LOS ANGELES (Hollywood Reporter) - DVD revenue in the U.S. fell by 8% in 2008, but a new research report projects it’s only a matter of time before Blu-ray begins to compensate for declining returns from traditional discs.

For now, the picture is a bit dimmer. Even accounting for the sales of the fledgling high-def format, the home entertainment industry absorbed a 6% decline last year.

The industry trade organization Digital Entertainment Group (DEG) circulated year-end data for the segment on Wednesday, even as researcher SNL Kagan released a report projecting an incremental strengthening of home entertainment revenue over the next several years.

Kagan said growth in the installed base on Blu-ray players eventually will help compensate more meaningfully for DVD declines

“We expect a resurgence ... over the next couple of years, thanks to high-definition,” Kagan forecasts in its report, dubbed “The State of Home Video.”

“Retail revenue should start to grow again in 2010,” Kagan said. “Sales should start a short period of growth as high-definition player prices drop below $200 in 2011 and Blu-ray really begins to penetrate the mass market.”

DVD sales and rentals totaled $21.6 billion in ‘08, according to the DEG. Adding in Blu-ray and near-negligible VHS boosted overall consumer spending to $22.4 billion.

The declines were worse than in the previous calendar year, when the initial wane in DVD interest shaped a 2% falloff in home entertainment revenue. Yet industryites’ collective reaction seemed to be that it could have been worse in 2008, with DEG suggesting the data shows the home entertainment market proved “stable” and “resilient” last year.

“The upbeat assessment of these numbers as much as anything else is a reflection of the landscape and the times we’re living in,” DEG executive director Amy Jo Smith said. “Nobody really knew what to expect.”

Paramount home entertainment president Kelley Avery said the revenue stats show “people still came out for good movies on DVD and Blu-ray.”

Avery added that disc pricing represents “a great value to today’s budget-conscious consumers.”

Speaking of pricing, Blu-ray hardware sales represented a true bright spot after retailers slashed prices on Blu-ray players at the cusp of the holiday gift-buying season and consumers responded. In fact, it’s somewhat remarkable in the current economic climate that 3 million of the fewer than 10 million Blu-ray players sold to date were purchased during the fourth quarter.

On the software side, Blu-ray sales contributions amounted to less than 3% of total home entertainment revenue last year.

But Kagan projects the high-def piece of the pie will grow to almost 19% by 2011, when Blu-ray revenue is projected to reach $3.53 billion. By 2014, the researcher expects high-def to account for 60% of segment revenue, at $13.05 billion.

Reuters/Hollywood Reporter