Two points:

One, digital files are much, much easier to use for kids and for parents of small kids. There's no disc to have to find or get lost, and you'll watch the same thing over and over and over so the convenience really adds up.

Two, though I can't substantiate this, I don't think the high school and college kids are spending much on movies (or music) anymore. Where I accumulated tons of DVDs after I got out of college, 20-somethings now are using Netflix mostly and aren't buying physical media much at all. This was once a huge market for entertainment companies that's drying up over time.