Blockbuster appears to be joining the swelling ranks of those trying to digitally distribute rental movies (as well as other content) to your TV; Vudu, Apple, and soon Netflix (and let us take a moment of silence to remember MovieBeam). By and large these services have failed to capture any mass market momentum. Despite the history of failure, success (or some resembelance thereof) is just a few steps away:

1. Forget proprietary hardware. Consumers are not willing to pay for hardware and an a la carte fee to rent movies, it just won’t happen; ever. This is especially true if the box offers no other functionality. Thus, if you absolutely must release your own hardware (sans subsidization) it must offer more functionality than simply a tunnel to your proprietary movie service, but even then you run a high risk of failure.

2. Make it Subscription. Netflix’s success is 2 parts American’s laziness and 3 parts business model. In order to make digital distribution successful companies must focus on an all you can eat subscription model or give the boxes away for free and charge per movie. It has to be one or the other. Ala carte should be an option for the occassional renter as well.

3. Its all about partnerships. Game consoles, HDTVs, Blu-ray players, and a slew of other devices are looking for ways to deliver extra value from their connectivity. Partnering with hardware that stands on its own as a valuable component is integral. You may have to split some of the revenue but you will be drawing from a much bigger pie. Alas, some manufacturers like Microsoft already have their own video distribution in place with the XBox 360, so partnership opportunities may have to come from beyond the console space.

4. Focus on HD. Even though the format war is over most consumers do not have Blu-ray players, yet. There are few options for viewing pre-recorded HD content; broadcast from a pay TV service provider or via VOD. Despite the limited options consumers are clamoring for HD. Focus on HD and chances for success increase dramatically.

5. Think Web 2.0. If successfull in wooing subscribers it is imperative to maintain interest in new movies to avoid service fatigue and churn. Recommendations and social networking features like reviews from friends or sharing clips with friend may keep subscribers engaged longer.

There is clearly a market for pre-recorded rental content. However much of this is impulse ala carte renting. In order to convert ala carte renters into digital renters partnerships are necessary because they simply will not invest in hardware. The options are offering subsidized hardware for all you can eat subscribers that pay a monthly fee for hardware and subscription or to synch up with the many connected devices in the entertainment stack. Unlocking the market resides in creating a pleasureable renting experience on those devices.

Anything less will result in continued failure.