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Notes -
This is one of the areas where the current state of the market is objectively worse than in the pre-internet era. I remember when I was in college (the internet existed but hadn't subsumed everything) it seemed like every town had a video store that opened when the VCR came out in the 1980s, ordered every title that was available, and never threw anything out. The result was that you had independent shops whose archives included pretty much everything that was ever released on video. Sure, it might not be on DVD, and the tape might be in bad shape from having been watched 4 million times, but at least it was available. I remember they had a 5 catalog rentals for $5 deal, and the rentals were for a week, so it was kind of a weekly ritual to rent 5 movies every week whether I planned on watching them or not. They also had a byzantine setup that encouraged browsing because you never knew where you'd find anything, though they had a catalog you could consult. The new releases were obviously segregated, and they had the normal categories (comedy, drama, etc.), but the AFI 100 movies had their own section, as did "Black and White Classics", and there was something called the Video Vault that could have anything. I believe there was even a small LBGT section, definitely odd for a small town store in the mid 2000s.
They closed in 2007, well before streaming. I think it was a combination of OG Netflix and Redbox. I worked at a video store in high school, and 90% of our sales were newer releases, though the one I worked at didn't have much of an archive. It was part of a grocery store, and it became easier for the grocery stores to just put a Redbox machine in the lobby that would cover the dozen or so titles that actually made money. Netflix didn't make sense for new releases at the time, since you had to wait and could be on a list, but for movie buffs who would just put a hundred movies in the queue and watch whatever Netflix sent them, it was perfectly fine and didn't require as much effort. My roommate and I got the Blockbuster equivalent circa 2008 and I remember he spent an afternoon just inputting the entire 1001 Movies You Must See Before You Die list in, and we'd watch whatever came in. That was probably the peak of movie availability since they really did have close to everything you could think of, unless it was really obscure.
As soon as streaming became the main business it was over, because bandwidth considerations came into play, similar to the space considerations of Redbox, and it was thus impossible to keep an inventory of that size, especially when the licensing agreements were more complicated and probably required them to pay for rights even for stuff that wasn't in high demand.
It's 100% the licensing agreements that cause this shortage, and not bandwidth.
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