investment in 'Squid Game' Season 2

• 2-1. Production costs quadrupled compared to Season 1

• According to the referenced documents, Netflix invested approximately 1 billion KRW (around four times the 250 million KRW spent on Season 1) in the production of 'Squid Game' Season 2. This significant increase in production budget reflects the high expectations Netflix has for the sequel. Given the previous success of Season 1, which generated estimated revenues of 1 trillion KRW against its production cost, Netflix aims to secure a substantial return on investment with the second season.

• 2-2. Marketing strategies, including global events and installations

• Netflix implemented expansive marketing strategies ahead of the release of 'Squid Game' Season 2. These strategies included setting up experiential spaces in major cities worldwide and showcasing events related to the series, such as the 'Ddakji' game depicted in the show. These efforts were designed to create excitement and engagement around the series, reflecting Netflix's commitment to promoting 'Squid Game' Season 2 as a pivotal 'killer content' in a fiercely competitive streaming market, which has seen a decline in Netflix's monthly active users.

3. Viewership and Revenue Expectations

• 3-1. Record viewership ratings across multiple countries

• As reported, Netflix's 'Squid Game' Season 2 achieved record viewership ratings shortly after its release, ranking first in global television show charts across 93 countries including the United States, France, and the United Kingdom. This remarkable achievement was recorded just two days after its premiere on December 26, indicating a higher level of success compared to Season 1, which took over a week to reach similar ratings. The anticipation for Season 2 has been attributed to the increasing competition in the streaming industry, highlighting its potential as a critical content driver for Netflix's performance.

• 3-2. Projected revenue growth compared to Season 1

• Netflix significantly increased its investment in 'Squid Game' Season 2, with production costs reported to be around 1 billion KRW, a fourfold increase from the 250 million KRW spent on Season 1. This considerable investment comes in anticipation of the series replicating or exceeding the financial success of its predecessor. Season 1 generated an estimated total revenue of 1 trillion KRW, yielding a return on investment of at least 40 times the production cost. With the increased budget for Season 2, it is projected to potentially achieve at least a tenfold return, thus establishing itself as another successful content piece for Netflix as it navigates a competitive landscape marked by declining Monthly Active Users (MAU).

4. Market Context and Competitive Pressures

• 4-1. Declining Monthly Active Users (MAU) for Netflix

• Netflix has experienced a decline in Monthly Active Users (MAU) in recent times. Following a peak of 14.01 million MAU in January of the previous year, the platform has not crossed into the 11 million range this year. This trend highlights concerns surrounding the availability of 'killer content' which has been identified as a major factor influencing user retention and growth. Market trends indicate that the streaming landscape is becoming increasingly competitive, which may further impact Netflix's MAU.

• 4-2. Emergence of competing streaming platforms

• The streaming market has seen the emergence of strong competitors, notably platforms like Tving and Wave, which, despite having lower individual MAUs of 7.3 million and 4.24 million respectively, pose a significant threat if they merge into a single entity. This combination could create a 'super OTT' that could match Netflix's total MAU of 11.59 million. Additionally, Coupang Play has secured over 6 million MAU, reflecting the intensifying competition that Netflix faces.

• 4-3. Need for 'killer content' to maintain subscriber growth

• The recent launch of 'Squid Game' Season 2 has generated high expectations as a 'killer content' capable of reviving Netflix's declining user base. Netflix heavily invested in this sequel, with production costs estimated at around 1 billion KRW, which is at least four times higher than that of the original series, which had a production cost of 250 million KRW. Industry analysts believe that a repeat of the original series' profitability, which yielded approximately 10 billion KRW from a 250 million KRW investment, is achievable with Season 2. Therefore, 'Squid Game' is considered vital in driving Netflix’s strategy to attract and retain subscribers in an increasingly competitive OTT environment.

5. Financial Implications for Netflix

• 5-1. Impact of production expenses on profitability

• The production expenses for 'Squid Game' Season 2 have increased significantly compared to Season 1. While Season 1 had a production cost of 25 billion Korean Won, Season 2's budget has risen to approximately 100 billion Korean Won, marking a fourfold increase. This substantial investment is aimed at leveraging the series' popularity to drive profitability and offset the decline in Netflix's Monthly Active Users (MAU). The success of Season 1, which reportedly yielded a revenue exceeding 1 trillion Korean Won against its production cost, showcases the potential profitability of Season 2, which is expected to remain a 'cash cow' even if the revenue does not exceed that of Season 1.

• 5-2. Future revenue expectations based on current performance

• As of late December 2024, 'Squid Game' Season 2 has topped the viewership ratings in 93 countries including the United States, France, and the United Kingdom, achieving this milestone just two days after its release. This rapid success indicates a higher appeal compared to Season 1, which took over a week to reach the same ratings. The rising viewership is expected to enhance Netflix's revenue, particularly as the platform faces mounting competitive pressures leading to declining MAU figures. Despite the challenges, the launch of 'Squid Game' Season 2 is anticipated to bolster subscriber growth and advertising revenue, providing a crucial support in Netflix's financial strategy amidst a shifting streaming landscape.

Conclusion

• The record-breaking success of 'Squid Game' Season 2 underscores Netflix's strategy of investing heavily in original, engaging content to navigate an increasingly competitive streaming market. Although 'Squid Game' has yielded exceptional initial viewership and revenue prospects, the platform's reliance on such high-budget productions implies potential financial risks, especially as the streaming ecosystem diversifies with significant emerging competitors like Tving, Wave, and Coupang Play. While these challenges present limitations in Netflix's current trajectory, the continued focus on producing distinctive 'killer content' is imperative for maintaining subscriber growth and offsetting the impact of declining Monthly Active Users (MAU). As the streaming landscape evolves, Netflix's ongoing innovation and investment in diverse, culturally resonant programming will remain crucial. To secure a sustainable market presence, Netflix must balance captivating global audiences with prudent financial strategies, leveraging successful franchises like 'Squid Game' while exploring new content avenues in genres beyond thriller dramas.

Glossary

• Netflix [Company]: Netflix is a leading streaming service that has transformed the entertainment industry through its original programming and expansive content library. It plays a crucial role in setting trends and standards within the streaming market, heavily influencing viewer consumption patterns and industry competition.

• 'Squid Game' [Television Series]: 'Squid Game' is a South Korean survival drama series that became an international sensation, significantly impacting Netflix's subscriber growth and viewership metrics. Its success underscores the importance of culturally resonant content in driving global engagement on streaming platforms.

Source Documents

• ‘오징어게임2’에 대한 넷플릭스의 이유 있는 집착https://n.news.naver.com/mnews/article/005/0001748578
• '오징어게임2'에 대한 넷플릭스의 이유 있는 집착 : 네이트 뉴스https://news.nate.com/view/20241230n00455?mid=n0102