It usually means two theatre complexes, owned by separate companies, within 5 miles of each other, competing for the same product. The distance can vary, but we have theatres as near as 8 miles that run the same films.
Although we run Art Films and all of the other theatres run commercial films, we are still in a competitive zone and must play by the rules. We are open generally the same hours as the competition. We also must follow the same rules as to when to split product. But as an Art house we frequently clear the entire county. This means if we have the film, then nobody else has the film.
Theatres that aren't in a competitive zone can sometimes get better film deals are run product for a shorter time. Also if you aren't in a competitive zone, you can run films later than the opening dates and still make money.