you would think they would catch on that physical media is easily copyable where the instant downloads aren't so why not do instant for everything first then DVD.
They do. But they release it to Pay-Per-View and On Demand services for more money than they get from Netflix, then they get Netflix's money anyway.
They view Netflix as more of an analogue to the "TV Syndication" stage of a property's life. Until Netflix has a 'premium' club paying more for early access to new material (so that Netflix can pay more in streaming license fees), they'll continue to see it as such.