Ryan Nakashima reports in the AP on a Lehman Brothers report that downgrades the entertainment industry because of what it sees as lower profits in the age of digital distribution.

An excerpt:

“Shifts from physical to digital will disrupt the marginal economics of the TV and movie businesses, just as it did for music,” analyst Anthony DiClemente said during a conference call.

DiClemente argued that the average profit the companies see from new DVDs, including higher-priced Blu-ray discs, is $10.59. Selling the same movie through Apple Inc.’s iTunes online music and video store nets them $9.29, 12 percent less, he said.

Online movie rental services offered by iTunes and Netflix Inc., with profits ranging from $1.81 to $2.44 per movie rented, will further hurt the industry as more young people choose to rent digital copies, he said.

“Owning a collection of movies in this new digital world is really just not that cool for young adults in the target demographic that we look to for the future of the business,” DiClemente said.

Others in the article take issue with DiClemente’s conclusions, noting that the entertainment sector has simply been hurt by the weakening economy and that the studios are much better positioned to take advantage of digital delivery than the music business was several years ago.