There is absolutely no way to create a data format that makes it impossible to extract a perfect unencrypted digital representation of that content. At some point, no matter how much encryption and encoding and authentication you add to the disc, the consumer is going to be able to play it in all its digital glory. The mere fact that this is possible means you have to have access to the unencrypted data, which can always be copied.
They're employing encryption techniques in a field it wasn't suited to address. PKI is meant to be used to allow a user to authenticate that the content on the disc came from a trusted source. It fails when you try to forcefully disallow reading content from a disc if the source (in the case of DVDs, the player. in the case of an XBox, the disc) isn't trusted. This can generally be circumvented by a nerd with a soldering iron.
Hollywood is spending millions on making it more difficult to emulate an authenticated player, but it's fundamentally futile. You only need to circumvent the authentication once. From then on, you can release software that can do it for anyone that wants it, as long as there's a player on the market that gives you software access to the encrypted content.
