Personally, I think the answer might be a hybrid situation. EG. Offer physical DVD rentals out of an existing establishment that's already successful on its own - like a gas station, bar or grocery store.
So Redbox machines, basically? I see quite a few of them around here.
"Card readers? We don't need no stinking card readers." -- Peter da Silva (at the National Academy of Sciencies, 1965, in a particularly vivid fantasy)