Walmart has killed its movie download business, which is not even a year old. There were many problems with it:
A more general problem with movie downloads is that they are still very slow, compared to things like songs, which download pretty quickly even over a DSL line. The movie download services, including the movies offered on iTunes, have to reduce the quality to speed up the download or force buyers to wait hours to download a high quality version.
DVDs still are very competitive because we do not have fast broadband connections and because the studios are still attaching too much DRM to movies.