Theater owners and investors won’t find much encouraging news in the latest overview of the exhibition industry by Moody’s Investors Service. “Despite an increase of about 6% in US and Canadian movie theater admissions in 2012, the overall trend is negative,” the debt-rating firm’s Assistant VP Karen Berckmann says this morning. Last year’s increase shows that “appealing product will still draw people to theaters.” But attendance remains 15% lower than it was in 2002 when it came close to 1.6B. “Given alternatives for consumers’ leisure time — from video games to Netflix to web surfing — we do not expect a rebound in movie attendance,” she says. Exhibition chains also have discovered that if they continue to raise ticket prices then “they risk turning off customers and reducing attendance.” What to do? Theaters have fattened their bottom lines by improving concession offerings, selling more on-screen ads, showing alternative content (such as concerts and sports events) on slow nights, and generally cutting costs. The premium-priced tickets for 3D movies are probably a wash since they also come with higher licensing costs, but could provide some modest help as studios and theaters experiment with the format.

The next steps, Berckmann says, include consolidation and closings. Most of the major chains have the wherewithal to take on debt to finance a merger binge. Shuttering some of the nation’s 40,000 screens also makes sense in an industry that “still suffers from overcapacity in much of the country.” She expects someone to snap up Hollywood Theaters “prior to its June 2013 bond maturity, likely at a price sufficient to cover the $157 million face value of its bonds.” AMC Entertainment is probably the only other major chain that’s likely to sit on the sidelines. Although AMC’s owner, China’s Dalian Wanda Group, has deep pockets, Moody’s expects it to upgrade existing theaters instead of expanding. Regal’s a player, but its intentions are a little murky after the $155M special dividend it paid in December. That “left the company with less cash for future acquisitions” although it could use some of the $250M it raised this month for acquisitions.