The [Hollywood death] spiral begins with a shortening of the delay, or "window," that separates a movie's theatrical release from its video release. In the early 1980s, in order to avoid having new movies in theaters compete against themselves in video, pay-per-view, pay TV, or free television, the studios set up a series of insulated windows for each format.
This delay between theatrical release and video is called the video window. The windows are ever shortening with time.
Even if you hold the window to pre-2001 levels, DVDs are easier to send through the mail, and were likely going to create a decline in theater-going anyway. But as the article notes, other countries experienced declines in theater audiences a full three years before we did here in the states: "After Hong Kong collapsed its video window in 2002, there was a 70 percent reduction in theater attendance." That kills the bad-movies-explain-declining-ticket-sales. Also, declining audiences make for fewer theaters: "A 6% reduction in attendance in 2000-2001 led to half the movie theaters in the world going bankrupt."
A comment over at The Big Picture blog explains this from a local man perspective: "I am an average consumer, and planning my schedule around the 1 week that the average movie is in the theater just doesn't work for me." I agree with dude (the commenter,) when he says: "I'll just wait for the DVD instead of configuring my schedule around theirs. who is the dang customer here anyway?"
Now here's what I want to know: if theaters are less and less profitable, why the race to replace single-screen houses with multiplexes?