Thanks to a lax security at MGM, you too can view several ppt presentations regarding their business model, profits, etc. What they have done is post jpgs of each slide in a public directory on their website (example: www.mgm.com/mgm/images/corporate/ppt_report/). Really, thats pretty dumb.
Anyway, one particular slide is interesting, titled ‘Margin Analysis: DVD vs. VHS’ and shows how the margin on a DVD is much better than on a VHS. 
If the image is down, you can view a backup from boingboing).
As you can see, on a $20 DVD the profit is between 50-60%, but on a $10 VHS the profit is only 20-30%. From what I remember of the introduction of DVD’s, their higher cost (over VHS) was due to the enhanced viewing experiance (consumers should pay more for a better product). Well, now we know the truth, DVD’s cost more because people are willing to pay more for them. Next time you shell out for the $25 buck dvd think of the cost break down, subtract the stores cut (5-8 bux?) and then divide in half. Half is profit, and the other is the expense of getting it to the store. Seems like a lot.
Maybe the cost of DVD’s is so expensive because, according to this MPAA press release,
Only one movie in ten recoups its investment in domestic theatrical release; only four in ten ever makes its money back.
Thats a horrible business model. Maybe they should start making better movies?