As executive director of the nonprofit American Cinematheque, Barbara Smith doesn't book first-run Hollywood movies. Still, at the two specialized Los Angeles-area theaters she oversees, admissions are down 10%-11% from last year. That's the same percentage that has hit mainstream exhibitors throughout North America. And it has nothing to do with the quality of the movies she is showing.

For while commercial exhibitors are at the mercy of Hollywood's latest output, Smith can pick and choose from the universe of movies, past and present, U.S. and international. Through the American Cinematheque, she runs the Egyptian, the restored movie palace on Hollywood Boulevard in the heart of the tourist district, where she caters to males 18-34 with such staples as Japanese outlaw masters, Mods & rockers, film noir, the Argentinian film showcase and indie showcase the Alternative Screen. She also operates the Aero, a neighborhood theater in Santa Monica, with a broader audience ranging from teens and families to older viewers, which features better-known Hollywood titles from the likes of Alfred Hitchcock and Billy Wilder.

Smith first noticed an attendance drop in spring 2004, "a year and a half before everyone started talking about it," she says. "I chuckle when people talk about Hollywood films being better or worse. The Hollywood movies we show have already been tested and proven to be good. Regular theaters don't have as many choices as we do. Their movies are just as good or bad as always. The movies are not what's changed."

So what has changed?

"Two to three years ago, just about everything worked," she says. "We'd go along programming our usual anything-goes, Japanese horror and American classics, and only once in a while would we hit a real clunker. We'd never expect to sell out our series on Croatia. Day in and day out, some movies are more popular than others. Over time, everything balanced out."

Smith, who will soon be replacing departing chief programr Dennis Bartok, doesn't think there are any quick fixes to the Cinematheque's programming. "It's not like you can say people don't want to see European art films anymore or American films from the '40s. It's hard to hit on one thing to change. It's just everything."

Gary Meyer, who runs the Balboa Cinema in San Francisco, has encountered a similar phenomenon. "The repertory business is a nightmare," says Meyer, who subsidizes his year-round programming with first-run art film hits such as "The Best of Youth" and "Infernal Affairs." (Smith, too, is considering booking more first-run theatrical releases, saying, "Everyone does what they can to survive.") "There's no question that we are being affected by a combination of things," Meyer says. "It's very hard to create that excitement."

Why? Meyer cites "all the alternative things people do with their time and money. They don't go to a dinner and a movie anymore. They go to dinner or a movie. Or they stay home and answer e-mail and play a video game."

Says Smith: "Nobody wants to think that the world is completely changing under our feet. It's the way people view entertainment. Kids have changed. People always say, 'Kids always will go out to the movies to get out of the house.' Remember the video arcades of the '70s? Full of kids, all the time. The minute they tweaked the video game technology, those arcades closed because kids stayed at home to play incredible video games.

"We're right in the middle of a technological revolution," she adds. "The disadvantage to movies is that people are expecting entertainment instantaneously." With so many leisure-time options in the home, she says, "Kids can be entertained all the time."

One fundamental shift, Smith says, "is that the quality difference between videotape and DVD is great. And we didn't use to have flat-screen, big plasma TVs with Dolby sound. With TiVo, you can watch the movie whenever you want to. DVDs do effect our business when people stay home to watch them. Traffic is also a problem. People don't go out as much."

It doesn't help, Meyer points out, that "when Gene Shalit goes on television and says that people aren't going to the movies because they know they will be on DVD in four to six weeks. It's true that three months goes by quickly, that video stores post the date a movie will be available the week the film opens, that you can click on 'King Kong' on Netflix and add it to your lineup -- now."

When Meyer, who is an inveterate market researcher, goes on vacation in Alaska, he queries people at every bed and breakfast about their moviegoing habits. "They say they aren't going to the movies," he reports, "because of the commercials, the loud trailers, cell phones and BlackBerrys. And they like their Netflix and GreenCine."

So how to combat this situation?

Clearly, it takes more to get a moviegoer to leave the house. "Programming that isn't on DVDs generally does better," Smith admits. "Or 70mm, a new restored print, a guest like George Lucas. Years ago, there were no Japanese films on DVD with English subtitles. But now we can't count on that whole ethnic audience dying to see films from their country. Now they see them on DVD."

Yet film festival attendance is up, considerably, from Seattle to Los Angeles. "It's that sense of an event," Smith says. "Like people still going to Rolling Stones concerts."

Sounds familiar. This is the question that studio executives have been asking all summer: How do we make each movie a must-see, an event? But clearly, the quality of Hollywood product, while it could be improved, is not the only issue. Moviegoers at all ends of the exhibition spectrum have simply become more demanding about what it takes to get them out of the house.

So what does the future portend for exhibition? Smith and Meyer envision a world with dramatically fewer theaters. "We're going to go from 30,000 screens to under 10,000," Meyer says.

Big, high-end theaters like the Chinese, the ArcLight and Imax theaters will survive -- and all screens will be equipped with digital projectors. "I really think you can't stand in the way of technology," Smith says. "That is never going to work. People will still see really big films. The rest will be replaced by Netflix, DVDs, PPV and big home screens with surround sound."

But the digital future may have an upside for repertory exhibitors like Smith. As the local mutliplex shifts to digital projection, there may still be a place for grand old theaters that still project celluloid film. Smith says beautiful theaters with great film projection and sound could make movie viewing special again.