I take it you haven't heard of Vudu, Ultraviolet, Flixster, Amazon...need I go on? There are plenty of options for legal, DRM-equipped digital downloads that don't require a physical media.
However, there is always a downside. If the digital download is stored in an online service (i.e. Vudu, Flixster, etc.), then I can access it from any device, provided that device has an app, has an active Internet connection available, & that I am able to log into the account. However, I do not have any way of storing it locally, so I can't just store it on my home server to stream to another device over my home network, let alone transfer the file to a smartphone or tablet so that I can watch it without Internet (i.e. while on a flight that doesn't offer free in-flight Wi-Fi).
Same goes for the accounts where I actually get a file to digitally download. Yes, I can download a physical file that I can store locally...but there's usually a limitation on how many devices I can store that file on simultaneously. Not a problem if streaming from my PC over the home network to another device, but can be a problem if I want to also take the file with me on another device. And in some cases, if you lose the original downloaded file you may not be able to go back & redownload it from the original link, having to go through a process of "proving" that you already paid for it, or they'll make you repurchase it. Or, worse yet, if your account gets closed out/cancelled (maybe by the company because they don't like something you did, maybe because the company isn't in business any longer, maybe the company lost the license, etc.), you may find that what you purchased wasn't the file itself, but just the access to the file...& without an active account, you no longer have permission to keep the file.
So, for some people, having that physical disk that they can store in their house & guarantee that, as long as they physically have it (& as long as the disk can physically be read by a device) they will have access it, is more "convenient" and "user-friendly" than some of the digital options. Not to mention that it makes it much easier if, say, a sibling or other family member wants to borrow it to watch (kind of like borrowing a book from your shelf)...something that's nearly impossible to do with the digital downloads.
In the end, unless digital downloads can be made just as hassle-free for the average home user (i.e. someone who's not necessarily technically inclined, someone whose familiarity & comfort level with technology is at or just slightly above the "C-A-T spells 'cat'" level), don't expect digital downloads to even come close to replacing physical media.