The advent of high quality digital cameras has lowered the necessary cost of making high quality cinema. When film was essential for making movies, people had to have the "purchasing power" to buy film (which was not and is not free or cheap). Now, the cost of the camera and the computer to process and edit the movie end up being the only essential costs for making a movie.
Naturally, costumes and actors cost as much as ever, but the specialized film making equipment no longer requires actual film.
Production is different because you don't have to have a movie studio or a million dollars to create a movie, even a good one. Digitial videography combined with cheap, readily available, easy to use movie making software means almost anyone can make a movie. If you have Imovie, not only can you create a fairly professional looking film, but the new version even allows you to do so in HD. Even the studios are changing. So much of what we see on screen includes high tech computer animation for "impossible" or dangerous stunt scenes. It becomes harder and harder to tell a stunt from a computer animated scene. (Check out the most recent Mission Impossible versus the first from 15 years ago)
Distribution and exhibition is completely different. Movies are available in every way imaginable. In theaters, by mail, on the internet, or downloaded to your tv (like netflix with a Wii). In addition marketing on the internet is huge. You no longer just see commercials on tv for a movie, in fact you are more likely to see one prior to a YouTube Video or on various websites.
If you're talking about major commercial releases, such as the kinds of movies that you would normally go to a theater to see, the after-market has changed a lot. You don't have to go to a video store anymore; in fact, you don't even have to wait for the mail to be delivered anymore, because you can just download it if you have the speed for it.
Exhibition is becoming thoroughly "democratic." Anybody can shoot, edit, and publish a movie on the internet now. Whether or not it will be seen by anybody other than their immediate family is another matter.
I don't think the internet is going to kill the theater business anymore than television did, however.