Iran's minimalist art-house films may win accolades abroad, but many young Iranians would rather curl up in front of a Hollywood movie on DVD.

"When I can watch a DVD or video at home, why should I bother going to a cinema to watch censored films?" asked Shahrzad, a student living in an upmarket north Tehran district.

"American movies are more lively," said Babak, a management graduate.

Ticket sales have plummeted by a quarter to 15 million a year in four years as audiences abandon often monotonous films and decrepit theatres for widely available pirated videos of the latest Hollywood films.

"Each Iranian spends an average of less than 40 minutes a year at the cinema," parliamentarian Ali Asghar Sherdoust was quoted by newspapers as saying.

"The crisis has reached its final stages and Iranian cinema has lost its contact with its domestic audience."

"The smuggling of foreign films, compact discs, internet and satellite television have harmed the domestic film industry," said Sherdoust, spokesman for parliament's cultural commission.

Iran's cinema felt a breeze of freedom after reformist President Mohammed Khatami took office in 1997, but few of the strict Islamic rules on content, especially regarding women's clothing and any allusion to sexuality, have been relaxed.

Despite the constraints, Iranian films have won about 300 awards in the past decade at international festivals, where directors such as Abbas Kiarostami and Mohsen Makhmalbaf have been praised as innovative artists.

Art theatres still draw an enthusiastic public, with audiences cheering any scenes that have got past the censors.

"I go to the cinema whenever there are good movies on because they provide a psychological release for young people," said Morvarid, a computer graduate.

Strong government control dates back to the 1979 Islamic Revolution, when the state took over the film industry to fight Western cultural influences and promote Islamic values.

Despite a revival of art-house cinemas in the past decade, many theatres have been closed nationwide.

A government plan to revive the industry aims to encourage private investment in film production and building theatres and to allow guilds and professional associations a greater role.

But the plan has had little success because of censorship and the uncertainties of investment rules in an industry still dominated by state-affiliated bodies.

"It's a 'Catch-22' situation. Iranian producers want to produce movies with more critical topics, which would draw larger audiences, but such films often fail to get a screening permit," Mohammed Hossein Farah-bakhsh of Iran's Film Producers Association said.

Lack of transparent laws and market insecurity have discouraged investors from building new cinemas to help the industry to flourish.

"The government is beckoning private investors to invest but they are reluctant because of market instability and low returns," said Manouchehr Mohammedi, head of Khaneh Cinema, an umbrella organisation of state-approved guilds and associations.

"Nothing major has really happened in the area of privatisation," Mohammedi told Reuters.

The government plan aims to cut state subsidies and transfer production and distribution decisions from the Culture and Islamic Guidance Ministry to the Cinema House.