No doubt about it -- Netflix (Nasdaq: NFLX) has been an amazing stock. It kills me to think about the money I missed on this one by not buying. It's not because I couldn't find an attractive entry point. It's because I forgot (just plain, boneheaded forgot) to add it to my watchlist the last time it dipped into the $20s.

But this isn't the story of how I missed that eight-bagger. This is the story of how that eight-bagger might turn itself into something a lot less satisfying for shareholders. Netflix faces a big risk of becoming a victim of its own success.

The latest conference call from Netflix was all about the streaming. While DVD use continues to grow, the real growth engine here is Internet video streaming, via applications built into the plethora of new devices that are Netflix-ready, including the Apple (Nasdaq: AAPL) TV box and built-in TV apps. With Microsoft's (Nasdaq: MSFT) Windows Phone 7 supporting a Netflix app out of the gate, and Netflix promising to deliver one soon for Google's Android OS, phones and tablets will further stress the Netflix stream. That's exciting, but it's also scary, and investors don't seem to be paying much attention to the dark side.

I've seen the future, and it stutters
I was one of the earliest adopters of Netflix's streaming-video technology, watching it on my computer, then streaming it through my Xbox 360 -- one of the first devices to serve up the service to our big screens, thanks to Microsoft's cozy relationship with Netflix.

Ahhh, the good old days. Sure, most of the titles were standard-definition, and the movie selection was even weaker than it is now (and it's still pretty weak). But there was more than enough TV and foreign cinema in the queue to keep us satisfied, and we rarely had much of a hiccup.

Things have changed. As Netflix stock has gone ballistic on the back of the big subscriber growth brought in by streaming, Netflix's streaming service itself has gotten progressively worse. At my place, it's gone from good to bad, and from bad to horrible.

In the good old days, the streaming service would fall behind on buffering once in a while, maybe every 10 minutes or so, or even a lot less. Now, during peak evening hours, the stutters and pauses for buffering can occur several times per show, and at some times, every 10 seconds, making the service pretty much unwatchable

Is Netflix digging its own grave?
I'm beginning to believe that Netflix is destined to be a victim of its own success. According to this article about a recent Netflix streaming outage, Netflix's video streaming feeds are now the biggest single source of Internet traffic in the U.S. during peak hours. I don't think Netflix can handle the customers it's already got. The company is reportedly using many different companies to stream this incredible amount of traffic, but Akamai (NYSE: AKAM), Limelight Networks (Nasdaq: LLNW), and most recently, Level 3 (Nasdaq: LVLT) aren't capable of keeping my house adequately served with South Park, Veronica Mars, and 30 Rock.

Given that I can also stream hiccup-free higher-definition movies from Microsoft's Zune service on my Xbox 360, it's clear to me that this is a Netflix problem. They're either falling behind the curve on buying the hosting capacity they need, using unreliable providers, or relying on applications that just aren't up to the task.

Either way, I doubt regular folks will put up with a streaming service that burps more frequently and more obnoxiously than Rachael Ray at Old Country Buffet. They won't care why it sucks, only that it does suck. And they'll take their business elsewhere.

Times have changed
Hulu Plus just launched out of beta and lowered its price to $7.99 per month. I had my doubts about the service originally, but it's become my go-to. When Netflix can't deliver a standard def stream, Hulu comes through with beautiful high-def stream, interrupted only a few times by brief commercials.

Spare me the huffing and puffing about Netflix's being "commercial free," please. I'll take a 30-second commercial every 10 minutes over a 30-second Netflix outage every two minutes .

Moreover, the Hulu apps I'm using have leapfrogged Netflix's in quality and appearance. And they're showing up everywhere: on iPhones, iPads, Playstation 3, and soon, the Xbox 360.

Think Netflix can fix that?
If this were just a matter of getting service levels back to where they belong, I wouldn't bet against Netflix, but it's a different game now. The question's not just about service (and Hulu's is already better for me), but also price. Hulu's got the edge there now, at a buck less than Netflix's lowest-price streaming plan.

Hulu's in this game to win, and Netflix investors had better at least wonder whether their favorite team is heading for a giant upset.

Do so, and you might be thinking further out than Netflix CEO Reed Hastings, who seems to have been slow on the uptake. In July, he said Hulu was "too small to matter." By October, he was waffling on giving margin guidance, acknowledging that it all depends on competition. His comments contain an embedded challenge to analysts to tell him what the level of competition will be. I can tell him: A lot more than you're used to, Mr. Hastings.

Pick your army
This will be a price war. Whom do you want to bet on? Netflix already pays huge amounts of money to secure rights to movies and TV shows for streaming. Without good content, Netflix is hosed, and content providers know that. Expect the studios to drive hard bargains, especially as streaming services bite into their DVD sales and other former cash streams.

Hulu, on the other hand, is owned and operated by a consortium of content providers -- you know, the folks who already own the rights to the programs. And we're not talking about greasy-haired indie film directors here. The triumvirate that owns Hulu includes News Corp. (aka Fox), The Walt Disney Co., and GE's (NYSE: GE) NBC.

Who do you think will win a price war if one side pays a whole lot less -- maybe even nothing -- for its bullets?

Foolish final thought
I'm pretty patient, and as a long-term, satisfied Netflix customer, I'm willing to put up with some growing pains. But not forever. Just this week, I cut the amount of money I'm paying Netflix by 50%, and that may move to zero in the near future. I doubt I'm the only one making these kinds of choices. As Netflix is failing me as a customer, I'm making the easy choice to spend less on it. As more consumers are forced to do the same math, Netflix may very well fail you as an investor. Mr. Market doesn't seem to think anything can go wrong at Netflix. It would be eminently Foolish to think otherwise.

Think Netflix can win a price war with Hulu? Think it has some other competitive advantage that makes it a buy at these nosebleed levels? Let me know in the comments below.

At the time of publication, Seth Jayson had no position in any company mentioned here.

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