Despite all the attention that has been given to network delivery of digital video content in recent months, physical forms of video content continue to represent the vast majority of home video entertainment spending, according to new research from Screen Digest, which is now part of IHS Inc.

The market intelligence firm measured the total home video entertainment market—including rental and sales of movies and television shows either on physical media or via networks–at $18.5 billion in 2010. Only $2.3 billion, or 12.2% of that revenue came from network-delivered rentals and sales via the Internet and subscription TV systems, Screen Digest said.

But while spending on network-delivered content increased 9.6% from 2009, revenue from physical media decreased 6.5%, yielding an overall 3.8% decrease in home video spending, according to the researchers.

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The decline in spending on physical media was driven by a 15.6% decrease in DVD sales and a 12.4% decline in DVD rentals. DVD declines were partially offset by a 64.2% increase in Blue-Ray sales and a 105.5% increase in Blue-Ray rentals.

Nevertheless, network-delivered content appears to be making inroads into the physical media market, with Internet video on demand revenues growing 55.7% between 2009 and 2010 and electronic sell through growing 27%. Electronic sell-through enables consumers to purchase rather than rent content over the Internet.

“Screen Digest expects the network segment to gain share in the overall market during the coming years,” said Screen Digest Principal Analyst Tom Adams in an announcement of the research results. Adams said that shift will require studios to do a “delicate balancing act as they attempt to revive growth in overall home video entertainment revenue in this post-recession era.”

The Screen Digest data also illustrates an overall shift toward video rental rather than sales between 2009 and 2010, which Adams attributed to the economic downturn. “With consumers continuing to be very cautious in their spending habits, the popularity of the rental model reasserted itself in 2010,” he said.

The news about the shift from video on physical media toward network-delivered video should come as no surprise to anyone who has been following telecom industry developments such as the content delivery dispute between Comcast and Level 3. As the two companies aired their grievances, it came to light that Level 3 expected to deliver five times more content to Comcast than it had previously as a result of a new deal to distribute streaming content for Netflix.

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