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Agree, make it digital only. Physical games already have a mechanism for lending.

Allow you to "loan" a digital game to a friend for a set amount of time. 3 days, 1 week, 2 weeks.
When your game is loaned out, you cannot play it.
It automatically becomes available to you again when the loan is over.

Limits to allow content providers to agree to this:
Allow content providers to lock games from lending for a set period of time. 30-60 days after purchase?
Limit number of time games can be loaned out. (once a month, 4 times a year, etc)