No it's not, the disc is just there to confirm you own the movie along with the code. I was having problems with a digital copy and I had to call Apple and they even said this. My problem was my internet was action up as the movie was downloading it from iTunes (why it showed "downloading" on iTunes) and once I my internet was fine, I was able to download the movie.
They do this now because like I said people use to buy a movie with a digital copy and sell the code on eBay. They made it harder because you have to insert the DVD and put in the code in iTunes. If the movie was on the disc, why would you have to put a code in iTunes?
There really are media data files on the disc. For instance, for the movie "UP" Digital Copy disc, the H.264 file resides in "/Volumes/Up/DVDROM/Media", is called "FeatureMovie" and is 1.19GB in size. For the WMV version, it resides in D:/wmv and is 1.5GB in size (assuming "D:" is the Windows optical drive).
The reason you have to put a code in is that it authorizes your machine to play it - just like protected files you buy from the iTunes Store. You can use the file on any of your authorized machines and/or devices. It has to connect to the iTunes Store to verify your machine's authorization, just like any other protected media. When it says "Downloading", it's actually copying the file from the disc (yes, it's rather misleading to say "downloading"). When you buy protected content from the iTunes store, your DRM info is added to the file. Since the DVD is write only, the DRM has to be completed after it's copied off the disc. The file itself isn't tied to the code - only the right to play the file.
I hadn't really thought about the process until now, so the details are off the top of my head. I believe I have the gist of it right, though.
The other posters comment about people selling codes off eBay probably meant you buy the code and download the content through "other means" or get the file off someone else's DVDROM. I'm just making an educated guess, since I didn't know about people selling codes until I read this thread.
Hope this clears things up a bit. Anyway, it was fun to track down the media files
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(note: "UP" Blu-ray also includes a standard DVD video disk. There's no code needed for that. It'll play in any standard DVD player. Well, if the region code is correct...
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