The gloves are off. Carl Icahn threw them to the ice like a hockey brawler, getting ready to throw punches at Netflix (NASDAQ:NFLX).

When Icahn built a nearly 10% stake in the video veteran over the summer, it was done via proprietary call options. That was a capital-efficient way to create a large interest in the company, but didn't come with any voting powers. It would take some more capital to convert those calls into regular stock shares, which would then let Icahn wage proxy wars to rebuild the Netflix board of directors and influence where the company is going.

Well, Icahn has taken that crucial step. According to an SEC filing, all of the Icahn sphere's call options were converted into stock on Monday. The written put options that were paired with the calls have been terminated, too. No more Mr. Synthetic Long -- the group's 9.98% share of Netflix votes has now been activated. Sit back and enjoy the fireworks.

The cost base of the options was about $58 per share, so Icahn could simply sell his freshly minted shares right away for a quick 40% profit on his $324 million investment. Not bad for a quick hit. But he didn't. So this is where the gloves hit the ice.

A hostile takeover would be a long and difficult battle here, given the one-two punch of a staggered board of directors plus a brand-new poison pill. Expanding that just-below 10% position any further would instantly dilute Icahn's holdings to kingdom come, and the three director cohorts make it impossible to clean out the boardroom in a single strike anyhow. So it'd be expensive and take at least two years.

Dueling banjos
Icahn keeps professing his love for Netflix's 27 million domestic streaming customers. To his mind, it makes perfect sense for (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), or even Verizon (NYSE:VZ) to buy Netflix rather than throwing money after their homegrown digital video platforms. Hitching the Netflix wagon to a bigger and richer warhorse with global ambitions and deep pockets would unlock a ton of value for the buyer.

He's not wrong. All of this is true.

On the other hand, CEO Reed Hastings believes that shareholders would be better served in the long run if Netflix remains independent. The company may not have billions of dollars in cash reserves, but Hastings insists that he's got enough cash stored and incoming to realize his worldwide growth plans. A quick buyout premium now would look paltry next to the long-term value he's creating.

So Icahn may be right, but Hastings is righter in my view.

Where's the competition?
My Netflix shares are not a get-rich-quick gamble but a long-term investment. I believe in the Netflix take on digital video, where the company has carved out a very specific and lucrative subscription niche while everyone else is fighting over table scraps using pay-per-view models.

  • Amazon is competing, kind of, but the Prime plan really treats video as an expensive marketing ploy for the e-tailer's main store.
  • Mr. Softy expects you to buy a digital copy of The Artist for $15 (standard definition) to $20 (high-def), with no option to just rent. This caters to a totally different market than the Netflix all-you-can-eat buffet, where The Artist is included in the $9 monthly fee.
  • We don't even know exactly what Verizon plans to do in the digital video space until its joint venture with Coinstar's (NASDAQ:OUTR) Redbox division finally rolls out. But it's a fair bet that it'll be just another piecemeal rental service, and not a crazy subscription plan.

Carl Icahn seems to agree that Netflix holds a unique position in the digital video space, but he's got different ideas on how to provide shareholder value. The gloves are off, and I can't wait for Icahn to start throwing punches. This fight might get more entertaining than anything streaming at Netflix.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.