While illegal file-sharing has, without a doubt, been playing a huge part in the downfall, we should perhaps also consider other factors:
Source: Ars Technica [
How Hollywood plans to keep prices up as movies go online ]
Note that the data is expressed here in terms of revenue, and thus says little about physical sales per se (the price for CDs and DVDs has dropped quite a bit in the past few years and the average digital album is cheaper than CDs were in the early 2000's).