A leak to Bloomberg over the weekend showed that Netflix calculated Squid Game’s “impact value” to be close to $900 million thus far, giving investors some hope regarding its all-important subscriber growth. But it’s unclear how the company came up with that number or what it included.

Netflix declined to comment to Fortune about the leak.

Whatever the case, even Amazon founder Jeff Bezos has been watching Netflix carefully, tweeting congratulations to Netflix co-CEOs Reed Hastings and Ted Sarandos on the success of their content globalization strategy. Netflix global TV chief Bela Bajaria recently told Fortune that U.S. viewership of foreign-produced series on the platform had increased by 71% since 2019, with 97% of U.S. subscribers watching at least one non-English title in the past year. By funding local production in 40 countries, Netflix seems to be accomplishing something no TV network has done: uniting the world through shared content.

Most of its recent growth has been overseas, where the company has been investing billions of dollars in production. Asia was the region with the most new additions last quarter—1 million. By comparison, the U.S. and Canada—a market many consider to be saturated—lost 400,000 subscribers over the same period. For the third quarter, Netflix said it expects to report subscriber gains of 3.5 million while analysts forecast slightly more.

Losing ground to Disney and Apple

Netflix’s loss has been Disney’s and Apple’s gain as Netflix struggled to fill its content pipeline earlier in the year owing to COVID-related production delays. Thanks to the popularity of shows such as Ted Lasso, Apple TV+ now has the fourth-largest share of demand for streamed originals worldwide, while Disney+, which has been cranking out critically acclaimed live-action series based on the Marvel Cinematic Universe like Loki, is now No. 2 in the U.S., supplanting Amazon Prime Video, according to media measurement firm Parrot Analytics.

Still, Netflix is leading all streaming services in the production of originals, with more than 2,000 titles in its library. Meanwhile, Amazon Prime Video and HBO Max (combined with HBO) are at just half that, and Disney and Apple trail far behind, according to Parrot Analytics data provided to Fortune.

The biggest challenge for Netflix, which has 209 million subscribers, is to stop people from canceling. Although most U.S. households subscribe to four streaming services, those that can only afford one at a time are doing so by bingeing on content, canceling when done, then resubscribing when new content drops, in a trend called churn and return, according to Deloitte vice chair Kevin Westcott.

Michael Pachter, an analyst with Wedbush Securities, told Fortune he believes Netflix can reduce churn by adopting a weekly release schedule like Disney+ and Apple TV+, where one show becomes available at the same time each week, instead of dropping the entire season at once. But Rich Greenfield, media analyst at LightShed Partners, doubts that would stem churn, because cost-sensitive consumers would likely wait until all episodes of a season are available before subscribing, even if it takes months.

Film, the next frontier

Netflix has been increasing its investment in film, spending over $200 million on the action comedy, Red Notice, starring Dwayne “The Rock” Johnson, Ryan Reynolds, and Gal Gadot, premiering on Nov. 12. And it has been quietly moving into the physical cinema space, acquiring Hollywood’s famed Egyptian Theatre in May 2020; opening other movie theaters shuttered during the pandemic like the Bay Theater, also in Los Angeles; and promising to release 14 of its 42 films this holiday season in theaters.

Netflix should focus on what it does best, says Pachter: “Their TV strategy is sound; their movie strategy is not.”

He explains that a film franchise with one box-office blockbuster every holiday season is not as valuable to a streaming platform as a hit TV series over the same period because 10 episodes of a one-hour show a season is 10 times the content. Once you have a hit, people may stay subscribed for years.

Greenfield disagrees, saying: “One-third of watch time on streaming services is movies. The reality is there are many times where consumers want a beginning, middle, and end over two hours, so if you don’t have fresh movies, you have a problem.”

But as much as Netflix has been making a push into film, it also has been playing to its strengths. Squid Game, which was originally pitched as a film, was turned into a nine-episode series, Netflix’s Bajaria told Fortune.

Toys, games, and more

As fans flooded e-commerce platforms with unofficial Squid Game items after the series took off, Netflix began testing its merchandising muscle earlier this month, putting up a storefront on Walmart.com and promoting its own store. But Pachter believes this type of merchandising won’t move the needle in terms of revenue.

“Disney has been successful with consumer products because it has Disneyland, physical stores, and iconic brands like Star Wars, Marvel, and Pixar, where Netflix doesn’t have anything even close,” he notes. “Of the more than hundred million that watched Squid Game, how many bought merchandise? 5%? At what price point? Netflix is doing $7.5 billion in revenue a quarter—why are we even talking about this?”

Greenfield, who bought a Squid Game T-shirt from Netflix’s shop, defended the move into merchandising: “It might be irrelevant from a revenue and earnings standpoint, but it is an important step to build the franchise value of their content.”

Pachter said Netflix would have greater success if it digitally tagged items in shows that viewers could then click on to buy. But he acknowledged that if Amazon, which has a massive marketplace, hadn’t figured it out yet, that Netflix was unlikely to build that capability anytime soon.

Both analysts agreed it was too early to say whether another of Netflix’s new forays—mobile gaming—will succeed. But Pachter wasn’t hopeful, citing failures of many large video game publishers in the space. Netflix is testing the service in Poland, with no word yet on when it will expand to the U.S.

Looking ahead

Short term, Netflix is grappling with a worker uprising over Dave Chappelle’s The Closer, a stand-up special in which the comedian mocks the transgender community. Some employees have called for the show’s removal and are organizing a walkout for Oct. 20. For his part, Sarandos is holding firm, explaining that there will inevitably be content that some people disagree with. For now, the company is hoping the problem will quickly go away. 

Investors are more focused on Netflix’s business over the longer term. And Greenfield says the fourth quarter, when he expects the company’s new titles to start attracting a huge wave of new customers, trumps whatever happens in the third.

As for the long term, Greenfield is bullish about Netflix’s growth, considering the potential global market. “There is no reason why Netflix can’t be at a half billion or more subscribers, despite the U.S. getting closer to full penetration, especially when you think about Asia,” he says. “They can double, if not triple, subscriber count over the next decade.”

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