We need an explanation that embraces both facts, but (A) undermines Fact 1 – if production costs have risen, the idea that the theater industry is thriving becomes harder to understand.

It's also irrelevant to Fact 2 – theaters don't pay production costs, so higher costs for movie producers don't explain why a certain subset of theaters are struggling.

(B) undermines Fact 1 while supporting Fact 2, which doesn't resolve the tension between them. Ticket prices being lower contributes to an explanation for why some theaters are struggling, but it makes the overall success of the theater industry much harder to explain.

(C) embraces both facts in a way that resolves the tension between them. It says there were indeed many successful films (that's Fact 1), but that those films were only shown at a small selection of theaters, meaning many individual theaters missed out on those ticket sales (that's Fact 2).

(D) undermines Fact 2 while supporting Fact 1, which doesn't resolve the tension between them. A dramatic increase in movie advertisements would certainly explain why the theater industry is thriving, especially because theaters themselves aren't paying the ad fees. But this makes the pattern of bankruptcies much harder to understand – how are they struggling so much when they're reaping the benefits of free advertising?

(E) reinforces the link between box office receipts and profits, which supports Fact 1 but undermines Fact 2. If high ticket sales also mean high profits in other areas, then why are so many theaters going bankrupt?