> [A Macquarie Capital researcher] expects that this year alone, Apple's iTunes, software and services business should generate about $30 billion on a gross revenue basis, which would be more than 83 percent of S&P 500 companies. [...] Schachter believes earnings before interest and taxes through iTunes, software and services will account for 21.8 percent of the company's profits this year.

http://appleinsider.com/articles/14/03/24/itunes-and-app-sal...

Not "all" profit is sucked out of the equation by the time a DVD or video gets to retail. But a lot of it is. It's not so much a retail margin issue per se. It's that lots of stakeholders have contractual claims against the top-line sales ("front end") and bottom-line profits ("back end") of any given entertainment property. Producers, talent, studios, production companies, DVD distributors, film financing companies, investment banks, licensors and licensees, etc. Depending upon their clout and their contribution, each may get a cut of either the front-end or back-end of the property. Some of them might double-dip, taking a cut of revenues, in addition to producer's fees.

All of these shares are negotiated and locked before a single DVD (or Blu-ray, or digital download, or what have you) goes on sale. As you might imagine, it's extremely hard to price an entertainment product profitably at retail, given how little flexibility the retailer has on its pricing to begin with. Sure, a retailer could set the price high -- but every other retailer is pricing low, so that won't work. It's a tough racket. Even still, these properties sell like hotcakes, so at least some money's being made. And entertainment sales are often correlated with sales of other big categories (electronics, toys, etc.), so retailers feel the need to keep the category around as a sort of proof point.

The death of the DVD is inevitable, but it's not as imminent as people would like to think. In the meantime, the life of the DVD is kind of a pain in the ass. :)