Seth makes a good point about pricing of digital rentals. One other reason to charge less – bandwidths costs.
Seth mentions that the costs of pressing and distribution go out the window. But in the download market they don’t completely – the customer is paying for the amount they download, adding to the overall cost of the rental.
Sure, it’s still fairly small, and bandwidth is cheaper all the time. But I couldn’t afford to download a whole movie in HD on my current plan – it would blow my monthly download limit pretty fast, so I’d be v. cautious about renting this way given the bandwidth costs.
All the more reason to make the overall offer as compelling as possible to get the mental switch Seth is suggesting needs to be made.
(As an aside – I would have thought Blockbuster and the rental companies would have to pay a significant royalty based on the volume of rentals, rather than a per-physical-DVD fee. I’m intrigued now as to how that aspect of the industry works…)