I'm not specifically a business man, but I sat next to one in school. And I studied him.
CustomFlix is a dead end for any kind of large-scale distribution; you'd have to advertise to stand out and the price point for profit is fairly high. Being on there sounds cool but honestly, how will anyone decide to spend money on a movie when they don't even know it exists? If people already know about it, you can work that market without an adding a middle-man to eat up profits.
While big-time self-distribution is possible, like any other product the problem is how to sell it. You are competing for consumer dollars, and the consumer in this case is Blockbuster or Wal-Mart, the big boys. The ONLY question they ask is "Will this make me money?" and unless you have a marketable product, they don't care. And marketable doesn't mean a beautiful, moving film, it means a product with a built in audience. That means names stars and titles, advertising, all that stuff, or a strong genre affiliation.
It sounds like you are really talking about distributing your own film or films, not starting a true distribution company on a big scale. Nothing wrong with that.
You can self-distribute outside of the larger chains. Local grassroots stuff will usually result in hundreds, not thousands, of customers but it's better than nothing and it can always lead to bigger things. To really do it right, find a market to target. Advertise if you can. Talk to small record stores, book stores and video stores, art theaters and such, places that understand a small, do-it-yourself product. It's a snap to set up a PayPal account to accept payment on the web.
That's what we do an while it marks us a small time, we ARE small time. I gives us an opportunity to make a little money and do something we'd never have been able to do 5 years ago.
I think its exciting that you can now produce and distribute dvd's for around $1.50 apiece with a relatively small outlay. DVD-R media runs .25 per in quanties of 100, dvd cases about the same in the same volume, printing and mailing add another $1.20 or so. Sell a DVD for $12-$15, you've got a decent profit per sale. Compare that to CustomFlix whose branding probably doesn't really help you move any more product.
With do-it-yourself, you aren't assured the kind of compatibilty of a professional dvd but it's close enough. You're movie can be just as good, you're packaging can be be professional.
Best of all, you get to make movies and people get to see them.
That's my 2 cents worth.