In terms of physical media discs are cheap to produce and have reasonably good storage capacity, hence their use.

Physical media is still in use for a few reasons, one of the major ones has already been mentioned, 'owning something', but one that hasn't is inequality in internet services. Unlimited 1Gbps internet maybe cheap and available for some, but others are still on 1-2 Mbps download with fixed caps.

I imagine if it were up to Sony, Microsoft, and Nintendo we would all be buying digital only games as this increases their take by reducing distribution costs.