With CES buzzing down in Las Vegas this week, Port Washington, New York-based market research company The NPD Group has released the results from its Kids and Digital Content III study, finding an increasing number of kids acquired their entertainment content digitally rather than through physical means in 2008.

The report, found that while video games and movies still rely on the purchase of the physical product, content such as music, ringtones/tunes and video content (TV shows, music videos, online video clips) are acquired through digital means. Music took a big category jump, as NPD reports a 10% increase from 2007 in the number of kids between ages two and 14 who obtained music digitally versus physically.

The report also examines the use of entertainment content on CE devices among kids in the same age group, focusing on content acquisition on computers, portable digital music/video players (PDMP), cell phones and video game systems. Though each device is traditionally associated with one type of content (ringtones on cell phones, for example), NPD found that CE convergence is on the rise, with more cell phone users in the age group listening to music and sending/receiving images on their handsets than in previous years. PDMP users were also watching music videos on their portable players. Also, kids spent 12% of the time on their video game systems watching movies.

Usage for game consoles, PDMPs and laptops has risen since last year, mainly as a result of increased usage from the nine to 14 age set, while use among the younger kids has been largely unchanged, along with overall cell phone usage over the last two years.

But unsurprisingly, gaming has come out on top as the most popular activity (85% usage penetration among device users), followed by music (60%). Roughly a third of kids surveyed watch videos and 22% download ringtones/tunes.

And the number of girls engaging in digital content is also significantly on the rise over last year, and they’re also driving the increased growth in video game systems usage, which has gone from 50% usage in 2006 to 57% in 2008. As for boys, there’s been an increase for watching TV shows.

NPD’s industry analyst Anita Frazier says that the largest increase in device usage happens at nine years old, but game-playing seems to be the first activity to engage the young ones digitally, while a notable 82% of kids between two and five play games on one or more of the four devices surveyed.