New data: "Squid Game" on track to become Netflix's most lucrative title

• "The data connects user intent with actual financial performance in a way that has never been done before," said Alejandro Rojas, vice president of applied analytics at Parrot.

The big takeaways: In its first-ever analysis of content valuation provided to Axios, Parrot projects that Netflix's hit series "Squid Game" is on track to become Netflix's most valuable title if it adds two more seasons.

• Parrot projects that the series, with those additional seasons, will generate more than $2 billion in cumulative revenue by 2027. Netflix reportedly spent $21.4 million to produce "Squid Game."
• That lifetime value makes "Squid Game" much more valuable to Netflix, on a profit margin basis, than some of Netflix's more expensive investments in film, such as "Red Notice" and "The Gray Man," which each cost Netflix roughly $200 million to produce.
• Each film caps out at around $80 million in cumulative revenue for Netflix over the next six years, suggesting that pricey streaming films tend not to deliver the same level of lifetime value to streamers as do cheaper, bingeable series.

Between the lines: The data broadly suggests that movies that debut on streaming are subsidized by catalog content or high-quality original television series that generally have higher lifetime values and often high profit margins.

• Tentpole films, like holiday titles and teen dramas, that are cheaper to produce but tend to warrant repeat viewing also tend to have higher lifetime values.

The key to increasing the lifetime value of a piece of content is its ability to retain viewers over time, the analysis found.

• For example, long-running comedies and sitcoms, like "Friends" and "The Office," tend to be strong retention titles, as do bigger-budget original series such as "Stranger Things" and "The Crown."

How it works: For years, Parrot has published "demand" ratings for streaming content using a proprietary system that combines content consumption data with social media, social video and research activity to understand how much a certain title is in demand by audiences around the world.

• The new system builds on that data by comparing the percentage of demand for a title over a quarter to the streamer's revenue, said Rojas.
• From there, analysts are able to create predictive models for the lifetime value of a piece of content, after comparing several quarters of trend data over time.

Yes, but: The Parrot analysis doesn't necessarily reflect the way that certain streaming companies measure the success of their titles.

• For example, Netflix's major 2018 hit, "Bird Box," debuted just before the holiday season, bringing millions of viewers into the service during a time when they are more likely to binge other titles.
• While Parrot finds that the lifetime value of Netflix's "Red Notice" may not be as high as a series like "Grey's Anatomy," Netflix said last year it was the most-watched movie in the company's history.
• Moreover, the business models of different streamers vary dramatically. Netflix, to date, has been focused on acquiring paid subscribers, which means its content investments have differed from other streamers, like Hulu, which has historically been much more focused on ad-supported viewing.

Be smart: Caryn Mandabach, the TV producer behind hits such as "Peaky Blinders" and "The Cosby Show," said Parrot's demand and valuation ratings have helped shed light on the popularity of her shows and, in particular, how they perform globally.

• But she cautions that valuation ratings, while helpful in bringing transparency to the industry, shouldn't be the only metric for understanding the success of a franchise.
• "It's not that it has to be politically impactful, it just has to have great meaning on some kind of a soul level," she said, noting the impact of "The Cosby Show" on improving race relations during apartheid in South Africa.

The big picture: For a long time, Hollywood has been operating in the dark about the value certain content drives for streamers.

• "In the absence of such metrics, we as artists are flying blind, without full awareness of the impact our work is having and no means to adjust our own creative plans or mission to that reality, be it positive or negative," said Alena Smith, a creator and writer/producer for Apple TV+'s comedy series "Dickinson."
• "Streaming networks have access to the most granular audience data. Unfortunately, they’ve deemed these analytics off-limits to their partners. This has created a widening power imbalance between companies and creators," said David Jenkins, creator and writer/producer of "Our Flag Means Death," a romantic comedy series that aired on HBO Max.

What to watch: Media giants are under more pressure than ever to ensure their content investments can be turned into profits.

• Parrot's new system, Rojas said, "is a good way to test how all of these streamers are thinking about investing their capital in an environment where capital is now being called into question."