More than 111 million households around the world have already watched Squid Game, the dystopian South Korean drama released last month on Netflix (NFLX 1.74%). That makes it by far the most popular series release ever on the streaming service, besting the 82 million households that watched Bridgerton in its first four weeks. And Netflix didn't even wait the full 28 days to announce its viewership numbers.

Meanwhile, as the buzz around the series continues to grow, so has Netflix's share price. Analysts have even upgraded the stock based at least partly on the popularity of the show. That's because Squid Game is further proof that Netflix's competitive advantages work, and the impact of that ought to show up in its earnings results.

A reception desk with the Netflix logo above it.

Netflix offices in Singapore. Image source: Netflix.

Squid Game's success was inevitable

Netflix has been investing more and more in local-language content as it grows its international audiences. It's an efficient way to spend money and grow subscribers in foreign markets. And while those series and films are meant primarily for their local audiences, Netflix is uniquely capable of helping them find global audiences when it sees them gaining traction.

The first lever Netflix can pull in boosting a show's visibility involves its content recommendation algorithm, which highlights the content it expects you'll most enjoy based on what viewers with similar profiles to you are watching. That might include pushing a title to the marquee, where it may automatically play a trailer when you first launch Netflix on your connected-TV device, computer, or mobile device. That built-in billboard is an extremely valuable marketing space.

Second, Netflix's marketing team is extremely adept at pushing titles into the media and getting people to talk about them. The company's comments about the potential popularity of a series can almost become self-fulfilling prophecies. Case in point: CEO Ted Sarandos said Squid Game was seeing really good early results just a week after its release, and suggested that it could become Netflix's most popular series ever. When the media picked up that story, they shined more light on the series, which helped it get noticed and grow in popularity.

The fact that over 100 million households around the world have all watched the same show shouldn't be a surprise for Netflix investors. That it's a non-English show shouldn't be a surprise, either. If it wasn't Squid Game, it would've been something else.

That is to say, Netflix can and will do this again.

Repeating the Squid Game formula

The most encouraging thing about Squid Game's success may be that it's not based on any pre-existing intellectual property. It's also not based on having any big Hollywood names attached to the project. While other media companies like Disney (DIS 1.09%) are spending lots of money to acquire the rights to popular franchises or to sign big-name actors, Netflix has managed to produce hits without either of those.

That makes Squid Game's success much more repeatable than buying from the limited pool of already-popular source material. It also makes it much less expensive. Disney's franchise films cost hundreds of millions of dollars to produce, and it spends up to $25 million per episode on some of its Disney+ series. The entire season of Squid Game cost $21 million.

That said, Netflix's hit rate may be much lower than Disney's. But when it does hit, it can be much more effective in drawing in new subscribers to the platform because it's created something genuinely new that people want. One of the challenges Disney now faces, after signing up more than 100 million Disney+ subscribers, will be figuring out how to draw in additional subscribers who aren't typically interested in its main franchises.

Investors are excited about the impact Squid Game's success could have on Netflix's fourth-quarter subscriber growth. But they should also be excited about what Squid Game's success demonstrates about the potential for Netflix's model to deliver more hits down the road.