They didn't have the foresight in those days to think the movies could make any more money. Studios churned out a new movie every week, so once a movie played, they figured it'd made all the money it was going to make, so why does it matter if it rots? When TV came along, they finally realized that they could sell their movies to TV and make more money from them, but the damage had already been done. Now we have TV - network and cable - home video, DVD, etc. and movies can make tons of money decades after their original release.

Oh, and after movies played in theaters here, they'd be shipped off to all kinds of places, like Australia and the Czech Republic. Which is why sometimes you find lost movies or lost scenes from movies in places like that. The 1925 version of Ben-Hur is a prime example. It's mostly in B&W, but all the religious scenes were in two-strip Technicolor, but for a long time, MGM only had B&W copies of the scenes until the 80's, when someone at a film archive in the Czech Republic found the original two-color Technicolor scenes. The restoration is available in the 4-Disc Collector's Edition DVD of the Charlton Heston film.