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Godot said:
DVD and Blu-Ray also have to compete with something else that didn't exist when DVD got released: movie piracy. I don't have figures but I wouldn't be surprised if piracy had a huge impact on DVD sales.

Movie Piracy existed during the VHS era, it was just limited almost entirely to people selling bootleg tapes. It's the reason you'd always see a damn warning from the FBI when you popped in a movie. =P

Piracy has been an issue for a while, but you'd be right in suggesting the proliferation of the Internet has caused it to be far more widespread then it was before.

There are also legal avenues to compete with in the digital realm like iTunes or Netflix's instant play. Both of which are pushing for the living room by selling boxes for your TV that play movies you get over the internet.