When More Choice means... Less Choice.
Blockbusters are doing well not in spite of the fact that people have more choice in entertainment, but because of it. Imagine walking into a music shop containing 4m songs (the number available on We7, a free music-streaming service in Britain) or more than 10m (the choice on iTunes), all of them arranged alphabetically in plain boxes. The choice would be overwhelming. It is far easier to grab the thing everybody is talking about or that you heard on the radio that morning.
As a result, it seems that even though people have more choice they do not necessarily opt for more obscure entertainments. Of course, the internet has vastly increased the supply of niche media but, according to The Economist, it has also increased the supply of blockbusters.
The unfortunate result is that sales become more concentrated, be they in movies, books, music or newspapers. As for the less popular products, they will inevitably be more expensive (as it is on television with for example HBO).