Watching movies pre-HD, or even pre-Blu Ray quality, at home was not in any way a substitute for watching them on the big screen. And now it is!
I'm not saying it's a perfect substitute, and certainly movie chains could improve the experience in various ways, but, back in the day, waiting for the movie to come to the 19" wasn't a great option.
There are other things going on, including dumb movie executives. I'm not saying it's the only explanation (here at this very fine blog we rarely endorse monocausal explanations for things), but it's a big one!