The story of the DVD's effect on the film industry starts with the introduction of VHS tapes in the early 1980s. Home video changed the entire business model of film, giving movies a second life and another chance at turning a profit, from right inside people's homes.
VHS tapes were very expensive at first, because the industry was used to selling reels of film to theaters that might be shown, for profit, hundreds of times. The first digital product to follow in the footsteps of VHS was the relatively short-lived laserdisc. These were also very expensive at first, because the industry was used to selling VHS tapes to movie rental franchises that might be rented out, hundreds of times, for profit. Notice the pattern?
Slowly, the market equalized as the studios realized they wouldn't lose profits due to this new format. That's when the DVD really hit its stride. You could own a high-quality version of a relatively recent film for less than $20 -- no returning, no extra fees, just a copy of that movie to watch whenever you want.
It seems obvious now, but it took a fairly long time for the industry to understand. Lots of people had financial interests and worries about the outcome of these changes, and some of them -- like film and video distributors -- had reasons to keep the system the way it was.