Even if the guy only gets ~12 pounds out of the deal, as the article suggests, he can easily make that up by buying materials in bulk and following the letter of the deal. 12 pounds equates to ~$20 usd.
1) You can bet the framed photo in the deal is for a cardboard photo frame...a box of 350 of these cardboard frames can be bought for $250, or the equivalent of $0.71 per frame. These are 8x10 (I couldn't find 12x10 frames), so lets add some more to that and make it $1 each for the cardboard frames.
2) Even the 8x10 photo paper can be bought for $0.20 per sheet. Assuming that all of the paper stock can be bought for about the same price (the larger sizes might cost more, but the smaller ones will definitely be less), He's at ~$3 for the paper stock.
3) Add another $2 or $3 for the cost of printing...which is probably a huge overestimate for bulk ink/toner/etc for only 11 prints.
4) The DVD+Rs can be bought in bulk for about $0.50 each (the guy never said he would include a case, so I would assume he will simply put it in a paper or cardboard sleeve, which will cost less than $0.50.
I'll even throw in $2.00 for extras. That still leaves us at $10 for the work put into the photo shoot and photoshop. The guy is keeping the copyright to the photos, and even if he has to drive to the site and setup lighting, there's the whole "subject to availability" thing. Which means this guy isn't going out of his way for someone that's only paying $50 for his services.
Other things to think about. He doesn't mention what resolution he is using in his coupon, only "high resolution". He could provide the photos on the disk at 2MP under the deal. A quick photoshop job on 20 photos shouldn't take an hour to do...if you have to remove someone's hairy mole from 20 photos, that's 20 "air-brushed" photos. If he's smart, he can offer to do a better job on 1 or 2 photos instead of the quick job he would do for the full 20 photos. He also doesn't mention that the 20 "air-brushed" photos will be included on the CD/DVD which could mean that he will offer to sell these along with an extra photo-retouching service.
I can only conclude that this guy is not losing money (if he's smart) or at the very least is building his portfolio and making a little money to boot...even $10 for 2 hours of work and a potential referral is better than $0 for no work when you are self-employed.