LONDON: Annual digital sales in the UK's retail entertainment sector have surpassed £1bn for the first time, although the industry still faces a "tough" outlook overall, a report has revealed.

The Entertainment Retailers Association (ERA), the trade body, stated that digital sales of music, video and games hit £1.033bn in 2012, an 11.4% increase from the previous year, and a quarter of all category revenues.

"Breaching the £1bn barrier is an incredible achievement for the UK's digital entertainment retailers and reflects their huge investment in new and innovative services," said Kim Bayley, the director general at the ERA.

But the ERA also warned that the retail entertainment sector faced "tough times" ahead, as total revenues fell by 12% to £4.21bn, partly due to a lack of big releases and imbalanced schedules.

Within this, physical purchases of Blu-Ray discs, CDs, DVDs and videogames yielded three-quarters of returns, down by 17.6% year on year. Despite this, Bayley said the channel remained "resilient".

"It is nearly nine years since iTunes launched in the UK yet over 60% of music sales are still accounted for by physical formats. It is clearly way too soon to write off the CD and in video, digital barely gets a look in," she said.

More specifically, videogames generated £552.2m in digital revenues in the last 12 months, with online console transactions, social gaming and massive multiplayer online games the leading categories.

While video sales via digital platforms rose by 20.1% and music saw a 15.1% expansion on the same metric, they collectively delivered less than half of online returns.

Bayley did note that the figures for music did not yet include revenues from streaming services like Spotify, Deezer, We7 and Rdio.

Provisional estimates from the Official Charts Company, the measurement body, suggested that 3.7bn "streams" were delivered in the UK, showing their popularity with web users.

"The combination of a myriad of exciting new devices and compelling new digital retailing services is clearly exciting consumers," said Bayley.

Data sourced from Entertainment Retailers Association; additional content by Warc staff