Increasing downloads of content from the internet is driving down sales of DVDS. Annual retail sales of disks have suffered a double digit decline resulting in a US$4.6 billion drop in revenue.

With users flocking to online offerings instead, an intense battle is also forming with online rentals of TV episodes competing with subscription TV services such as Netfllix, according to a report from In-Stat. Competition is also being stepped up from paid online video stores such as Apple iTunes and Amazon.

As a result, TV download revenue is expected to triple from 2010 to 2014 in the US, and the emergence of electronic sell-through for online video purchases and rentals expected to transform the digital entertainment industry over the next five years. Annual revenue from downloading and streaming is forecast to grow from $2.3 billion to $6.3 billion within five years.

Keith Nissen, an analyst at In-Stat, said: “Video disc rentals will continue their significant decline. Netflix is already shifting its focus to online streaming, and Red Box is evaluating a similar strategy.  The convenience and utility of the online offerings is simply too compelling.  Online rentals permit the selection of any movie or TV program from the VOD library.  Ultimately, it will be impossible for physical disc kiosks to compete with the in-home or in-store download-to-rent business model.”

Online Video On demand (VoD) subscription revenue is expected to reach $3.5 billion by 2014.