Netflix (as it is all streaming and not really "renting") isn't the greatest example. For some things that I can't stream on Netflix, I often rent from the iTunes store. The cost is much less than a purchase from the same store. The only difference is the understanding that the digital media I'm renting will no longer function after a well-understood period of time. I'm an adult, I can make informed consent to that arrangement.

I wouldn't be happy with this being the only media option, but I like having that as one of the many options in the media ecosystem.

All these reasons have completely no application to digital goods. So what's the point in renting them, or making the purchase price any higher? I see none, except someone's potential greed may be.

You can say, that renting an object more often produces more profit, in case when one time fee is charged for each renting, so that's the reason for the time limit. But then again, this is only valid when the resource is limited (physical object), and each user prevents others from renting it. In case of the digitial data which costs nothing to duplicate, the resource is unlimited, so this reason doesn't apply. And if we are talking about the same user renting it again and again, then what's the point? Purchase makes more sense again.

The bottom line, I think that renting of digital goods is a pointless idea. And since as we see it causes DRM in result - it's a bad idea too.

The price of something is instead based exclusively on willingness to pay for it. The market has proven that people are willing to pay more for digital goods that they own and can consume over and over over digital goods that they have a short-term access to.

Anyway, ask anyone if they prefer to buy and not to overpay, rather than rent. Just because someone devised an idea of renting digital goods for no reason except their own greed is not a reason to say that it's a good idea. It gives no benefits for the user and can be used as an excuse to drive prices up on purchases as you said yourself.

That's a fundamental misunderstanding of basic economics. The market always sets the price. If the price that is set by the market is lower than the cost to produce that item, then you just don't have a viable product to sell.

The basic real-world reason that renting of digital media exists is because some people are willing to pay more for the added value of being able to watch it over and over while some people aren't.

This is rather devoid of meaning. What is the market if not a label we use to reference the extremely complex interactions of individuals with varying degrees of information and rationality in an adversarial system? Of course the actual price to produce a product influences what people are willing to pay for it! This is why companies fight so hard to keep that information secret. This is why I refuse to buy a typical cell phone plan that charges absurd amounts for data and text and stick to prepaid. I influence the market because of my knowledge of how much it actually costs to send a text. The market absolutely reacts to the actual costs of products.

Very few people have the time and knowledge to do a supply chain or BOM analysis before they buy anything. Hence, there is little incentive for companies to price products based on cost. Cost is a factor only when analyzing profits.

Hence, cost is usually whatever the market is willing to pay. Saying it is unethical or wrong does not change reality.

There is a lot of misconception surrounding this principle.

To oversimplify, in the short term, price is determined by the interactions of supply and willingness to pay.

However, in the long term (in a competitive market), new suppliers will enter the market if existing suppliers are making supernormal profits, and existing suppliers will exit if they are making subnormal profits.

This means that, in the long run, price will converge to the average total cost of production, in a competitive market.

Of course, Netflix is not operating in a perfectly competitive market, but that distorts the price in a different way. It's not quite technically correct to say that price is based exclusively on willingness to pay for it; even in noncompetitive markets (true monopolies, as opposed to monopolistic competition), one can just as easily say that price is determined by the quantity that the monopolist wishes to sell.

I don't subscribe to Netflix, but in my opinion if Netflix allowed downloading, what many people would do is make a list of movies they wanted to see, subscribe to Netflix for a month, download all the movies they could and then cancel. Then spend the next year or so watching the movies at over the course of a year or so. You don't get Netflix's recommendation features and everything's dated, but you could download many more movies in a month than you would want to watch. If people who were currently Netflix subscribers switched to this method, then Netflix would see its subscription rates drop. Since their costs would remain the same, they'd have to raise prices significantly. One of the advantages of Netflix is the low price, so many people would cancel outright, but first they'd want to build up a store of all the movies. Maybe some people would be willing to pay for a continuing subscription based on convenience, but I think that for the most part Netflix's user base would turn into one-month bulk downloaders.

Most subscribers would still subscribe to a DRM-free Netflix, because it's considerably easier than maintaining a failure-prone array of hard drives to store everything you want to watch.

there are already copies with better quality than netflix available to everyone to download. and netflix is still in business.

i still have to download those better copies in less than 2 hours when i want to watch something not on netflix or hulu. and i now hate it. i used to love when there were no convenient way to pay for it.

so, quit the nonsense as it even goes against factual evidence

Now, a different and more interesting question is what would happen if Netflix maintained the legal requirement to only view movies through streaming and not to store them, but eliminated the DRM. This would make their model comparable to Amazon's MP3 store, except with for video rentals rather music purchases. Netflix certainly think that such a model wouldn't work for them, and I'm willing to give them the benefit of the doubt. You can point to MP3 stores such as Amazon's to say it would work, but it's interesting that even though MP3 purchases are widely DRM-free, music streaming is still DRM-protected (as near as I can tell: correct me if I am wrong).

so i cant create a content distribution company that allows you to download and convert the movie to some format you need tonwatch on some roadtrip because the middle man says i have to sell it to you via streaming.