BluRay. Exactly WHY do I need discs again? I'm all for digital distribution. I want to get rid of that mess, not buy it AGAIN!.
Quality would probably be a big issue if you are so inclined. Next comes
availability. Not every country out there has decent services for digital distribution and not all users have fast enough internet for high quality content. Third reason would be
paranoia. I'm already seeing way too many "this content is not available in your country" messages(even in youtube).
Having content
only in digital distribution+drm would make the content owners own your ass. They could modify content in any way and you would have no control(i.e. let's remove that scene from the movie) or let's say this movie will never be available in country x or let's blur and bleep all religious symbols and talk.
Censorship could reach all new high if there wasn't physical media that can be imported/copied. I believe that digital content could potentially be watermarked with the login(and credit card) you use to download the content and it could be traced back to you if you started to make "illegal copies" after removing drm. Also the content you have can be made to expire so you are forced to actually download new copy that might have something removed/altered.
Pricing ofcourse is a big issue also, what does a season of hero's cost in blu-ray and in comparable(if there is) hd stream without drm + unlimited watching? Also one can always sell the blu-rays or lend them to friends(digital content cannot be at least not for now). Blu-rays scratch proof surface makes actually lending more viable then lending dvd's which tend to break.
After all this said I see digital distribution as a replacement for renting stuff. I still prefer to own good movies/series on a physical copy having as high quality as the market has to offer. As far as I see it there are around 6 billion people in the planet and not everyone needs to buy blu-ray for it to be successfull and keeping digital distribution in control(i.e. there is choice if digital distribution goes bad).
In the end it's not like making a digital drm free copy of blu-ray movie is that hard... if you at some point decide you want to have digital collection of movies and get rid of the physical media you can do it with blu-ray. At that point you could even sell the movies if you wish to get some money back.
edit. As for games we are seeing some games in 20GB+ range. I would assume for next gen single layer blu-ray(~25GB) would be the norm and triple A games coming on a 50GB disc. One would need insanely large hard drive just for games without considering any other media one might want to store on the console. I might say I rather buy games on blu-ray and have a smaller faster ssd drive where cached stuff goes than a slow large capacity(500GB?) old fashioned 2.5" mechanical drive. I think there is an argument to be made on pricing when console makers are trying to make a small box that costs less than 500$ to manufacture.