"Films such as "Harry Potter" can be downloaded for a fee of $3.99 for 24-hour viewing. Older films from the Warner Bros. home video library can be downloaded for $2.99 for the same period."

These guys don't get that if I'm going to spend 2 or more hours downloading a low quality encoded movie that I can only watch for 24 hours I'm not going to pay full rental price. If it were seriously difficult for me to get to a rental store this service might be attractive at this price. Of course, if its seriously difficult for me to get to a rental store, its probably totally impossible for me to get broadband.

You can't offer a lower quality product at the same price and then claim people aren't adopting it because they either aren't interested in the general idea or they are involved in priacy, but I suspect thats exactly what will happen here.

If these folks had a wide array of independent films they might do alright, as such films are difficult to obtain unless you live in a major metropolitain area or you are willing to buy them on DVD.