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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.
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."
Geoff Taylor from UK music industry body the British Phonographic Industry credited the Jubilee and London 2012 Olympic Games for showcasing British music around the world and driving up sales.
"But market conditions at home remained difficult and pressure on the 'leisure wallet' impacted music sales on the high street," he added.
Dave Lee Technology reporter
On the surface, it's been another buoyant year for the entertainment industry.
Such healthy figures could lead some to wonder if the threat of piracy - which saw the industry locked in legal to-ing and fro-ing with internet providers throughout 2012 - is perhaps overstated.
But in truth, the entertainment industry still has a huge battle on its hands. By far the biggest slice of its income is via physical sales - and these continue to decline.
In its quest for new revenue models, the music industry's move to offering its artists' material on streaming services - such as Spotify - has been a popular one, with 3.7 billion streams by British fans in 2012.
But revenue from these services is miniscule when compared to actual sales, leaving the entertainment industry looking over its shoulder - more so in 2013 than ever before.
"The quality of our music and digital innovation by UK labels means we have excellent potential for domestic growth and to increase our share of the global music market.
"We hope government will recognise the potential of digital music to contribute to economic recovery and provide more active support in 2013."
More than half of the digital sales went on video games, which grew 8% to £552m.
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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