Will Facebook trounce Netflix?

The Street appears to think so. Warner Bros and Facebook are going to offer the streaming video of Batman Returns as a test to see if they can make any money for realz between Heath Ledger's maniacal masterpiece and Zuckerberg's 600 million-strong flock of social seagulls.

This is a no-brainer. Of course it will work. And it will be expanded to tons of titles very quickly. As of this posting, Netflix shares have just broken below $200 and are now down a full 20% from their highs one month ago.

Some observations:

• Netflix could be in big trouble. This is a competitor that doesn't have to spend a penny to bring in traffic - the traffic is already there. Zero Hedge is calling it the Race to the Bottom for Netflix's margins in a zero barrier of entry business. No es bueno.

• I'm not surprised to see Warner Bros as the initial partner, CEO of Time Warner Jeff Bewkes has been the most vocal critic of Netflix. When a New York Times reporter referred to Netflix as the 800 pound gorilla in the digital streaming space, Bewkes laughed and said something to the effect of "more like an 800 pound chimp".

• Whitney Tilson not only blew his entry into the Netflix short, he also blew his exit! He covered almost at the exact blow-off top in NFLX at around $247. I hope he quietly re-entered the short trade, no one deserves to reap the downside here like Tilson does. Lord knows he's paid for it.

• Hey kids, this is a prime example of why you put your trade on and then just STFU. You don't trumpet your thesis for the world to scrutinize - how much of Tilson's reason for covering at the top was due to public ridicule and attention to his early losses?

• Zero Hedge is also talking about the fact that Netflix almost has to do an equity offering. I'm not sure I agree that they have to, but I'd say they absolutely should. Smart management sells stock when it can, buys back stock when it should. Netflix is not cheap by any stretch of the imagination, if they can get a raise done around $200 they'd be idiots not to do it. Or they could compete with Amazon and Facebook and Apple and Google with just internal cashflow, good luck with that.

Full disclosure: I have no position in Netflix, I missed the entire rally - hating on it all the way up. I also didn't have the guts to short it at the top.

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