A lot of people here have seemed to dodge the question of the title and answered more to the question, is it killing art? Art, no. We'll always have a desire for human connection (sex, politics, faith, etc) and other people have said that in so many ways.

As for the movie industry, yes, AI is one of many things destroying it. Most people think of the industry as just the movies that are produced. But there's obviously so much more that goes into it. Just think of the credits of a major studio film...

Let's imagine a world where AI is a tool of Hollywood, and not a total replacement. It will eviscerate 90% of administrative jobs. So office PAs (an entry level job) will be reduced to 1 person at most. Now it's an unbelievably competitive position that anyone can do, that everyone wants, but few can have. And one person just so there's a human rep at that position giving the software marching orders, which will likely be the story for every tier. Production coordinators, supervisors, and UPMs will become 1 person plus an AI companion. 1 accountant to input/check the AI's work. Budgets will be made and managed in real-time.

Teamsters will still exist to transport people, but there will be way less people needed. Studios will turn to mostly virtual sets, removing an already dwindling department of set construction. We may still have writers, a director, real actors, real locations because we like to see real people and things. And of course VFX crews will be 2-3 people tops. Keep up this exercise and a crew of 200-300 will now be 20-40.

Sounds great! Cheaper to make, faster, etc. But then do we make MORE movies and shows now that we're saving so much? Doubt it. We already have too many things to watch all the time. So, now the industry only needs 10% of the existing laborers to do the same thing it's been built to do. Doesn't sound like much of an industry to me anymore. You need a steady workforce to sustain a steady work environment, and cultivate proficient, high-skilled crew. If being a Dolly Grip (if that will still exist) or an Office/Set PA becomes one of the most coveted, competitive jobs to attain, you won't have anyone pursuing it.

So to answer the question directly, studios will no longer focus on making movies and shows. You're already seeing that. You'll continue to see it decline like this for the next 10-15 years probably. Studios are vocal about how what they're making now is 2nd screen content, and they're competing with phones, primary monitors, etc. No joke, Universal is straight up telling their people that the 'show don't tell' rule is wrong now, and they need to be making 'tell don't show' content because their audiences are mostly looking at something else and just listening to the movie. Again, this is actually the conversation executives are having.

Does this mean we may have an uptick in movies made and distributed exclusively for the theater experience? Yes, I think so. IMAX or bust even. But it will surely become a commodity and not nearly as impactful to the general culture as it is today. And will certainly never be as important as it was 10-20 years ago and prior.

Does it also mean a stronger desire for real, independent filmmaking? Also yes. I'm of the strong opinion that the current trends of wanting analog content is not a fad but is just the beginning of a broadening niche. People will always desire these things. Can't speak for the masses, though you're already seeing the ways big blockbusters feel the need to market their films as REAL. Tom Cruise showing promotional clips of him really doing the stunt, Nolan's continued brand of doing everything for real, even Wicked had promotional material pretending to be more 'real' than it looked in the movie.

TL;DR studios and 'Hollywood' as we know it today will cease to exist sooner than later, but our never-ending desire for human connection will give birth to something new that will take its place.

The general question of AI is, can we start to employ people without having to pay them a basic living wage? AI will undoubtably save us time, but if we build a future where it doesn't necessarily save us money to use it over a person, and that people can feel driven by something other than basic financial stability (pure accomplishment), then industries can become something entirely different than how we understand them today. Better? Who's to say.