We recorded the cds in our own studio. Around 220 hours of studio time for each CD. Then we paid to have them manufactured. The manufacturing cost including artwork etc was about $1.65 per cd. another 40 cents per cd paying licensing fees on some of the songs we recorded. So we come out just over $2 bucks to produce the CD. I'd guess major producers do it even cheaper than that.
Actually that logic is faulty on several levels. You are assuming that every CD you buy has songs that you would have bought individually on iTunes. The fact is, most people who buy CDs listen to only half of the songs on them. The other half are "throwaways" that recording artists toss on their to round out an album.
It is a rarity in the music business to put out an album that is consistently good from beginning to end. So rare is this that most people have trouble coming up with 10 albums that meet this criteria. Even the majority of "classic" albums have at least a couple of stinkers on them. For example, take U2's most acclaimed album "The Joshua Tree." At least four of those songs are pretty awful.
So you actually get much more bang for your money by cherry picking what is good and paying $1 for the tracks individually. So instead of paying $10 for an album that has 12 or 13 songs, you can pay $10 on iTunes to get the best songs from 3 or 4 different albums (that would have cost $30 to $40 to buy as full CDs).