How cheap should movies be?

Here are two things.

There was Robert Rodriguez promoting his first film, El Mariachi, shot for $7,000. He played up that fact. It was just seven thousand bucks. And almost all of it went to pay for film and processing. Which means that, if he had shot the movie in digital video, it would have cost about $400.

Then I saw Dustin Hoffman talking somewhere. He dismissed the myth that you could make a movie for no money. It took, he said, at least $10 million in publicity to make the public aware of a movie. (This was at least 20 years ago.) I'm not sure if he put publicity and advertising in separate categories. But since you have to spend a fortune on distribution, does it make sense to spend almost nothing on the movie itself?

But----is this right? Is the practice if spending millions on movies an artifact of an earlier era when movies had to be shot on film and distributed to theaters? If movies hadn't gone through that phase at the beginning, what would they be like today? Something like the Nigerian movie industry, "Nollywood", where movies are shot on video for $20,000 then sold on DVD for a dollar or two each?

I saw some guy from the MPAA belly-aching about movie piracy. If it went on, he said, movies would soon have the production values of common soap operas. Maybe he's right, and maybe, with technology being what it is, that's where cinema would have been if it hadn't been distorted by the irreducible costs of earlier eras.