People seem to forget that the manufacture of the final saleable product is but a fraction of the cost to produce the product. While the individual saleable item might be cheap to manufacture, there are many more expenses that are paid for through the sale of the product. Licensing and production definitely costs, but there are other day-to-day expenses as well. The office staff that is not production, but is necessary to keep the facilities functioning also must be considered (HR, secretaries, assistants, legal, janitorial, etc).

Those are sunk costs for any production by the time you get to selling retail DVDs.