For an idea of what's vexing U.S. entertainment industry executives these days, take a look at how Todd Mundt in Louisville, Ky., watches television and movies.

Eager to save money, the public radio station employee canceled his cable-television subscription, opting instead to get his favorite shows from a host of free streaming video sites, including Hulu.com, a joint venture of General Electric Co.'s (GE) NBC Universal and News Corp. (NWS). Rather than rent DVDs from Blockbuster Inc. (BBI), Mundt streams movies from Netflix Inc. (NFLX), a cheap and convenient substitute.

Mundt estimates he's saving at least $50 a month by getting his entertainment over the broadband connection he would pay for anyway just to have access to the Web. His prowess at finding entertainment online has also made him the envy of friends and colleagues.

"A lot of my friends take a look at my setup and say, 'Cool, how do I do that?'" Mundt said.

Mundt is one of a growing tide of consumers that over the last year or so have begun cutting their cable television subscriptions and shunning DVDs as more content becomes available online and faster broadband connections reach more parts of the country. Now, with the economy in a tailspin and consumers pinching budgets, the trend is picking up speed even though high-definition offerings and live events are still hard to come by.

No one knows how many people have cut their cable subscriptions, though some estimates have put the figure at about 1.1 million, or 1% of U.S. households with televisions. But already the trend is being blamed for shrinking performances at entertainment giants like Walt Disney Co. (DIS) and Time Warner Cable (TWC). Both companies blamed slipping revenue in part on the trend at earnings conferences last week.

DVD sales have also been hit. The Los Angeles-based Digital Entertainment Group estimates DVD sales in 2008 fell 8% to $21.6 billion from a year earlier, while DVD rentals were flat.

Cable and satellite television operators, who rely on subscription-based TV for about half of their revenue, are likely to be the biggest losers from the trend.

"People, particularly young people, are saying all I need is broadband," Time Warner Cable Chief Executive Glenn Britt said recently. "The danger here is...people will choose not to buy subscription video."

Internet delivered movies also threatens to undermine the $14 billion in revenue that movie studios generate by distributing their titles on DVDs. That's because many consumers are asking themselves why they should buy a disc when the same movies are available over the Internet, often at a big discount or for free.

Walt Disney Co. (DIS) is among the major U.S. studios to take notice. Disney said its studio revenues were down 26% last quarter and earnings before items were off 62% because of a soft DVD market driven in part by people accessing entertainment online. Already the shift has prompted Disney to shrink its home-video business.

"Consumer choice grows, we all know this to be true," Disney Chief Executive Robert Iger said recently. "This clearly has had an impact on broadcast television and may have a long-term potential impact on the DVD business."

Not all companies will suffer and already potential winners are starting to emerge.

Netflix, the online DVD rental and movie streaming company is a favorite among converts to online entertainment. The Los Gatos, Calif.-based company offers unlimited movie streaming from its 12,000 title catalogue for just $9 a month.

Apple Inc. (AAPL) and Amazon.com Inc. (AMZN), both of which operate successful online streaming services, are also already benefitting, as is software giant Microsoft Corp. (MSFT). In the past three months, owners of Microsoft Xbox 360 game consoles have bought packages that let them stream Netflix titles over their game machines and have watched 1.5 billion minutes of programming over that period.

Makers of hardware that connect Internet connections to television sets are also expected to see a booming business. While it doesn't disclose numbers, sales of Netflix's Roku device are thought to be soaring. Meanwhile, sales of Apple's Apple TV unit sales tripled in its last complete fiscal quarter.

Free video Web sites are also winners, though their payoff is muted because most rely on advertising revenues, which have fallen with the recession. Hulu is among the upstarts offering free, higher quality videos like NBC's "Office".

Meanwhile, Google Inc.'s (GOOG) YouTube, and Yahoo Inc.'s (YHOO) video Web site have seen increased use as well, according to a January report by comScore.

-By Ben Charny, Dow Jones Newswires; 415-765-8230; ben.charny@dowjones.com