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There has been a sharp growth in film and music downloads
More than £1bn was spent on downloaded films, music and games in 2012, the highest annual total.
Sales increased 11.4% from 2011, meaning that a quarter of the entertainment market is now digital.
But figures released later by entertainment retailers will also show a big drop in physical sales - more bad news for high street shops.
Sales of CDs, DVDs, Blu-ray and video games fell by 17.6% in 2011 although they still make up most of the market.
"Start Quote
End Quote Rory Cellan-Jones BBC technology correspondentThe entertainment industry has been struggling to adapt to the digital age"
Kim Bayley, director general of the Entertainment Retailers Association (ERA), which will release the figures, said that breaking the £1bn barrier was an "incredible achievement" for retailers.
"This reflects their huge investment in new and innovative services - which means you can buy music, video and games literally at any time of the day and wherever you are.
"At the same time I suspect that many people will be surprised to learn just how resilient the physical business still is - with three-quarters of entertainment sales still on disc.
"Downloads offer convenience and portability, but people still seem to value the quality and tangibility of a physical product."
More than half of the digital sales went on video games, which grew 8% to £552m.
Digital sales, 2012
- Music £383m (up 15.1% on 2011)
- Films/video £98m (20.3%)
- Video games £552m (7.7%)
- Total: £1,033m (11.4%)
Films and music had a smaller share of the digital market but sharper growth - downloaded films up by 20% and music by 15%.
BBC technology correspondent Rory Cellan-Jones said: "The entertainment industry has been struggling to adapt to the digital age.
"And while consumers are now paying for downloads, that's not making up for the rapid fall in high street sales."
Sales of video games in shops were particularly badly hit, with retailers blaming a lack of compelling new titles, he added.
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