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I agree Video rental is outdated; but those places also had games which are getting more and more expensive and more valid. As long as code in a box doesn't completely replace and ruin physical media
I mean... Your last sentence is already becoming more and more true every day, and has been for years. Microsoft was trying to eliminate the used game market back with the Xbox One. In the US at least there has been a sever decline in videogame stores. Gamestop used to be just one of a handful like Babbage's and EB Games. Other stores on this initial post like Toys-R-Us also used to carry physical videogames too (I think Circuit City may have too?).
Plus I always felt that videogames are just consumed too differently from movies. Movies are something easy to consume in a night or a weekend, especially because the rental versions were usually just the movie with none of the special features. I rented videogames a few times as a kid, and I always felt so much pressure to try to play as much of the game on the time I had it as possible. It ended up a stressful and unpleasant experience. Plus you had some videogame developers who adjusted difficulty specifically for rental markets, like Lion King and Battletoads, which I would argue was detrimental to those games.
There's a reason TV show rentals never really caught on like movies either- it just takes too long to consume comfortably. The Netflix mail model made a bit more sense for shows at least, but couldn't quite bridge the gal for videogames. GameFly tried it and I suppose technically still exists, but I haven't heard anyone talk about it in years. RedBox tried and had a nice moment, but ultimately got swallowed by streaming.
Plus DLC and updates are becoming more common, so it would be annoying to have to go and re-rent a game, purchase the DLC, try to speed through it in a weekend, then return the rented game but still be out whatever you paid for the DLC with no way to play it.
Rentals were pretty good for being a low-risk way to try a game out. You could spend $1-$5 usually for a game that might cost $40-$50 to buy new, and occasionally publishers would have promotions where a rental would come with a coupon to offset the rental price if you want to buy the game. Nowadays that has been replaced by free downloadable demos. Which aren't perfect, but I think are better than the old rental system.
Demos have been dying out faster than physical media for years too
That does not match my own experience.
Back in my day, I received a couple of demo disks packed in with my PS1, and I got a couple more through other means like magazines and the famous Pizza Hut promotion. Some games would include demos for other games too: Spyro and Crash Bandicoot used to do that a lot. Now that I think if it I don't remember ever seeing any cartridge-based demos at all for any Nintendo or Sega systems, even the later ones like GBA and N64. There were kiosks in public places, but I never saw anything intended for a consumer to have- carts were just too expensive.
By the PS2 era demos had mostly dried up. I have a God of War demo that came with a magazine and that's about it. I could only speculate as to why, but I suspect increasing game sizes and DVD's being more expensive than CD's may have been a factor?
I'll admit I stopped paying attention to demo's for a while, so maybe I missed a peak at some point from like 2010-2020. But nowadays Steam, the Switch, and the PS5 all have a category or filter option to look through demos. There's tons of indie games trying to get attention, and of course tons of shovelware too. But most of Nintendo's published games have demos on Switch. Scrolling through the PlayStation store I see EA sports games, Persona 3, Power wash Simulator, Ys, Diablo 4, FF VII Rebirth, Tekken 8, Crow Country., Chants of Senaar, Sea of Stars, Ghost Trick (I didn't even know that was on the PS5 lol), Like a Dragon, Resident Evil 4... So Square, Capcom, Sega, EA, Activision-Blizzard, tons of indies, and more. Sony is the only publisher whose absence I noticed, unless you count VR stuff. The number of demos available today is overwhelming, if you look for them.