Netflix Adds More Users Than It Predicted, Boosted by ‘Squid Game’

Typically, the summer months tend to be slower in regards to subscriber additions. In last year’s third quarter, Netflix added 2.2 million subscribers, just missing expectations. At that time, the company said the big gains in subscribers it had seen during the Covid-19 lockdown were beginning to wane.

In recent weeks, Netflix has benefited from the success of “Squid Game,” the South Korean dystopian drama that made its debut on Sept. 17 and quickly became a global phenomenon. The series has gone viral with social platforms like TikTok showing videos of people replicating the children’s games, while online retailers are rushing to sell “Squid Game” Halloween costumes.

In its letter to investors, Netflix said “Squid Game” has become its most popular show ever, with 142 million households sampling the title. It is the No. 1 program in 94 countries, it said.

Noting that “Squid Game” creator Hwang Dong-hyuk had tried for several years to get the show made before Netflix grabbed it, Co-Chief Executive and Chief Content Officer Ted Sarandos said, “Our team recognized something no one else did and created an environment for that creator to make a great show.”

Movies that performed well include “Sweet Girl” starring Jason Momoa and “The Kissing Booth 3,” the company said.

Netflix is also projecting a strong fourth quarter in terms of content with the return of the dark drama “You” and “Cobra Kai,” the popular series that is a sequel of sorts to the “Karate Kid” movie franchise. The major movies Netflix will drop in the coming months include “Red Notice” with Dwayne Johnson, Ryan Reynolds and Gal Gadot and the Leonardo DiCaprio and Jennifer Lawrence film “Don’t Look Up.”

“We have so much content coming in Q4 like we’ve never had,” said Netflix Chairman and Co-CEO Reed Hastings, who was sporting a “Squid Game” warm-up jacket during the company’s video call to discuss its results.

The Asia Pacific region was among the company’s strongest in terms of new members, responsible for half of the additions in the quarter, adding 2.2 million subscribers to the total tally.

In the U.S. and Canada, Netflix ended the third quarter with 74.02 million subscribers, an improvement of 73,000 from the end of the second quarter. Competition in the U.S. in particular has grown rapidly over the past few years as rivals including Walt Disney Co. DIS 0.02% ’s Disney+, AT&T Inc.’s T 1.03% HBOMax and Amazon.com Inc.’s AMZN -0.08% Prime Video continue to make inroads.

Netflix also said it would change how it discloses viewership information. It currently reports on the number of accounts that watched at least two minutes of a show. Going forward, it will instead pivot to hours viewed for its titles.

Netflix earlier this year said it would make its own videogames, part of an effort to expand into new revenue streams. The company said the games would be made for mobile devices, and some of them may feature characters from Netflix shows and movies. The games will be included at no extra cost to Netflix members.

“We’ve begun testing our games offering in select countries,” Netflix said in its shareholder letter. “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.”

In the third quarter, Netflix acquired videogame company Night School Studio, whose products include “Oxenfree.” Netflix said the purchase will help it build its development capabilities.

Earlier this month, Netflix also teamed up with Walmart Inc. WMT 2.12% to create a digital storefront on the retailer’s website that will sell merchandise tied to hit shows such as “Stranger Things” and “Squid Game.” The deal with Walmart creates a dedicated area of Walmart.com for Netflix merchandise, the Netflix, marking the first such online storefront that Netflix has created with a national retailer.

Netflix has also expanded its exclusive content with the purchase of the Road Dahl catalog, adding popular titles such as “Charlie and the Chocolate Factory” and “Matilda” to its stable.

While Netflix is benefiting from the popularity of its programming, one of its new pieces of original content has created headaches internally.

One of its biggest hits, the new Dave Chappelle stand-up comedy special “The Closer,” has become controversial because of remarks the comedian made that some employees said were offensive to the transgender community. Groups including LGBTQ-rights advocacy group GLAAD have spoken up against the show, and the National Black Justice Coalition asked for Netflix to take the special off its platform.

A transgender-employee group is urging all Netflix employees to stage a walkout to protest the special—and Netflix’s defense of the show—on Wednesday.

Mr. Sarandos sent two emails to staffers defending the special and its popularity while saying that a service that tries to cater to everyone will occasionally have content that some find offensive.

The backlash over “The Closer” has shown cracks in Netflix’s culture. While Netflix encourages candor among staff, the company discourages talking with the media or posting opinions on its content or operations on social-media platforms. Last week, Netflix fired an employee it said leaked confidential financial information about programming costs to Bloomberg News.

Netflix said revenue rose 16% to $7.48 billion, in line with Wall Street’s expectations.

The Los Gatos, Calif.-based company’s profit increased to $1.45 billion, or $3.19 a share, from $790 million, or $1.74 a share, in the same period a year ago. Its bottom-line topped analysts’ earnings estimates of $2.57 a share, according to FactSet.

Netflix often says other entertainment companies aren’t its only competitors. It is also battling for viewers with social media and videogames. As one example, Netflix said engagement surged by 14% when Facebook Inc. experienced a global outage for several hours on Oct. 4.

Write to Joe Flint at [email protected] and Kimberly Chin at [email protected]