This is how Doom/Quake was distributed on CD - first episode free, call iD for the unlock code.

That would remove their ability to take content away from consumers when contracts expire though wouldn't it?

The encryption keys would be time limited (monthly basis, certain titles, etc). If you don't top up monthly, you key expires, the underlying data is re-encrypted with another key, etc.

How do you re-encrypt a read only storage medium like a disk though?

You could have a master-key (or set of master keys) on a read-write medium, which you could encrypt/decrypt as many times as needed? You'd be vulnerable to someone scraping the master key from memory, but no more than someone just passing the video to a recording device.

To be fair, they don't have that ability in the first place against a determined attacker. (Ie once they show you the content, you can grab it.)

Yeah that's true, but I would say the majority of people aren't ripping Netflix streams in case Netflix's content licences expire. If they are given a master disk with everything on it, anyone with that disk has the data on it in perpetuity (barring storage failure)