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You Should Welcome Advertising on Netflix

Stocks in this article: NFLX

NEW YORK (TheStreet) -- He won't tell you this. And he might not even realize it yet, but Netflix (NFLX - Get Report) CEO Reed Hastings painted himself into a corner.

By ignoring additional and alternative lines of revenue, Hastings tied Netflix's fate to its ability to achieve mind-blowing subscriber scale. That's a considerable risk. One that could result in catastrophe for Netflix's now high-flying stock.

Whether you're a consumer or an investor -- or both -- you should not fear advertising on Netflix. In fact, you should welcome it with Journey-like Open Arms. You just have to think differently about the notion of sponsors as part of programming.

In the comments' section of the above-linked article, Netflix subscribers freaked out at the mere mention of advertising on Netflix. But that's because, almost to a person, they view the idea in the traditional sense:

Really you are pushing for them to place ad on the TV shows that we pay money to see. We pay that money to not see ads.

No. You pay that money to keep Netflix's out-of-control and unsustainable content spending alive. You only pay $8/month because Reed Hastings botched the streaming/DVD split (that was Qwikster) in 2011.

Hastings actually made the correct decision in 2011. There's no question Netflix needed to break streaming from DVD. In fact, at the time, my thought was Netflix should have sold the DVD unit. It made the wrong move by not doing so.

But this misstep should not come as a surprise, given Hastings' pathetic handling of the DVD unit throughout 2011.

Normally, I might say What's done is done, but that's not the case. What's done haunts Reed Hastings to this day and could contribute to another 2011-like NFLX implosion.

By botching the 2011 split, Hastings ended up making it incredibly difficult, if not impossible, for Netflix to raise prices. That's something it will have to do, at some point, if it wants to survive absent some other form of revenue generation.

But after Hastings' 2011 performance, it's going to be tough to get a price hike past the public. Just look at the response when you suggest some other way -- be it advertising or on-demand, al a carte options -- to generate additional, much-needed revenue.

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