In the streaming wars, one company’s hit is another company’s failure.
Netflix’s “Squid Game” is an exception.
Netflix has its biggest hit yet with ‘Squid Game’, the gory, dystopian South Korean series that has taken the world by storm. Over 111 million viewers worldwide have already watched at least two minutes of the show.
Typically, hit shows arouse competitive jealousy and fear. Netflix famously outranked HBO for “House of Cards,” a complaint from HBO executives nearly a decade later. But some of Netflix’s competition is applauding “Squid Game”‘s success as it further opens the door to non-U.S. production, allowing media companies to save heaps of money if foreign-language television becomes part of the standard American household diet. Amazon, Apple, Disney, WarnerMedia’s HBO Max, NBCUniversal, Lionsgate’s Starz and ViacomCBS are all around the world watching new TV series that will catch the world’s attention.
Hollywood studios are saving millions of dollars by hiring local talent instead of Hollywood stars, taking tax credits and rebates from hungry countries seeking tourism and recognition bumps, and avoiding strict U.S. union rules, said Ajay Mago, a company – and technology lawyer and managing partner for EM3.
“Different countries have different stimulus packages,” Mago said. “Some countries give you free marketing through government channels or support at festivals. You might even get free local co-producers.”
Eastern European countries such as Hungary, Austria and Malta, and Canada have long offered Hollywood significant tax breaks and incentives, said Domenic Romano, entertainment attorney and managing partner of Romano Law. But in the past, US productions often used international locations as stand-ins for US sets.
“They came to Canada or some other place that offered tax breaks, and they threw in American mailboxes and street signs, changed the license plates on cars, and voila,” Romano said. “What’s happening now is that there’s local content from these regions. Studios are no longer disguising themselves.”
American audiences have typically viewed foreign language movies as niche content. Very few, if any, non-English TV series have become part of the mainstream zeitgeist prior to ‘Squid Game’. Keeping local actors and sets saves a lot of production costs, says Romano. Swapping expensive A-list Hollywood actors to recreate reboots of foreign popular shows, as has been done in the past, can cost tens of millions of dollars per show, Romano said.
Save on intellectual property
Disney said this week it plans to begin production of 27 new TV series and movies in the Asia-Pacific region for Disney+ and its Asian streaming service Disney+ Hotstar. The total cost of making “Squid Game” was just $21.4 million, Bloomberg reported this week. A top entertainment executive told CNBC that the cost of “Squid Game” with an American cast and unionized production regulations, which prevented the long working days allowed in South Korea, would likely have been five to 10 times higher.
Investing in local international productions also saves Hollywood studios from investing in expensive intellectual property. Episodes of Disney+’s Marvel shows, such as “WandaVision” or “The Falcon,” cost Disney $25 million per episode — more than all nine episodes of “Squid Game” — and that doesn’t include the $4 billion Disney paid to acquire Marvel in 2009. Amazon Prime Video’s first season of the upcoming “Lord of the Rings” series will cost $465 million, according to New Zealand’s Minister of Economic Development and Tourism. Amazon paid approximately $250 million in 2017 for the rights to Tolkien’s property.
The success of “Squid Game” could also be a boon to creators who feel trapped in an industry that relies on superhero movies and reboots of old TV shows for reliable revenue. Tapping into the world for new stars and ideas opens up new growth opportunities for artists and studio executives to mutually benefit from.
“Netflix is one of the first global streamers in South Korea and they are trying to win the content race,” says Romano. “It’s like the Cold War arms race is now the content race where streamers are clambering over each other to find content to stream exclusively so they can sign up subscribers before the competition starts training.”
Investors will have a better sense of how successful “Squid Game” has been for Netflix’s earnings on Oct. 19, when the global streaming giant announces its third-quarter earnings.
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
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