I don't think Apple is paying $16 for a movie. Steve Jobs is smart enough to make sure that Apple is never at a loss.
Sachin
Maybe just maybe it works on the principle of resolution, if these moveis offered on iTMS is half of the DVD quality then rather than ~$16.- USD

This only seems fair for all parties. Then again I get all my movies for free from a place called the library, apparently the division in my location has new releases a month after store releases.