"We're in a transition period worldwide," he told a press conference on the sidelines of the 18th Busan International Film Festival (BIFF), the largest in Asia.
"I think Hollywood is making movies for China and India and Brazil and Russia. So they don't want dialogue movies. They don't want dramas. They've migrated the drama to TV."
International box office receipts have been outpacing Hollywood over the past few years, led by a Chinese market that is enjoying growth of around 30 per cent per year.
Industry analysts are predicting that China -- which collected an estimated $2.8 billion in box office takings last year, compared with Hollywood's $10.8 billion -- will at the current rate of growth become the world's dominant market by 2020.
Major US studios are increasingly looking for ways to appeal to the Chinese cinemagoer, with films such as this year's blockbuster "Pacific Rim" featuring Chinese characters and scenes set in the country.
Sheridan is part of a delegation of five Irish directors in the southern South Korean city of Busan, among them Oscar-winner Neil Jordan ("The Crying Game"). Their films are screening as part of a "Rogues, Rebels and Romantics" focus on the cinema of their country.
The director will on Tuesday host a "My Life, My Cinema" Master Class while there is also a contingent in town from the Irish Film Board looking both to promote its industry and open the doors to international co-productions.
Sheridan, 64, famous for the gritty dramas "My Left Foot" and "In the Name of the Father," said it had become increasingly hard for an international film to find distribution if it had not first screened in the United States.
ÂBasically, there is no movie industry, he said. "There's a TV industry. And if you can go on American TV and in a 30-second ad convince people to leave their homes and go to the cinema, then you're getting into the cinema industry.
ÂIt's virtually impossible to release a movie outside America that hasn't released in America. You have a one-town industry and basically that's destroying its own independent cinema.Â
American directors George Lucas and Steven Spielberg recently warned that rising costs might herald the "implosion" of the film industry, and the Irish director echoed their words.
The problem had partly been of Hollywood's own making, he said.
"You have to acknowledge that 'Jaws' and 'Star Wars' created the opening weekend and created that television advertising," said Sheridan. "So the cost of making movies kept going up until it was unsustainable. It's like the housing industry.
"And the only movies that are working are the high-rise movies. Huge investments with no dialogue, no drama."
But while Sheridan said times were tough for international filmmakers, he also acknowledged that new possibilities had arisen.
"Like every director in the world now, myself and Neil are trying to work out how to migrate to TV because that seems to be the place where you can say something," he said.
BIFF, which will screen more than 300 films over its 10-day run, continues until Saturday.