Consumers are spending 21% less on video games, films and music than they were in 2008, a report by Verdict Research found.
They now spend an estimated £6.1 billion a year, compared with £7.7 billion in 2008.
The company's Global Home Entertainment market report said consumers were being lured away from paying for products by free access to streaming services like Spotify and the BBC iPlayer.
The raft of free apps available to download for phones and laptops has reduced the value consumers attach to owning home entertainment products.
The economic downturn has exacerbated this trend, as consumers feeling the pinch look for free alternatives to traditional home entertainment.
The research comes as entertainment company Sony reported a 27 billion yen (£216 million) loss for the latest quarter and predicted it would stay in the red for the fourth year running.
The company is now projecting a 90 billion yen (£719 million) loss for the year to March 2012, rather than the 60 billion yen (£479 million) profit it had earlier predicted.
It blamed the results on poor sales of TVs, as well as production disruptions. It said it would cut back its manufacturing operation and produce 20 million fewer TVs a year.
The company is facing increasingly stiff competition from Apple, whose free apps are popular with consumers.
© 2011 Press Association