Some kind of electronic direct distribution would half the costs, but it would obviously have to be heavily DRM'd, which always gets people's hackles up. It would also be another nail in the coffin of the High Street - sadly how many High Streets now have unique independent shops, rather than the usual chains that every other town has?
This is the problem I have. I buy DVDs and CDs because I want to build up a collection. There is value (perhaps 12 quid's worth, so the price seems reasonable) associated with having a nicely packaged CD / DVD, relatively free of restrictions, on a shelf, that I can play whenever I feel like it.
A file on my PC, that is inferior in quality in the first place, will get lost if my hard disk dies, that probably won't play again without loads of hassle if I upgrade my PC due to the DRM cr@p, which locks me in to having a Micro$oft OS. One that I have already paid via my ISP for the delivery mechanism to my door, can't play in my car, on a portable player or take round to my mates and watch (not without untold hassle, at any rate) is totally worthless IMHO, so you won't find me paying for downloads - at least not until the price is down to pennies per album / film where it should be.
Downloading is a convenient format, however, if you want to try an album or DVD cheaply and in low quality when it's not convenient to go down to the shops and buy it. ERGO, illegal downloading exists. If the media companies recognised that their downloads simply aren't worth as much as the pigs are trying to charge they might have more success, and they'd be cheap enough not to go to the hassle and risk of illegally downloading so they wouldn't have to mess about with DRM.
Kevin