Here is an interview in the NY Times with the CEO of Regal where he explains why he thinks DVDs are good for the movie theater business. Here is his response to the question of how much of a threat DVDs are to movie theaters:
Which side do you believe? The side saying that movie theaters are on their way out or the side saying that movie theaters are helped by the popularity of DVDs, etc.?
I think DVD's have been the savior of not only the studio model but have been beneficial to theater owners, too, because it funnels more money back into the studios, which in turn fuels higher production budgets, greater numbers of films, and so on.
We have seen the window shrink from an average of about six months between theatrical to video 10 years ago to about four and a half months today. Some compression of that window over time is justified, or has been justified at least in the past, because we generate our piece of the pie at the box office much quicker today than we did a decade ago.
People who run the studios are smart people, and I think they realize the tremendous value of having that theatrical launch pad. And I don't think that's going to change. They make films to be released on the big screen.
(Source: Marginal Revolution)