When you consider the number of companies that are piling on the streaming video wagon, it only makes sense that we’re approaching a tipping point.

Among the many recent announcements, Comcast‘s (NASDAQ:CMSCA) Streampix and Verizon‘s (NYSE:VZ) partnership with Coinstar (NASDAQ:CSTR) are joining established players like Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) in offering Web-based video streaming services that allow customers to view TV shows and movies from anywhere they can get a decent Internet connection.

One of the biggest obstacles to streaming — particularly with high-definition content — has been download caps. There’s a reason that Blu-ray discs won the high-def optical media war over HD DVD; they can store up to 25GB of data on a single layer disk and 50GB on a dual layer disc, supporting 1080p content.

Streaming that much data over an Internet connection presents two challenges: bandwidth and speed. Streaming 25GB movies would quickly eat though the Internet bandwidth cap for most households, resulting in overage charges. Download speed for home connections may not be capable of keeping up with the data throughput needed to transfer a 25GB movie in real time, and even buffering may not eliminate stuttering and freezing video.

Squeezing more through the pipes

Companies like eyeIO have been hard at work at improving video compression algorithms, but it looks as though Apple (NASDAQ:AAPL) has made significant headway in this regard.

When it announced the availability of 1080p high-definition content from its iTunes store at the launch of the latest generation Apple TV set-top box, there were immediate concerns that the new high-def content was going to stack up poorly against Blu-ray while still requiring a huge jump in file sizes. Ars Technica performed comprehensive comparison tests between iTunes 1080p movies and their Blu-Ray counterparts and discovered that the iTunes versions were very close to Blu-ray in quality (with the exception of large, dark areas where banding and artifacts were visible), while keeping the file size under 4GB.

Which brings us to a Bloomberg report predicting that for the first time in the U.S., online viewership of movies will exceed viewing of movies on Blu-ray and DVD in 2012. According to estimates by IHS Screen Digest, a media research firm, legal viewings of online movies are expected to hit 3.4 billion in the U.S. in 2012 (compared to 1.4 billion in 2011), while the number of times movies are watched on a DVD or Blu-Ray player should shrink to 2.4 billion (from 2.6 billion).

Online viewing comes into its own

It’s still early in the year and there are obviously a lot of suppositions in the calculations used by IHS, but the writing is clearly on the wall. We’ve seen what happened with digital music. The tracks sold by iTunes, Amazon, and Google Music (NASDAQ:GOOG) or those available as online streams through Pandora and others isn’t equal in quality to a physical CD. But compression and file size tradeoffs have hit the point where it’s good enough.

Music stores are becoming tough to find as physical locations continue to shut down and the No. 1 music retailer in the country is Apple, which sells only digital copies — no physical media.

Now that streaming video appears to have reached that sweet spot where file size of high-def content is reasonable, quality is good enough for most consumers, and content libraries are rapidly expanding, the days of the optical disc are clearly numbered. Don’t expect Blu-ray to go away any time soon (there will still be consumers who demand the higher quality and extra features, and not all movie viewers will have streaming access), but the format will begin to decline in sales and eventually be relegated to much smaller shelf space in stores.

As streaming becomes the dominant delivery platform for movies, the agreements that movie studios sign with providers are going to come under increasing scrutiny. The temptation on the part of Disney (NYSE:DIS) and other studios will be to increase content licensing fees in hopes of recovering revenue lost to evaporating Blu-ray and DVD sales. If that happens, the primary factor limiting the ongoing growth of streaming video services may become pressure on the sub $10 all-you-can-view pricing model rather than on Internet download caps.

At the time of publication, Brad Moon did not own a position in any of the stocks named here.