Last week's break between Tom Cruise and Viacom (NYSE:VIA) has provided fertile fodder for late-night comedy and gossipy entertainment shows, but I think history will see it as a defining moment. On a deeper level, it will be equivalent to EMI giving Mariah Carey the heave-ho by buying out her $80 million CD deal for $28 million, or the Texas Rangers trading Alex Rodriguez to the only team that could realistically cover his lofty contract.

Cruise's exit, after years of taking a generous cut off the top of his blockbuster films, is the inevitable exhale of an industry that is starting to follow the music industry's footsteps toward digital delivery and the fragmented programming niches that come with the territory.

We all saw it coming. When DreamWorks Animation (NYSE:DWA) and Disney's (NYSE:DIS) Pixar warned, mere months apart, that DVD copies of Shrek 2 and Finding Nemo (respectively) weren't selling briskly, you knew that trouble was coming. These were the highest-grossing animated films of all time and retailers were returning excess copies? Oh boy. How can an industry with so many grip boys lose its grip?

Quiet on the set
Film, as an art form, isn't endangered just yet, but it is being cage trained. Over just the past few weeks you have seen Disney scale back its live action productions and Time Warner (NYSE:TWX) open up a division to produce cheaper direct-to-video titles.

During Sunday's Emmy Awards, Conan O'Brien joked that the networks were worried because kids were turning to YouTube to watch a cat on a toilet. Maybe. Maybe not. Maybe that cat was running inside a wheel. Maybe it was four cats on treadmills.

The "clip culture" is real and it's eating into the time that Internet users used to spend consuming filmed and televised entertainment.

Want to see where celluloid is going? Keep following the music industry's evolution. Technology like iPods, Internet radio, and satellite radio actually whetted the appetite for musical genre narrowcasting. Instead of accepting the formulaic Top 40 platform, reborn music fans simply dug deeper into their specific tastes. This appears to be happening in Hollywood too. The cinematic blockbuster is still a box office draw -- for now -- but the public is moving on too quickly, no matter how the gap narrows between theatrical and retail release dates.

We can't blame this exclusively on the emergence of popular video sites like YouTube, iFilm, and There is a glut of physical product on the market, especially as television shows of varying degrees of success flood the market with their anthologies.

That's right. Walk into your local Best Buy electronics superstore this week and you will find entire DVD seasons from hit shows like Seinfeld and Curb Your Enthusiasm on sale for just $19.99. Sure, it's small screen stuff, but the value proposition is tantalizing when you're pricing a single film at the same price point as hours and hours of an entire season of a hit show.

Lack of Cruise control
What does this all mean? It certainly doesn't mean that Cruise isn't a bankable celebrity. He is. The market is simply pricing itself according to more realistic expectations. Hit movies are no longer DVD lay-ups, and that makes it more dangerous for a studio to go out on a limb and dive into a nine-figure production budget that also happens to be anchored to a big-ticket-star contract.

The irony is that the film industry is having its Mariah and A-Rod moment just as digital delivery is becoming a reality. Companies like Apple Computer (NASDAQ:AAPL) and Google (NASDAQ:GOOG) are selling video downloads, while companies like MovieLink and CinemaNow are enhancing their flick delivery offerings.

Because we still don't know the potential market here, much less know into how many slices the market will be cut, the studios aren't taking any chances. They are going to continue to shed costly deals. It's a sound strategy. Exciting new markets almost always seem to go to the nimble that are willing to take chances.

And in a case of art imitating life, the same can be said of investing.

Time Warner, Disney, and DreamWorks Animation areMotley Fool Stock Advisorpicks.

Longtime Fool contributor Rick Munarriz still loves going to the movies, only he gets there 15 minutes late to avoid the ever-growing string of commercials. He does own shares in Disney. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Fool has a disclosure policy.