Because money. If 20 users are willing to pay $20, and 80 are willing to pay $5, Hollywood can make $2020+$580=$800 instead of $5*100=$500.

It's not $20 per film. Not sure what you are calculating.

It's an example. The exact price can be used in the same formula. Read https://en.wikipedia.org/wiki/Price_discrimination

I find such price discrimination to be a despicable practice, unless we are talking about differentiating prices because of different average level of income in those markets. And even so, regional discrimination becomes even less relevant in the digital space. The fact that such practice leads to resorting to unethical methods in the digital world (DRM) implicitly proves the point that it's crooked.

Related subject discussed on GOG: http://gog.com/news/getting_back_to_our_roots

I agree, but they have every financial reason to keep doing it. How would you convince them to sell one product for one price to everyone for less total money?

Usually such crookedness can be avoided if competition is high enough. I.e if competitors can be profitable without ripping customers off, they could do that in order to attract customers to their option. Seeing that they are losing customers, those who resorted to price discrimination start thinking about restraining their greed. Unfortunately when completion is weak, or all participants agree on using this crooked practice to keep the prices high (which should be illegal really), they get away with it.