It's been a busy 24 hours for Netflix (Nasdaq: NFLX).

  • The stock closed nicely higher yesterday on a Credit Suisse analyst upgrade.
  • Jim Cramer talked up the shares last night, arguing that the stock could double after the Facebook IPO adjusts the market valuations of growing dot-com darlings.
  • There was another Netflix.com outage, disrupting streaming services and DVD queue management.

However, the one nugget that has a lot of cynics gushing is news that CBS' (NYSE: CBS) Showtime is about to pull the early seasons of Dexter and Californication from Netflix's catalog of more than 20,000 digital titles.

The move makes sense for Showtime on the surface. It's getting ready to roll out Showtime Anytime, a streaming service for active premium subscribers similar to what Time Warner's (NYSE: TWX) HBO is doing with HBOGo. The value of streaming Showtime shows as a cable channel subscriber diminishes if it's legally available cheaply elsewhere, so it wants to be the exclusive hub for its hit shows. In news originally broken by Crain's New York, CBS will be pulling the shows once its current deal with Netflix expires this summer.

Nurse Jackie jilt
There are three fatal flaws in Showtime's thinking.

The first flub is that Showtime wasn't airing current seasons of its shows on Netflix. It's largely the earlier seasons that are no longer lucrative. You're not seeing a lot of retail sales traction on the second season of Dexter after all of these years. Showtime is leaving incremental money on the table outside of the syndication opportunities that may be diluted with easily accessible streams.

The second flaw is that having these early episodes freely available to Netflix's 20 million paying subscribers has been a promotional winner. What does a Netflix customer do after streaming the first two seasons of Dexter? Those that get hooked likely check out the subsequent seasons before considering a subscription to Showtime to stay current. It's a gateway drug. No offense, Weeds.

The third oversight in Showtime's strategy is that Netflix still has the discs. Unlike any other streaming service, Netflix -- and an iffy Blockbuster -- are the only two companies with the regional distribution centers to offer fresh DVD rentals on top of video. Coinstar's (Nasdaq: CSTR) Redbox is limited by kiosk space and Amazon.com's (Nasdaq: AMZN) new Prime streaming smorgasbord will never grow physical distribution in these taxing times. If Showtime is making it a point to be the exclusive streaming provider of its vault, it will only help Netflix stand out more as the only financially feasible source for home-delivered Dexter seasons on disc.

Oh, and if that final point proves to be too burdensome for Netflix subscribers, that's still bad news for Showtime. Netflix's more than 20 million homes of couch potatoes will just stream other shows that are available.

Teaching old media some new media tricks
I'm going to make a prediction that is bolder than it may initially sound: By the end of next year, HBOGo and Showtime Anytime will be offered as standalone services.

It has to happen if either service stands a chance of succeeding. Right now, they are only available to existing subscribers of HBO and Showtime, respectively. This means that folks that are already paying a good chunk of change for basic cable or satellite television are the only ones that can pay even more for a premium movie channel package. This isn't working. Cord cutting continues, threatening to derail HBOGo and Showtime Anytime if the premium channel providers believe that this will be magical elixir to grow its subscriber ranks.

There will be resistance, naturally. Standalone streaming will make it less necessary to have cable service. Time Warner has CNN, Turner, TNT, Cartoon Network, and truTV to protect. It also spun off cable provider Time Warner Cable (NYSE: TWC). CBS was split from Viacom (NYSE: VIA), but its sister company watches over MTV, BET, Nickelodeon, Comedy Central, VH1, and Spike. In short, they will suffer if standalone streaming accelerates the cord-cutting process. However, there will also be greater pain ahead if HBOGo and Showtime Anytime let Netflix continue to run away with the mass market. They can't compete under the old media mold.

Showtime's killing a serial killer serial, but who is it ultimately killing?

Is Showtime right or wrong here? Share your thoughts in the comment box at the bottom of this queue.

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Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.