Another blockbuster deal shows that theater chains are working their way out of a screen glut -- and that bodes well for retail property owners banking on movies to draw traffic into their properties. AMC Entertainment Inc., the second-largest U.S. theater chain, will go private. Equity firm J.P. Morgan and AMC's majority owner, Apollo Management, are buying the chain for $2 billion.

The acquisition is the third involving big U.S. theater operators this year. In June, Onex sold Loews Cineplex Entertainment, the world's No. 3 chain, to three private equity firms for $1.5 billion. In March, Madison Dearborn Partners acquired Cinemark for $1.6 billion. Earlier, No. 1 movie chain Regal bought Hoyts in 2003 and AMC acquired General Cinemas in 2002.

Consolidation signals pluck where peril once stalked. "It is a reflection that the theater business is good, that their problems are certainly behind them," says Bob Michaels, president of General Growth Properties Inc. of Chicago, which has theaters at many of its 170 regional malls.

A few years ago, theaters were struggling. Chains saw little choice but to keep up with rivals by building new theaters. Overbuilding from 1995 to 2000 pushed screen numbers up 32 percent but drew only 13 percent more patrons, says the National Association of Theater Owners. "If you didn't join in the building fray, you lost your markets anyway," explains consultant and theater owner Keith Thompson of Phoenix Theatres LLC in Knoxville, Tenn.

The glut drove more than a dozen chains into Chapter 11. But improved box office recently has helped all the approximately 600 operators, writes Jill Krutick, a Citigroup/Smith Barney analyst. The top five operators, meanwhile, now get the benefit of size -- they own half the 35,000 screens in North America.

AMC Entertainment leads the industry in per-screen revenue at its 232 theaters and 3,544 screens with an estimated 14 percent of the North American box office, says Krutick. Three-fourths of AMC theaters are in busy, affluent areas and most of its screens are new or renovated since 1995.

With theaters hot, be ready to give a little on leases. "They're a more desired tenant," notes consultant Thompson. "They're going to leverage that to command lower rents." On the other hand, beware feeding another screen glut. Hollywood's allocation system may send a nearby cineplex the same film your mall theater shows, hurting attendance at both.

"If the industry players choose to ignore recent history," warns Thompson, "they may be doomed to repeat it."