I do not know much about disc distribution, but I ass-u-me that with disc production/distribution you have a one time fee that is mainly capex.
But with digital distribution you probably got some recurring fees like bandwidth and storage instead....
It's a little more complicated than that. In both cases, you'll be paying some cost associated with each game sale. For physical discs that's going to be an upfront cost with regards to materials, duplication, packaging, shipping, storage, etc. For DD, that's going to mainly involve bandwidth. Storage, utilities, etc. are all vanishingly small on a per title basis for a DD game.
That's the simple part. And one of the reasons DD is so attractive. Those are the only associated costs.
For physical distribution, the above is complicated by the fact that you have to determine at the time of duplication how many units you want to have for launch. If you duplicate too many you risk a situation where you can't sell all of the units made. At that point your cost is now multiplied because you cannot recoup the cost of unsold units. This is the main reason the publisher THQ recently went bankrupt and out of business. One title so massively underperformed that there was no way to recoup the cost of all the physical packaged products that were manufactured. Now for that particular instance, it wasn't possible to offer it as a DD title. But if it were possible, and if all titles were DD, then THQ would likely still be in business.
If you make too few, you run into shortages and potentially lost sales which is lost revenue which is lost profits. As there is no guarantee that someone that would have bought your game in the first month will still want to buy it when you finally supply enough to meet demand. You'll generally end up moving less units in total than you would have if you were able to supply enough to meet initial demand.
This is why publisher and retailers try REALLY hard to push pre-orders. It gives them a practically guaranteed sale as well as a measure stick (no matter how unreliable) of what initial demand could be.
Added to that, there is an ongoing cost associated with physical media in storage costs and the fact that money devalues over time due to inflationary pressures. If you manufacture something that takes 1 year to sell, you've lost a bit of money in that whatever cost was associated with that unit, is tied up in something that you cannot use (whether to invest in a new game or invest in any other thing to drive future revenue).
There's a LOT of reasons why publishers would love to move to a DD only world. But there's also reasons why they want to maintain a retail presence. Having retail shelf space can be considered as free advertising in that it makes consumers aware of your product without spending any advertising dollars.
Regards,
SB