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Why does it cost $3.99 to rent a digital movie and only $1.29 to rent a physical copy that I have to drive somewhere and pick up (if they have it in)?

If digital movie rentals were only $1.50, I would rent them all the time.
Tim Shorts's profile photoAdam Bragg's profile photoJohn Henry's profile photomatt jackson's profile photo
Netflix streaming is great…if you like TV shows. Doubly so if you have kids. The movie selection is a bit week.

They usually offer a free month, so take a peek (it may require a credit card up front).
Netflix is great if you're not sure what you want to watch. If you're looking for something specific, not so much. Amazon Prime might be worth looking at too, but all I know about it is second-hand.
Love my Netflix. Sometimes its tough keeping track of what to watch, but for the 8 bucks a month is well worth it.
Are you asking why the video you can acquire the moment you decide to watch it with no more effort than selecting it from the screen without even having to leave your chair costs more than the video you have to put effort into acquiring from a business who only stocks limited physical copies in centralized locations? You are paying for the convenience. This is how services work. You purchase not the item, but the quality of the delivery of it. This is true of any commodity that isn't the most basic item.
+Adam Bragg : True. But I think Matt is wondering why the product that is cheaper to deliver (online rental) is more expensive than the product that costs more in overhead (video store rental.) I'm sure your answer is correct (businesses charge what people are willing to pay) but in a truly free market, someone would be undercutting those online delivery prices.
Ok Netflix redeemed itself...Dr Horrible!
And yes +John Henry Lamming is correct. The digital push should be considerably less costly than the physical media method of distribution.
+John Henry Lamming I too agree with your statement. Sadly, we don't actually live in a free market economy. I doubt if it ever actually existed. :-(
+matt jackson You're right, it SHOULD, but as John Henry pointed out, the reason it isn't is due to the business maxim of charging as much as they can force the customer to sustain. Yay, unchecked commercialism!?
One more reason I think IP laws are in need of an overhaul.
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