That's right, that's a thing- ingrained in our brains from childhood onwards.

It's time for a game system that mirrors 6th gen power and graphics. It's all people really need to make a good game and stamping DVDs for it would be easy. Small teams of 20-30 people could make such amazing PS2 style games on it. 

Ouya failed because it had no physical games, and allowed slop on it like the Atari. 

Retroid Pocket 6 with 12GB of RAM and 128GB of storage currently goes for $279. Strip it down to TV box and put DVD player into it, and for the same (or less) money you have something that is slightly more powerful than PS4, while having fairly modern hardware features.

I'm not envisioning anyone actually doing something like this, since there would be no market for such device without 1st party games, but it's nice thought experiment.

Yeah, something with Gen 6 or Gen 7 power specs or even Switch 1 power specs that had physical indie games and physical AA games would do so friggin well. And it would cost something like $200-$300. 

Well, Snapdragon 8 Gen 2 inside Pocket 6 would give devs around 8th gen specs, in that price bracket, so... ;)

But as I said, while this is completely doable from hardware POV, I'm not seeing it being successful if it doesn't have proper 1st party software to propel it initially, making it actually interesting for 3rd parties to release ports of their games on DVDs for it.

The original Playstation didn't have 1st party software at launch and it was massively successful. Insomniac, Naughty Dog, Bend Studio, and so many other developers that made PS1 exclusives were independently owned and not a part of Sony. Sony just gave them the software libraries and monetary support to make games. A kickstarter with stretch goals of supporting indie and AA devs with funding for new game projects would effectively use the same strategy. 

It's worth acknowledging that any such project will be niche and success for it would likely be a million or so lifetime. With the PS1 comparison; Spyro, Crash etc were the cutting edge of gaming for their time. Nowadays anyone can play a most indie games on their laptops, PS4s and Switch's. There isn't much incentive for a mainstream consumer to buy such a device. The same indie games are the kind most likely to skip physical releases so I just see it being a mass market thing.

But in modern age we don't need singular devices to become huge. As long as the hardware is sold for a profit and it is able to use STEAM OS etc it can be a niche little box for a few 100,000 people.