The credits are starting to roll for Hollywood

The film and music industries, which once projected the image of America to the world, seem to be in terminal decline as costs soar and revenues dwindle

A few weeks before he died, Steve Jobs spoke on the telephone to an old friend called Jim Gianopulos. A convivial, slightly overweight man, Jim is one of the top executives at Twentieth Century Fox, one of the "big six" major studios which have for years dominated the global movie business. That makes him one of Hollywood's leading power brokers.

The duo talked affectionately for some time. Then, when it became clear that their conversation was drawing to its natural conclusion, Jobs offered a thought. "Hey, do me a favour, will you," he said. "Don't let what happened to the music business happen to yours." Shortly afterwards, the Apple founder and the film mogul said what would be their final goodbyes.

For all his talents, Jobs was never what you might call a particularly quotable public figure. But that comment, later made public by Gianopulos in The Hollywood Reporter, should be plastered on to billboards and projected on to the side of tall buildings. That's how perfectly it captures the mood of creeping anxiety currently pervading the US entertainment industry.

Showbusiness has defined the United States for the best part of a century. Houdini, Chaplin, Elvis, Reagan, and pretty much every famous American of the modern era used it to confidently export star-spangled values to the rest of the world. But, as the second half of its name suggests, it is at heart a "business." Vast profits are required to grease its creative wheels. And while the old mediums of film, TV, and music still remain central to Uncle Sam's cultural dominance, their commercial fortunes are changing, fast.

To realise exactly how fast, you need only to look at the record industry. Last century, it gave the world everything from jazz to rock'n'roll, creating vast financial empires in the process. This century, a digital revolution has thrown it into crisis: in the US, music sales more than halved in the Noughties, from $14bn a year to just over $6bn. They fell by another 10 per cent last year, and now seem locked in a permanent downward spiral.

The net result has been the virtual death of the album, as a cultural force, alongside the disappearance of record stores from the streets and a dearth of fresh musical talent which doesn't have the surname Gaga or Bieber. Could Hollywood, that shining beacon of American creative endeavour, be similarly threatened? Could the internet, which already fills so much of the leisure time that film and TV once dominated, destroy its traditional revenue streams? Jobs, whose iPod was the author of music's demise, certainly thinks so; and he's not alone.

"There's very real anxiety in the movie business," says Kim Masters, editor-at-large of The Hollywood Reporter. "Audiences, and young people especially, are just not turning out to the cinema in the numbers they were. In fact, there's a joke going around town, though people are saying it through gritted teeth: $20m is the new $60m. What it means is that movies which used to bring in $60m in their opening weekend are now doing a third of that amount."

Despite increasing ticket prices, US box office revenues have been more or less flat for the past five years. But the market for DVDs, once almost half of a film's revenue, has gone through the floor, dropping between 40 and 50 per cent. Digital streaming, the internet era's only fresh source of revenue, remains in its infancy. And while incomes are falling, the film industry faces a Micawberish double whammy: its outgoings are rising, fast.

Thanks to the growth of special effects and 3D film-making, budgets of major films are spiralling. In 1997, Titanic made headlines as the most expensive film ever, costing the (then) unthinkable sum of $200m. Today, every major flick costs that amount. Marketing adds tens of millions more. Little wonder that the independent film industry has been in turmoil for as long as anyone can remember, while once-major studios such as MGM and New Line have recently found themselves on the verge of financial collapse.

Commercial strife doesn't just worry the men in suits who run Hollywood. It has a profound effect on the sort of movies the world gets to watch. In tough times, studios are producing far fewer movies. The number of major releases per year peaked in 2006 at 204; 2010 saw it hit a historic low, of 141. The number of studio films in production dropped by 19 per cent, year on year, to a mere 98.

The upshot is obvious to anyone who ventures down to their local multiplex: as producers make fewer, bigger bets, they have become terrified of failure. Sequels and adaptations, thought to be "safe" commercial propositions (they target an audience which already exists) are everywhere. Risky, untested works have vanished. You'll find just a single original title, the summer comedy Bridesmaids, in the top 10 of this year's box office charts.

Pricier films must speak to a global audience to turn a profit (international revenues now account for around 50 per cent of box office, up from half that in the Eighties). To that end, the modern blockbuster feels more international than its traditional equivalent, and safer; at worst, this makes them are about as exciting as a UN meeting. Today's "tentpole" movies also tend to revolve around more foreign stars. The new Superman and Spider-Man, for example, are currently both British: Henry Cavill and Andrew Garfield.

Then there's TV. It has for years been a truism that you can travel to any place on Earth, and see a US sitcom dubbed into the local dialect. The Simpsons is screened in no fewer than 45 different languages; Friends was broadcast in only slightly fewer. Today, the same is also happening in reverse: turn on American television in daytime, and you'll find Latin-American soap operas in, catering to the nation's growing Spanish-speaking population.

TV's overall numbers are also grim. Audiences are fracturing, and shows are getting smaller ratings. In its popular heyday, at the height of the Bush era, Desperate Housewives had almost 30 million domestic viewers. In the age of Obama, the most successful network dramas are lucky to get half that amount (only sport and talent shows pull real crowds any more). Instead of viewing scripted shows live, audiences are recording them and fast-forwarding through the adverts.

To a nation raised on the idea of American exceptionalism, these changes matter. And the big question, in advance of next year's election is whether they play into a wider narrative. Are they emblematic of an empire in decline? And do they reflect the creative stifling of a nation which has grown used to ruling the roost, but in the era of globalisation must hitch itself to uncharted international currents?

Younger demographics probably hold the answer. They simply aren't watching TV or going to movies very much at all. And they rarely pay for music. Instead, they get their entertainment from YouTube, or mobile telephones, or stream it from newly fashionable corners of the internet. But for now, the traditional entertainment industry is unable to create enough profit from similar mediums to cover its losses elsewhere.

To find the corners of optimism in today's entertainment industry, you must therefore take these emerging trends to their natural conclusion: go to the homes of Facebook, or YouTube, or the preposterously fast-growing online gaming firm Zynga. Or visit the headquarters of Infinity Ward in Encino, California, where Call of Duty, one of the world's most popular video game franchises, is made. Mark Rubin, an executive producer at the firm, expects their newest Call of Duty game, Modern Warfare 3, to sell upwards of $1.5bn-worth of copies. That's more than any Hollywood film in history, with the exception of Avatar. One in four UK homes own a copy, he says, and since players devote hundreds of hours to each title, he says, "we actually do well in a recession, because we are seen as good value".

In 2009, Guillermo del Toro, the film director, began devoting a portion of his energies to creating video games. At the time, he suggested that gaming was becoming as narratively interesting as movies, and predicted the "Citizen Kane" of video games, a grand, sweeping masterpiece, would showcase the full creative potential of the medium, in the next decade.

If this is indeed the future, tomorrow's entertainment will be different. It will draw fewer physical crowds, and only rarely provide the communal experience of yesteryear. The role of celebrity will alter. Films, TV shows, and music will become smaller parts of an industry which spans myriad mediums and takes influences from across the planet. While some see this as the end of an era, and perhaps of a traditional industry, others take the long view: that it was ever thus.

"I've been studying old issues of Variety [the industry's Bible], and you know what? You look back and there's always been crisis in entertainment," says Tim Gray, Variety's editor in chief. "There was a period when vaudeville was terrified of silent movies. Then the talkies came along and people got nervous. In the Eighties, when videos arrived, people were saying, 'This is big, but it could stop people going to the cinema.' Well perhaps the same thing is happening right now with the internet."

Change, so cleverly tapped in the last election, is in other words part of the American way. Today's upheavals in entertainment could, therefore, reflect not the natural paranoia of a country that has seen its best, but the scrabbling of an old industry trying to adjust to a new era which ultimately holds more promise than ever before. Time will of course tell if that's the case. But it's probably the best hope there is for an industry, and an entire country, which for now is condemned to live in interesting times.

But this time it's different. America dominates the internet in the way it once ruled the cinemas and discos and living rooms. It is Americans who are behind so many of the global online hits – YouTube, Facebook, Twitter, MySpace, and eBay. But these are participatory media. The content is homemade; not some vision of the American way being piped to the world. Today, American entertainment's role in the world is not to give it Chevvies, diners, Main Street, and a life to aspire to, but to help the world hold up a mirror to itself.

Statistics

In Las Vegas, there are eight times as many slot machines as people.

The United States is the world’s largest consumer of cocaine.

One in six Americans in 2010 were on some kind of anti-poverty programme.

86 per cent in 1990/ 76 per cent in 2008 Number of Americans identifying themselves as Christian.