Degradation of thin films is studied within a stochastic approach based on a percolative technique. The thin film is modeled as a two-dimensional (2-D) random resistor network in thermal contact with a substrate. Its microscopic degradation is characterized by a breaking probability of the single resistor. A recovery of the damage is also allowed. The degradation and failure of metallic interconnects and dielectric insulators are then described as a conductor-insulator (CI) and an insulator-conductor (IC) transition, respectively. The recovery of the damage competing with the degradation can also lead to a steady-state condition. The main features of experiments are reproduced together with their statistical properties. Our approach thus provides a unified description of degradation and failure processes in terms of physical parameters.