"The first issue plaguing Hollywood's thinking? The DVD is dead and no one in control has realized it."
This statement is so off base that it almost invalidates everything written after it. It pre-supposes that Hollywood studio management, most of whom are MBAs, accountants and sales people, are unable to read simple balance sheets.
Well, guess what? They can read them. They know the figures are in a tailspin. They've known it for years. They just don't know what to do about it.
Most of the people in charge at the studios are the same people who were in charge in the "glory days," the days when making DVDs was akin to a license to print money. These people are old school to the max. They don't get the reasons that DVD has died and don't know how to go up against competition and so they just keep on doing what they've been doing in the hope that something somehow someday is going to work.
I used to work for one of these studios. I'm someone who wasn't upper management himself but had regular access to these people and their meetings. I sat there 7, 8 years ago when they'd sit around and say "we don't want to have some Napster come along and do to us what it did to music" and then spend hours arguing over what flavor of DRM was best. I would say, "forget DRM, get the stuff out there NOW before people develop habits of getting it in other ways" and I'd be asked to leave the room.
The one thing that's killing them the most these days I think is the release window. It will be years before it goes away. Theatrical is the only division of the studios that is doing well now and they won't get rid of the window because no one is willing to alienate the theater owners short term in favor of longer term good.
The studios remain profitable, perhaps not as profitable as 10 years ago but profitable. They cut costs and do massive layoffs on an annual basis. Nothing will change for a very long time.