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I don't really know how licensing works for video rental stores, but I expect they must pay some sort of additional royalty (or similar) on top of the price of the physical media itself.

However, I expect that the licensing/royalties for streaming and other digital rental services are somewhat different, since multiple customers can watch the same video at once.

What I'd like to know is, can rental stores transition to being digital content providers by uploading videos from the physical copies they already own for rental?

Here are some particular potential roadblocks:

  • Would they have a legal obligation to add DRM?
  • Would they need to pay some sort of per-view royalties?
  • If they have a rare video from a now-defunct studio, whom would they need to contact about royalties/licensing/etc?
  • The tag selection for this question is probably not great; I'm on a mobile device and had a difficult time finding applicable pre-existing tags. – Kyle Strand Mar 12 '17 at 18:06
  • Short answer: No. Video stores are buying the physical copy prepared under limited license of personal use for pleasure by a household, without a license of their own. – ohwilleke Mar 12 '17 at 23:30
  • The biggest ambiguity in the question is jurisdiction, although due to treaties, the answer is unlikely to be different in different jurisdictions that are party to copyright treaties. – ohwilleke Mar 12 '17 at 23:30
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Your question depends on the actual license that is granted for the physical copy, but assuming a rational licensor, the answers to your questions are:

  • Can rental stores transition to being digital content providers by uploading videos from the physical copies they already own for rental?

No, because this would require them to make a digital copy of the physical copy, which is probably not covered by the existing license. Furthermore, uploading and disseminating the digital copy to an unspecified and unlimited number of recipients in return for consideration, is also not covered, as the rental store only paid for renting out a physical copy. The maximum number of viewers per year is therefore about 365, which allows an estimation of the adequate royalties to be paid by the rental store. Lastly, digital dissemination may interfere with other licensees, who have a digital license for a specific geographic area, e.g. only for the United States.

  • Would they have a legal obligation to add DRM? Would they need to pay some sort of per-view royalties?

This depends on the specific license.

  • If they have a rare video from a now-defunct studio, whom would they need to contact about royalties/licensing/etc?

The owner(s) of the copyright, who ever that may be.

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The short answer is that they cannot do this without obtaining permission from the copyright owner, and that if it is not possible to obtain permission from the copyright owner, there is no "orphan works" exception that applies to videos in the United States.

I don't really know how licensing works for video rental stores, but I expect they must pay some sort of additional royalty (or similar) on top of the price of the physical media itself.

Your assumption is incorrect. A video store buys the physical media only and does not have any other licensing arrangement. The first sale doctrine prohibits limitations on how that physical copy can be used by a purchaser of the physical copy such as a video store, for example, by way of a mandatory license requiring the video store to pay an additional fee based upon how often the video is viewed. This principle is essentially to the functioning of the public library system as well.

But, creating a digital copy would constitute a copy by someone who does not own the copyright without permission and would constitute a violation of copyright law by the video store just as it would if anyone else copied the physical copy without the copyright owner's permission.

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