I think Hollywood could care less about movie theaters. That said, they can't get people to pay them $10/person to watch a movie at home, so the theater model allows them to take advantage of customers, price-wise.

I think there's just way too much inefficiency in Hollywood -- the video game industry provides much better entertainment value-per-dollar (in terms of hours of entertainment, at least). That's partly due to the medium, of course, but I can't help but imagine that if someone could develop hollywood-like films without actually being part of the hollywood apparatus, they'd be poised to really disrupt that market.