This week: Squid Game, the biggest hit in Netflix history is re-shaping the future of movies and television.

Sandra Peter (Sydney Business Insights) and Kai Riemer (Digital Futures Research Group) meet once a week to put their own spin on news that is impacting the future of business in The Future, This Week.

The stories this week

07:48 – Squid Game, the biggest hit in Netflix history and it’s implications

David Card 2021 Nobel Prize in Economics winner who made the minimum wage respectable

Our previous conversation of the Nobel Memorial Prize in Economics Science on The Future, This Week

Our previous discussion of Nobel Prize in Economics winners William Nordhaus and Paul Romer on The Future, This Week 

US has already lost AI fight to China, says ex-Pentagon software chief

The true story of the minimum wage on Freakonomics Radio

Squid Game overtakes Bridgerton as Netflix’s biggest launch

Netflix has a plan for creating a global hits factory

Our previous conversation of Netflix’s production model on The Future This Week

Honi Soit on subtitles and the trouble of translation


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Music by Cinephonix.

Disclaimer We'd like to advise that the following program may contain real news, occasional philosophy and ideas that may offend some listeners.

Kai So, back from the break.

Sandra Back from the break.

Kai What are we talking about?

Sandra Probably Squid Game.

Kai Squid Game.

Sandra Squid Game.

Kai Squid Game all the way.

Sandra But we should at least go through the other news.

Kai Yeah, let's pretend other things happened as well. But it will be Squid Game. So okay, what else happened?

Sandra We'll probably have to talk about the Nobel Prize in Economics because that was awarded a couple of days ago to David Card.

Kai And if you want to hear the story that Sandra tells that this is not an actual Nobel Prize in Economics because it wasn't one of the original ones, you will have to follow the link in the shownotes to an old episode. So we're going straight to the heart of the matter. Sandra, you're a lapsed economist so it's up to you to tell us what these people have done who have won the economics Nobel Prize.

Sandra So basically, this year, the Nobel Prize went to someone who made minimum wage a respectable thing in economics. Pretty much up until the work of David Card, which he did with Alan Krueger back in the day, pretty much till then the idea was that if you wanted to increase minimum wage that will lead to job losses. And that was kind of just accepted orthodoxy in economics, and it always informed policy. If you raise minimum wage companies will have less money to pay people and hence, they will shed some of these jobs to account for the increase in minimum wage. And before Card and Krueger's work, everyone just knew this, this was common sense. And what they did was pretty much just unlearn that position, help unlearn. And they showed that actually imposing or increasing minimum wage would not actually result in any job losses. And one of the ways that they did that was to do natural experiments. So basically, in doing research back in the 1990s, that also tells you how long it takes us to award a Nobel Prize, so this is for work back in the 1990s. They were looking at places across the US where a minimum wage was set to be the highest, versus a neighbouring state where minimum wage was to remain at what it was and they were looking at whether or not this would indeed lead to those job losses that traditional economics, common sense, would tell you that would happen.

Kai There's two things really that I want to say here. One is that I listened to a podcast episode, and I think it was the Freakonomics podcast just recently where this discussion is still well alive. So the idea that minimum wage increases would lead to job losses still informs policy in the US. And this is still a debate, which also shows you how hard it is to let go of some of these old ideas. But more importantly, what the Nobel Committee highlighted was the way in which they did the research with natural experiments, with empirical research. And you could almost say that after Richard Thaler received the Nobel Prize for behavioural economics for introducing the field of economics to basically human nature, this is making empirical research acceptable within the field of economics, which otherwise is very much built around models, around modelling and aggregate data. These people went out into the field and actually look what happened when certain states implemented certain policies and how that changed practice of employers.

Sandra And we shouldn't forget just how big of a mindset shift was. This was something every economist knew. And it's not just every economist, it's, you know, the Australian Government, the Australian Fair Work Commission, the International Monetary Fund, the OECD, all these people knew that if you impose a minimum wage, or if you indeed increase that minimum wage, this would lead to job losses. Reversing this position and getting people to think differently about this was no mean feat. And a couple of studies in the last few years have actually shown that institutions like the OECD and like the International Monetary Fund, have changed their position on these issues. And this is credited to that paper that Card and Krueger wrote back in the day. So long-timeframes to unlearn something like minimum wage, but it's a very significant contribution to the way we think about economics.

Kai So congrats to David Card for winning the Nobel Prize.

Sandra And hopefully we get to talk to him soon on The Future, This Week.

Kai Since you are interviewing Nobel Prize winners on a regular basis.

Sandra Especially in economics. But there's been other really interesting news this week. There was another interesting story in the Financial Times this week, around a very prominent resignation, which is the departure of the Pentagon's first chief software officer who resigned last week in protest over the slow pace of technological development and AI investment in the US military. And he's had some very strong words to say around the United States position to be competitive in the AI battle, going as far as to say that the US has lost the AI battle to China.

Kai So Nicolas Chaillan resigned in frustration saying that he's mostly fixing laptops and you know, dealing with cloud delivery issues rather than being strategic about investments in AI, that the US makes through Pentagon-led research and development, saying that the race with China is already lost.

Sandra His point raises some interesting considerations, and while we don't want to go into the politics of this, but it does raise some interesting business considerations. He basically argues that emerging technologies are far more critical to America's military future than, than hardware investment decisions, you know, submarines and planes and investment in...

Kai Fighter jets and all that. And also, we need to think about the wider implications of AI here. It's not just surveillance technology, and autonomous weapons. AI plays a role in cyber warfare, in fighting of ransomware attacks, attacks to infrastructure by way of digital means. So the AI race touches on ideas of digital warfare.

Sandra The interesting business considerations there are the relationship between government investment in AI and private sector investment in AI. And that's been highlighted by him as well. But there are interesting conversations that we've had on The Future, This Week around the involvement of companies like Google, in military research and employees at Google walking out on this, but also around the fact that now most of the investment in the AI field is in the private sector rather than government investment. And over the last decade or so we've seen tremendous investment from corporate players, the likes of Google and Microsoft in that space at the expense of governments. And whilst in China, that relationship between the private sector and government is much closer, in places like the US and Europe, there's always been a tension between the private sector developments in this field and government use of those technologies for military purposes.

Kai So again, something that remains unresolved but a topic for future episodes. But for now, it is...

Sandra Squid Game.

Kai Squid Game.

Sandra Let's do this.

Kai Let's do this.

Intro From The University of Sydney Business School. This is Sydney Business Insights, an initiative that explores the future of business and you're listening to The Future This Week where Sandra Peter and Kai Riemer sit down every week to rethink and unlearn trends in technology and business. They discuss the news of the week question the obvious and explore the weird and the wonderful.

Kai So this is a week when we have to do Squid Game, and we actually want to do Squid Game.

Sandra It's been such a cultural phenomenon around the world everybody's talking about it on every single platform. And we believe it has some interesting things to show us about the nature of the industries involved here, beyond the cultural moment that is Squid Game. Okay, so we're gonna use as our launching off point an article in Bloomberg, titled "‘Squid Game’ Proves Netflix’s Biggest Advantage Is Foreign Language TV".

Kai And so before we look at that supposed advantage, it's worth just talking about what Squid Game is about, because it is such an interesting and different and also quite harrowing story. And minimal spoiler here, we won't talk about how it ends because you know, unlike Sandra, who's finished the season I'm only two episodes in and very much hooked, but don't want to know how it ends.

Sandra So minimal spoilers in this episode, but still some spoilers in this episode. So if you haven't finished watching it...

Kai Which I haven't.

Sandra Well, I'll try not to give too much away.

Kai Please.

Sandra So let's just make this clear squib game is now set to become the most popular Netflix launch ever. It's currently the most popular show in over 90 countries. That's nine zero countries. This show is the most popular thing on Netflix.

Kai So if you haven't turned on your Netflix in a while and you want to watch Squid Game, turn it on. It's right there, the first entry, click and you're right into watching it.

Sandra And it turns out it's a Korean show, not a US show, not something out of Hollywood, but a Korean show.

Kai And that is partly what makes this such an interesting story.

Sandra It's a meme on TikTok. It's trending on Twitter. It's come up in every single conversation we've had this week.

Kai And it's only been out for about four weeks, and it has already amassed a record 28 billion hashtag entries on TikTok, which is just mind-boggling.

Sandra And it's about people with debt who are forced to play these deadly playground games for a chance to win a whole lot of money in South Korea.

Kai And the stakes in this game couldn't be higher, not to give away too much. It's visually really appealing, really different. It contrasts the very candy coloured world of the games in which these players are being set, and the reality of just living a normal Korean life. So visually, really well done.

Sandra And the interesting thing to us in starting this conversation was that everyone seemed to pick up on the fact that there is this growing demand for international shows, and that, you know, companies like Netflix are now catering for this growing demand for, for international shows. And it seems to us that a better place to start this conversation is in the actual supply rather than the demand, and in what Netflix has actually done to, to create this supply and to put shows like Squid Game on top of everyone's feeds.

Kai Yeah, so this is one of those phenomena where it's very hard to say that there was a demand that Netflix then filled. It is rather that Netflix started producing localised shows in local languages, that then became, quite surprisingly in many instances, global phenomena, which has now created what is fast becoming a trend. And Squid Game is only the latest and most successful in a series of shows that already have reached global audiences but come from localised markets.

Sandra Indeed, so many people have kind of dismissed Squid Game as this you know, some kind of sheer luck or aberration or 'oh sometimes it happens that of Korean show just makes it really, really big'. And remember Parasite, after winning the Oscars, a similar cultural phenomenon where everyone embraced this Korean movie. But more likely it is that this is the result of Netflix, Netflix, investing for many, many years now into foreign language films.

Kai And sometimes this is a requirement by local governments, such as the French government to preserve the dominance of the French language mandates that anyone, anyone active in the local market has to produce a certain amount of French language content, which has catapulted shows like Lupin into a global market.

Sandra But it's also a very deliberate strategy that Netflix has had, to establish itself in, in local markets. On Korean shows alone, they've spent about a billion dollars back in 2015. And if you're looking at Netflix's overall budgets, currently most of the money they spend in over the last few years has been on foreign TV films and foreign TV shows. And if we look at the big successes that Netflix has had, a lot of those do actually come from different parts of the world. Money Heist came from Spain. You've mentioned Lupin, which is a French movie, Kingdom, which was a, you know, a historical Korean zombie drama has also come out of Asia.

Kai You're a big fan of Fauda, which is coming out of Israel. We both really enjoyed Babylon Berlin, which is a German show which is set in early 20th century Germany and really transports what it was like to live in, in Berlin at that time.

Sandra There's Sex Education out of the UK, there's the Chestnut Man out of Denmark. Many, many shows with very high production values, and also non-English speaking actors. And while some of these shows are dubbed, but not all of them, they've all got subtitles. They're available around the world, and they've been hits around the world, not just in countries that share a similar culture or that have a language in common.

Kai So while it might be slightly surprising to some that Netflix invests such huge amounts of money into localised contents, this becomes understandable when you think about what it takes for Netflix to grow and become dominant in all the various markets that they're in, that that would pay off for them as a strategy. But what the real surprise is, is that some of these shows really reach global audiences and defy expectations.

Sandra And we should talk about what this means for how the industry is structured and how Netflix is changing this industry. But before that, it's just worth mentioning as well that, that this also amplified another trend that was already there, which is the Korean government investing significant percentage of its GDP to promote the Korean culture. And that includes not just movies but also music.

Kai K-pop yes, and Korea here is a standout example where these two factors really combine both Netflix's strategy to break into local markets, but also the proactive initiatives by the Korean government to use cultural export as a way to assert soft-power influence in the world and carry Korean lifestyle, Korean ideas into the world, in a way copying the US blueprint, which for a century now has used consumer products. You know, Coca Cola was available widely throughout Europe during the war to supply to the soldiers, but then later also to local populations, and also Hollywood, as a deliberate strategy during the Cold War to take American ideas into the world. So the Korean government taking a leaf out of that book and producing and subsidising a lot of content to gain cultural significance globally.

Sandra And this is not an overnight affair, like this has been something that the government has consciously been investing significant amount of money since the 90s. 0.2% of Korea's GDP, billions of dollars have gone into this and have also resulted in billions of dollars for the Korean economy. So not just companies like Samsung and LG having international branding campaigns that emphasise the quality and the design at the global scale. But as you've said, K-pop, Korean movies but also Korean dramas, online games, even cuisine that's made its way around the world. But this is a story about Netflix.

Kai So let's take a look at what this means for Netflix and the film industry more broadly.

Sandra Yeah, everything from how we make movies, to where does the money come from? How it gets distributed, and the impact it has on entertainment of popular culture. And the place to start is probably the one-inch barrier.

Kai The one-inch barrier meaning the use of subtitles in foreign language movies and productions.

Sandra Yeah, the South Korean Oscar winner Bong Joon Ho called it the 'one inch barrier', talking about how audiences are often deterred by the fact that foreign movies have subtitles that they have to read. And it's so cumbersome that foreign movies, unless dubbed, they will not have any success overseas.

Kai And while we do not have any data about how much these productions, we mentioned our watched with subtitles versus dubbing, if we go by our own experience, and that of friends and acquaintances, a considerable number of people seem to have no problem with the subtitles and actually prefer it. So I personally liked the subtitles because it preserves the urgency in the original language and the tone of voice and the colour in the foreign language much better than the dubbing, which often seems flat and weird and slightly off.

Sandra And the reason we don't have good data is that Netflix is not very forthcoming with the data they have on how well they're doing, they did share numbers about how many millions of people Squid Game had reached in its official launch. That's 111 million. And they have shared that over 97% of their subscribers have watched a foreign movie film in the last few years. But there is little detail around how and when and where they do that. But the bigger point here is that this one-inch barrier seems to have had a lot more to do with what was getting produced rather than what the consumer preferences were necessarily.

Kai And so the often-surprising success of these local productions on the global market might mean that there's now less hesitancy to actually market these films in original language, and also maybe for other companies beyond Netflix to go into this market and produce localised content that might actually do surprisingly well with global audiences.

Sandra And again, it's worth going back here to the fact that everybody seems to emphasise the huge reach that streaming platforms have and how that has helped improve the reach of non-English language content around the world. But the bigger emphasis here is just on how much money companies like Netflix, or especially Netflix, have invested into high production, non-English language content, which has made this much easier for international audiences to enjoy. And as we've said, this is a significant amount of money. And it's now over half of the budget that Netflix spends on creating new productions is in languages other than, than English.

Kai And it points to an interesting, not paradox, but to a surprising diversity because on the one hand, the rationale is that audiences want localised content. So French audiences want French movies and British audiences want UK-produced movies which to a certain extent it is true, but it also shows that audiences are quite interested in getting into authentically produced foreign language and foreign culture production because a lot of the appeal of something like Squid Game or a show like Fauda is that it preserves the cultural idiosyncrasies and the cultural mood and the colour and the flavour, so to speak, of what it is like to be in that place. These are not productions that are sanitised for global audiences but rather very true to what it is like to live in a place like Korea or Israel indeed.

Sandra And when we talk about Netflix, we're quite good at talking about how this is changing consumer habits in terms of you know, binge-watching and watching entire series and so on. But what goes on behind the scenes at Netflix is equally important, because while it has globalised the entertainment industry and certainly made these movies widely available to audiences around the world, it's also making it increasingly easy for foreign language films to receive big budgets and big funding to create big productions. So it's slowly pushing the other streaming companies into the same space. But also screenwriters, directors from all over the world will find it much easier to find funding for interesting projects and for big productions.

Kai But let's not forget that this is also challenging, because there's been some discussion online and we'll put a link in the show-notes, among others, by Honi Soit, which is the Sydney University student newspaper, which make the point that the subtitling needs an incredible amount of nuance to transport for example, the ways in which different words express social hierarchy in Korean society, how people relate to each other based on seniority and familiarity. And that this is not easily done and needs a lot of interpretation, and a lot of work. Equally so for the dubbing that when done in, you know, 30-plus languages, needs a lot of budget in and by itself, and a lot of care when producing it otherwise, a lot of that nuance actually becomes lost in translation.

Sandra Although there's been some criticism of Netflix, of them being accused of creating shows that appeal to as broad an audience as possible. The business model that Netflix has built behind how they produce these shows, actually allows for much more creativity, and much more of the original artistic intent to be preserved. And we discussed this I think a couple of years ago when we talked about how Netflix produces TV series quite differently to how traditional cable television used to do it. And again, we'll include the links in the show-notes, but it really differs from like traditional TV networks in that Netflix usually commissions an entire season of something all at once. So an entire season of Squid Game or of Money Heist or Fauda, all at once, rather than what traditionally used to be the case, which is one pilot episode, see how that goes down with the audiences tested, and then either get rid of it or adjust the tone or adjust the pace of the series or even the topic so that it plays to a specific audience,

Kai Which gives much more artistic freedom to the directors and the screenwriters to preserve the original storyline and also the cultural context of the story.

Sandra And in that respect, Netflix really has created the space for these local productions to emerge as it employs this cost-plus model, which means it pays all the costs of the production of the show, plus something like I think it was a 30% premium on top, for companies to make this. Rather than what used to be the case where you know, a TV network would pay just a proportion of the production costs, and then it would expect the production company or someone else to front those costs, and then to shop that movie around and try to find other broadcasters streaming services to distribute it. Netflix pays for everything up front, and then something on top of that, and then keeps the output within its ecosystem and shares it to its audiences.

Kai Yeah, but beyond all those industry implications may be in the end, this is an actual true cultural moment that we're witnessing.

Sandra Yeah, true globalisation, rather than you know, seeing film adaptations all the time or remakes of things from around the world, or just the occasional foreign movie maybe this is the moment that you know non-English language content gets spread around the world.

Kai Yes, an actual true globalisation, not the US hegemony of exporting consumer goods where you know, shopping malls look the same everywhere, TV programs look the same everywhere. The chance to have content produced anywhere to go everywhere, and much more cross-over off content. So the shows that we've watched in recent times came from, you know, Germany and France and Korea and Spain, the UK, and of course the US.

Sandra So despite the dark dystopian nature of Squid Game, a real optimistic moment, for the film industry and for entertainment.

Kai Yeah, and that's all we have time for today. Back to watching Squid Game for me.

Sandra Thanks for listening.

Kai Thanks for listening.

Outro This was The Future, This Week, an initiative of The University of Sydney Business School. Sandra Peter is the Director of Sydney Business Insights and Kai Riemer is Professor of Information Technology and Organisation. Connect with us on LinkedIn, Twitter and Flipboard and subscribe, like or leave us a rating wherever you get your podcasts. If you have any weird and wonderful topics for us to discuss, send them to sbi@sydney.edu.au.

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