Is it time to reopen movie theaters to operate at their full capacity? The case in favor is sound enough: The number of vaccinated residents of the United States is going up, while the number of coronavirus infections is going down. Indeed, the number of newly diagnosed cases of COVID-19 in the U.S. is lower now than it was in June of last year.

It may be safe to take the next step back toward normal, just in time to enjoy a new slate of potential blockbuster film releases. Shareholders of theater chains like AMC Entertainment Holdings (AMC -5.94%), Cinemark Holdings (CNK 4.20%), and Regal Cinemas owner Cineworld Group (CNNW.F) (CNWGY) are understandably excited.

If you're in that crowd, however, be forewarned: The film-screening business was already struggling before the coronavirus pandemic hit. Any recovery now is still ultimately going to be capped by that long-standing downtrend. Indeed, the explosion of new (and revamped) streaming services since just last year will only make any rebound that much more challenging.

Movie-theater investors may want to keep their expectations in check.

A line graph on a chalkboard, with a rising arrow bumping into a ceiling.

Image source: Getty Images.

Movies are increasingly struggling to attract viewers

It's not readily apparent given the sheer number of megahits the film industry has produced just within the past few years, but the business isn't growing ... at all. The number of movie tickets sold in the United States has been steadily sinking since peaking at 1.57 billion back in 2002. Adjusting for inflation, that's also when the industry's U.S. revenue peaked, at $14.4 billion:

Chart showing that the U.S. film business has been shrinking since 2002.

Data source: The Numbers. Chart by author.

While the numbers depict the domestic movie industry's struggle, the overseas market is facing a similar struggle.

Till now, movie-theater chains have combatted the headwind in the most obvious of ways -- offering more theater screens and raising ticket prices:

Chart showing that the number of movie screens and the price of movie tickets has steadily grown since 2002.

Data sources: The Numbers and the National Association of Theatre Owners. Chart by author.

The tactic has worked ... sort of. The country's annualized domestic box-office take has held steady at around $11 billion. On a per-screen basis, however, annual revenue has fallen dramatically from more than $400,000 in 2002 to less than $300,000 every year since 2016, as fewer and fewer theater seats are sold:

The amount of annual revenue each U.S. movie screen produces has been shrinking since 2002.

Data source: The Numbers and the National Association of Theatre Owners. Chart by author.

It's problematic simply because the cost of installing, maintaining, and cleaning each seat doesn't decline even though that seat's capacity to generate revenue is shrinking. Indeed, such costs only inch upward over time. Exacerbating this headwind is the slump in concession sales stemming from the shrinking number of moviegoers.

In this vein, AMC Entertainment's operating income and cash flow have been steadily deteriorating since 2016, and any growth before then largely stemmed from acquisitions. Cinemark's bottom line has been contracting since 2017. Cineworld has seemingly fared better, though its 2018 acquisition of Regal Cinemas somewhat obscured its actual fiscal performance.

Connect the dots: Movie theaters may be on the verge of coming out of a pandemic-prompted slump, but they're rebounding into an environment that's still pretty lethargic. And this time, they're competing with Walt Disney's (DIS -0.07%) Disney+ and AT&T's (T -1.40%) WarnerMedia streaming service HBO Max, neither of which has been shy about debuting theatrical-caliber films directly to subscribers.

Don't count on fireworks

This headwind isn't part of the current reopening discussions, of course. The prevailing rhetoric still centers around the strong box-office numbers for the all-important Memorial Day weekend. For that Friday-through-Monday stretch, Comscore says domestic movie theaters sold around $100 million worth of tickets, marking the best weekend since COVID-19 came to the U.S. Some are interpreting that as a sign that the industry is on the verge of recovery.

AMC Entertainment CEO Adam Aron is still thinking about acquiring smaller theater chains like ArcLight Cinemas and Pacific Theatres, capitalizing on funds raised via stock sales while shares of AMC were catapulted higher. No dealmaking is on Cinemark CEO Mark Zoradi's near-term radar, though he hasn't ruled out acquisitions once the business stabilizes in a post-COVID setting. Cineworld almost purchased Canada's Cineplex last year, only calling it off in June when the pandemic began racing out of control and creating a few too many unknowns. Even so, that attempt was a glimpse into Cineworld CEO Mooky Greidinger's mindset; Greidinger says he sees a full recovery of the screening business on the horizon. Investors mostly seem to agree, given the recent bullishness about all of the aforementioned theater-chain stocks.

Conspicuously absent from these optimistic outlooks, however, is a clear explanation -- or even an unclear one -- of how the industry can reverse the contraction that was already in place well before the worldwide coronavirus outbreak. Whatever rebound is in the works isn't going to get very far if nothing else has changed, particularly in light of streaming media's massive growth since early 2020.