No. What you do with the movie in your own domicile is your own business. You can't alter the movie and sell it to someone else. The Founding Fathers believed in protecting patents and copyrights; we should too.
Are you allowed, under copyright law, to alter a personally owned copy of any copyrighted material?
Yes, you are. Therefor you are also allowed to hire a third party to do the modifications for you if you wish. Simple.
Where this company runs into a problem is they're doing the altering before the sale. While there's no material difference between the two scenarios, there is a technical difference, which may be enough to violate the strictest interpretation of the law. This is why I said they simply need to change there approach. Have the costumer buy it first, before they make a backup copy for the owners personal use, with some editing of objectionable content. Problem solved. There is no infringement of copyright law there.
However, you know as well as I do that the Hollywood types would never let this stand as well. They would fight it to the death, even though, just like this case, it provides a larger audience for their product.
That's because it's not about the money for them. It's about their childish pride and vanity.