This is just hearsay but it does make some sense given the current market conditions.

Apparently the bigger retailers are becoming more cautious when it comes to purchasing large quantities of physical media and then getting stuck with discounting them when the demand quickly dries-up.

The solution some retailers have considered is accepting physical media only on a consignment basis. Take a percentage of what actually gets sold and just give the left-overs back to the distributor.

Anyone else heard of this practice? Is it old news already?

I think that's how they've been selling "media " (DVD, CD, audio cassettes, records, VHS, magazines, books) since forever.

I know with books the stores would buy the merchandise, but whatever didn't sell they would be given a credit or a possible "kick-back" to lower the price and then blow them out at a discount.

With this model, the retailer would offer no money up-front, just shelf space.

It's called "pay at scan". Only large retailers do it. Books, magazines, CDs and video have been this way for years at Wal-Mart.
The merchandise is scanned in at the store. The store is then billed for merchandise scanned at the checkout.
Retailers like it because they have zero liability for the merchandise.