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Netflix Crash Just a Matter of Time

Stocks in this article: NFLX AMZN AAPL DIS P

We had pretty much the same scenario with NFLX in 2011 as we have now. Everybody loves it.

The business appears to be humming. TheStreet's Jim Cramer hits the nail on the head; Netflix is everywhere. You buy a television set, it's there. Buy a streaming player, it's there. Heck, Netflix often has its own button on the accompanying remote control.

No media company has done a better job making itself ubiquitous. Not Pandora (P). Not Sirius XM (SIRI).

Netflix achieved this level of saturation -- and continues to scale onto consumer electronic devices and such -- because people love the service. If you make hardware, there's real value in making sure Netflix receives primary placement on your television or streaming device. Consumers want and expect to see it.

I like the service so much I would pay up to $20 a month for it.

But Netflix's business model faces a predicament yet to be solved. Sooner or later, Reed Hastings will have no choice but to do another 180 and raise prices. He cannot keep taking on debt amid plummeting free cash flow forever. Theoretically, he could, but, even in this irrational market, it's not a sustainable practice.

The "virtuous cycle" -- more subscribers equals more money for content equals more subscribers and even more money for even more content -- sounds great when Hastings smoke-and-mirrors it on conference calls. He went back to that talking point just last week. And, like I did in 2011 months before NFLX crashed, I will repeat my response to this nonsense until I'm blue in the face.

It's a vicious cycle.

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