No, the distinction is editing the content.
You can't do that.
I looked other articles.
It is not "just editing the content". There are multiple issues but central is the fact that in renting the video as a new product the court views it similar to the sampling copyright issue. They are taking an existing product and converting it to something else THEN renting it without compensation to the original owner.
If they had sold it, it would be akin to an auto customizer who buys a car, modifies it, and then sells the entire car out. But that is "one" for "one" zero sum.
The issue is not the artistic integrity. That is irrelevant, the issue is the rights to sell the content for modification.
I am curious how much business the studios are loosing because they are NOT providing this service. I have no ox in this competition.
I think we have a fair use conflict here and the bottom line is the courts in the past have not been so quick to allow the "adhesion contracts" that software makers try to push. (ie AFTER the box is open and cant be rerturned and after the envolope is opened and can't be resealed, THEN you get the little "you must agree or else" checkbox)
A similar case that failed was a car maker trying to enforce an effort to go by a warranty that was "adhesion" modified in the manual in the gove box AFTER all the paperwork had been signed and sealed and delivered. (you expected to read the manual's new warranty clauses AFTER you signed but BEFORE you drove off the lot.)
People routinely edit copyrighted material when they make their own mix tapes or break up copyrighted albums to take the few good songs and put them on their ipods.
Taken to its logical extreme hollywood would ban the FF button because it allows you to fast forward scenes which break up the "artistic integrity" of the film by FF editing on the fly.
The real issue here is the financial damage. Did they have actual contracts for rental of the videos? IF they did not have actual rental agreements for commercial rental then the rest of the debate is moot and we never get to the editing part.