This means you can't pass the game around to your friends or sell it afterwards, which completely ruins the purpose of physical media imo. I mostly play PC these days so this doesn't affect me, but it's a disappointing direction for console games. At least they could've used an empty disc that has proof of ownership.
I'm a PC gamer predominately, but I can absolutely share and resell my physical discs from console -- that hasn't actually gone away. I would say for sure that the amount of fiddling that I have to do on my PC and Steamdeck sometimes, and the number of bad PC ports in the last year, are dealbreakers for people who aren't quite as enthusiastic. Maybe a bigger part of is just the "living room" aspect -- no matter how many times I've tried using an NVIDIA Shield or Steam Link or whatever, streaming from my PC to the living room is janky, at least for my purposes. (I also do a significant amount of work on my PC, which I don't want to have streamed into my living room, and I multitask like a fiend so even full-sizing a game window is a non-starter for me.) And of course, the second "living room PC" is not a concept that has caught on yet, so people with one PC will probably prioritize that for work.
Which sort of brings me to what I think is the bigger "thing," which is just mental separation. Some people don't want to play games at the same desk they work at, or even the same room they work at, and they want to be in the "relaxing" space. They don't want whatever drama is on their computer (social media, work e-mails, e-mails in general, whatever Windows bullshit is going on that day) to interact with their videogaming.
Also something Steam enthusiasts hate to hear, but it's true: Steam sales aren't what they used to be, and even though I don't buy console games, when I'm trying to price out something I would like to play, 9/10 times I can find a $20 disk on Amazon or Wal-Mart while it's full priced on Steam, because excess physical disks get their prices cut for warehouse space.