You have certainly articulate some great reasons for using on-line content instead of DVDs. Beta and 8 tracks went out of style mostly for technological reasons, and by that I mean a competing technology won out. I am not so sure, however, that the argument between DVD and on-line is going to be a technology driven decision by the consumer. Yes, they clearly are different technologies, but the real issue will be the business model. The market will chose the business model that has the most appeal to consumers, advertisers and movie makers. Technology will of course play a part, albeit a secondary part, in this choice.
My prediction is an advertiser-supported model. On-demand viewing of any movie or tv show ever made available ubiquitously. As bandwidth becomes cheaper and digital compression more advanced, data becomes ever more available.
The price for viewing? Watching a commercial.