28 CFR Part 36 Nondiscrimination on the Basis of Disability by Public Accommodations - Movie Theaters; Movie Captioning and Audio Description Final Rule
VI. Final Regulatory Flexibility Analysis
As directed by the Regulatory Flexibility Act of 1980, as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), and by Executive Order 13272, the Department is required to consider the potential impact of the proposed rule on small entities, including small businesses, small nonprofit organizations, and small governmental jurisdictions. This process helps agencies to determine whether a rule is likely to impose a significant economic impact on a substantial number of small entities and, in turn, to consider regulatory alternatives to reduce that regulatory burden on those small entities.
This final rule applies to and affects almost all small entities categorized as “Motion Picture Theaters.” Small businesses constitute the vast majority of firms in the movie exhibition industry. The current size standard for a small movie theater business is $38.5 million dollars in annual revenue. See U.S. Small Business Administration, Table of Small Business Size Standards Matched to North American Industry Classification System Codes at 28 (July 14, 2014), available at https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf (last visited Sept. 12, 2016). In 2012, the latest year for which detailed breakouts by industry and annual revenue are available, approximately 98 percent of movie theater firms met the standard for small business, and these firms managed approximately 52 percent of movie theater establishments. See U.S. Census Bureau, Statistics of U.S. Businesses, available at https://www.census.gov/data/tables/2012/econ/susb/2012-susb-annual.html (see Data by Enterprise Receipt Size, U.S., 6-digit NAICS) (last visited Sept. 12, 2016). The Department's analysis leads it to conclude that a substantial number of small movie theater firms will experience a significant economic impact as a result of this rule. The Department therefore presents this Final Regulatory Flexibility Analysis (FRFA). The Department has used this analysis to examine other ways, if possible, to accomplish the Department's goals with fewer burdens on small businesses, and the Department has made a number of revisions to the final rule to reduce the cost impact on small firms in the movie exhibition industry.
A. Purpose and Objective of the Final Rule Relative to Movie Theaters Categorized as Small
As previously discussed throughout this rule, the Department's existing regulation implementing the ADA's title III auxiliary aids provision reiterates the obligation of covered entities to ensure equally effective communication with individuals with disabilities and identifies, among other things, “open and closed captioning,” and “audio recordings” as examples of auxiliary aids and services. 28 CFR 36.303(a)-(c). Recent technological changes in the movie exhibition industry—including widespread conversion from analog film projection to digital cinema systems—make exhibition of captioned and audio-described movies easier and less costly than before. In addition, it is the Department's understanding that, at this time, nearly all first-run motion pictures released by the major domestic movie studios include closed movie captioning (and to a lesser extent, audio description).
Despite these technological advances, movie theaters do not consistently show movies with captioning or audio description, and the availability of these features varies greatly across the country, with small movie theaters in rural areas being less likely to provide them. Thus, patrons who are deaf or hard of hearing, or blind or have low vision, are often shut out from the movie-going experience and cannot fully take part in movie-going outings with family and friends, join in social conversations about recent movie releases, or otherwise participate in a meaningful way in an important aspect of American culture.
The Department believes that regulation is warranted at this time to explicitly require all movie theaters, including those qualifying as small entities, to exhibit movies with closed movie captioning and audio description whenever these theaters exhibit digital movies produced, distributed, or otherwise made available with such features unless to do so would result in an undue burden or a fundamental alteration. As discussed above, the Department is deferring rulemaking on application of these requirements to movie theater auditoriums that exhibit analog movies exclusively. The final rule for movie captioning and audio description rests on the existing obligation of all title III-covered facilities, such as movie theaters—regardless of size—to ensure that persons with disabilities receive “full and equal enjoyment” of their respective goods and services, including, as needed, the provision of auxiliary aids and services for persons who are deaf or hard of hearing, or blind or have low vision. The final rule imposes no independent obligation on movie theaters to provide captioning and audio description if the movie is not already available with these features.
The Department expects that implementation of the final rule will lead to consistent levels of accessibility in movie theaters across the country, and that patrons who are deaf or hard of hearing, or blind or have low vision, will be able to use captioning or audio description equipment to better understand movies being exhibited in all movie theaters.
B. Public Comments Regarding the Effects of the Rule on Small Movie Theaters
The Department received 436 comments during the 2014 NPRM comment period from movie industry representatives, individuals with disabilities, advocacy groups representing individuals with disabilities, State and Federal entities, academic organizations, private companies, and other private individuals. Comments that directly addressed the assumptions, data, or methodology used in the Initial RA have been previously discussed above in section V.A.2 and in section 1.3 of the Final RA. This section summarizes the discussion of comments regarding the effects of the rule on small movie theaters.
Proportion of Movie Theaters Qualifying as Small Entities
The Department received comments indicating that the vast majority of movie theaters qualify as small entities, which is supported by the 2012 Statistics of U.S. Businesses (SUSB) data and detailed below. See infra section VI.C.
Small Movie Theater Revenues and Available Resources To Comply
One commenter reported that at least one segment of the movie exhibition industry, art house cinemas, generally receive less than 50 percent of their revenue from ticket sales. Another commenter asked the Department to consider that almost half of movie theater gross receipts are paid directly to movie studios. Given these percentages and the fact that the movie exhibition industry as a whole averages a 2 percent profit margin, with small and independent theater owners often operating at an even smaller or negative profit margin, commenters asked the Department to reconsider its interpretation of cost values relative to annual revenue because these figures do not directly represent funds that are available to comply with this rule.
The Department does not have access to publicly available data that provides a consistent, independent source of movie theater profit by revenue category. As discussed in section VI.C below, available data includes firm receipt size from the 2012 SUSB.[25] The Department believes that this dataset is the most relevant publicly available data on annual revenue figures for the movie exhibition industry and is the best source to assess the resources available to movie theaters to comply with the rule.
Alternatives To Reduce Burdens on Small Movie Theaters
Commenters made various suggestions concerning alternatives to reduce the regulatory burden for small movie theaters. These suggestions pertained to the following areas: (1) The scoping for devices; (2) the compliance date; (3) the deferral of rulemaking for movie theaters exhibiting movies in analog format; and (4) the deferral of rulemaking for a subset of small movie theaters. The Department is aware of potential limitations to compliance for small movie theaters and has taken measures to lessen the impact on those firms. As explained in sections 1.4 and 6.1 of the Final RA and in section VI.F below, the Department has decided to defer the decision whether to engage in rulemaking with respect to movie theater auditoriums that exhibit analog movies exclusively, to reduce the scoping requirements for both captioning and audio description devices, and to increase the time movie theaters have to comply with the rule's captioning and audio description scoping requirements (now 18 months). These revisions are expected to reduce the cost impact to small firms in the movie exhibition industry.
Response to Comments From the Small Business Administration Office of Advocacy (SBA)
This section specifically addresses comments of the SBA Office of Advocacy in response to the proposed rule. Most of the concerns expressed by SBA were also expressed by other commenters.
SBA's comments on the 2014 NPRM focused on the following five issues: Lowering the scoping for captioning and audio description devices; deferral of coverage of analog theaters; providing a longer compliance date for the requirements of the rule; the breadth of the definition of “movie theater”; and the application of the undue burden defense for small business movie theaters. After consideration of these comments and related comments from other commenters, the Department has made a number of changes in the final rule.
First, the Department has significantly lowered the scoping requirements for captioning and audio description devices in response to comments from SBA and other commenters that the Department should not have used seat count as a means of determining the number of devices that would actually be needed to meet demand from people with hearing and vision disabilities. The revised scoping bases the required number of devices on the number of auditoriums in a theater showing digital movies rather than the number of seats.
Second, the Department has decided to defer the decision whether to apply the specific requirements of this rule to movie theater auditoriums that show analog movies exclusively. As discussed in the section-by-section analysis, the number of movie theaters that only show analog movies is rapidly declining, and it is unclear whether these theaters will be economically viable in the future, or whether analog movies will even be available for commercial showings.
Third, the Department has extended the compliance date for all movie theaters subject to this rulemaking. Movie theaters now have 18 months to comply with the rule's scoping requirements, and additional time is afforded to movie theaters that convert auditoriums from an analog projection system to a digital projection system after the compliance date of the rule. After considering the comments on the 2014 NPRM, the Department has concluded that 18 months allows movie theaters sufficient time to order and install the necessary equipment while accounting for potential manufacturer backlogs or the need to raise the necessary funds to purchase the equipment.
Fourth, SBA specifically asked whether the definition of “movie theater” was intended to encompass small movie theaters that occasionally show digital movies using a Blu-ray projector, pop-ups and film festivals, or limited arrangement showings held at alternative venues. The Department believes that in most instances, the requirements of the rule will not apply in these circumstances. As the definition indicates, a “movie theater,” for purposes of this rulemaking, means “a facility * * * that contains one or more auditoriums that are used primarily for the purpose of showing movies to the public for a fee.” § 36.303(g)(1)(vii). Thus, an auditorium generally used for other purposes that temporarily shows movies during a film festival, even if a fee is charged, would not fall within this definition. By contrast, a movie theater that primarily shows digital movies to the public for a fee remains covered by the requirements of paragraph (g) even if it allows its auditoriums to be used for an annual film festival. Theaters with analog auditoriums that are not otherwise covered by the specific requirements of § 36.303(g) and temporarily bring in portable Blu-ray or other types of digital projectors to show digital movies are also not likely to fall within the requirements of paragraph (g) because the compliance date provision assumes conversion of the theater to a digital projection system. In addition, it is the Department's understanding that Blu-ray projection systems are not capable of delivering closed movie captions to patrons at their seat; these systems only have the capacity to show captions on the screen, something not required by this rule.
The Department notes that film festivals, pop-up movie theaters, and other alternative venues for showing movies still qualify as places of entertainment and are considered public accommodations under the ADA. Thus, they continue to be subject to the longstanding general ADA requirement to provide effective communication under § 36.303, unless doing so would be a fundamental alteration of the program or service or would constitute an undue burden. In addition, if a festival or limited showing programmer schedules the screening of a movie that is already distributed with closed movie captions and audio description using a movie theater auditorium that is subject to the requirements in paragraph (g) as discussed above, then the effective communication obligation would require the festival to ensure that the accessible features are available at all scheduled screenings of a movie distributed with such features.
Finally, SBA asked that the Department provide additional guidance for small businesses regarding the availability of the undue burden limitation. Under the ADA, a public accommodation is relieved of its obligation to provide a particular auxiliary aid (but not all auxiliary aids) if to do so would result in an undue burden or a fundamental alteration. As stated earlier in the preamble and in existing technical assistance materials, the Department's title III regulation specifically defines undue burden as “significant difficulty or expense” and, emphasizing the flexible and individualized nature of any such determination, lists five factors that must be considered when determining whether an action would constitute an undue burden. 28 CFR 36.104; see also U.S. Department of Justice, ADA Title III Technical Assistance Manual Covering Public Accommodations and Commercial Facilities III-4.3600 (1993), available at http://www.ada.gov/taman3.html. These factors include: (1) The nature and cost of the action; (2) the overall financial resources of the site or sites involved in the action; the number of persons employed at the site; the effect on expenses and resources; legitimate safety requirements that are necessary for safe operation, including crime prevention measures; or the impact otherwise of the action upon the operation of the site; (3) the geographic separateness, and the administrative or fiscal relationship of the site or sites in question, to any parent corporation or entity; (4) if applicable, the overall financial resources of any parent corporation or entity; the overall size of the parent corporation or entity with respect to the number of its employees; and the number, type, and location of its facilities; and (5) if applicable, the type of operation or operations of any parent corporation or entity, including the composition, structure, and functions of the workforce of the parent corporation or entity. 28 CFR 36.104. This limitation entails a fact-specific examination of the cost of a specific action and the specific circumstances of a particular public accommodation. This limitation is also designed to ensure that the needs of small businesses, as well as large businesses, are addressed and protected.
The Department intends to publish technical assistance that will address the requirements of the final rule and the limitations on the obligations under paragraph (g) prior to the time the rule takes effect. In addition, the Department's wide-ranging outreach, education, and technical assistance program continue to be available to assist businesses to understand their obligations under the ADA. Additional information about the ADA's requirements, including the requirement to provide effective communication and the limitations on that obligation, is also available on the Department's ADA Web site at www.ada.gov.
25. U.S. Census Bureau, Statistics of U.S. Businesses, available at https://www.census.gov/data/tables/2012/econ/susb/2012-susb-annual.html (see Data by Enterprise Receipt Size, U.S., 6-digit NAICS) (last visited Sept. 12, 2016). The information is available in an Excel file which lists all information by NAICS Code. The relevant NAICS Code for Motion Picture Theaters (except Drive-Ins) is 512131.
C. Characteristics of Impacted Small Entities
The Regulatory Flexibility Act defines a “small entity” as a small business (as defined by the SBA Size Standards) or a small organization such as a nonprofit that is “independently owned and operated” and is “not dominant in its field.” See 5 U.S.C. 601(3), (4). For Motion Picture Theaters (except Drive-Ins) (NAICS Code 512131), the SBA Size Standards categorize any firm with less than $38.5 million in annual revenue as a small business.[26] As a result, small entities constitute the vast majority of firms in the movie exhibition industry. The latest data providing detailed breakouts of annual revenue by industry comes from the 2012 Statistics of U.S. Businesses (SUSB).[27] This dataset provides information regarding the number of firms,[28] establishments,[29] and estimated annual receipts [30] (annual revenue) for each of the 17 revenue size categories in the movie exhibition industry. According to this data, 12 of the 17 revenue size categories contain firms with estimated annual receipts of less than the $38.5 million SBA size standard for a small business in this industry. Because these firms are considered small businesses by the SBA size standards, they are also considered small entities for purposes of this FRFA. An additional category of firms with annual receipts between $35 million and $40 million contains firms that may or may not have annual revenue below the $38.5 million threshold. For the purposes of this analysis, however, all firms in this category are assumed to have revenues lower than the $38.5 million size standard and are therefore considered to be small entities.
The 2012 SUSB data on the movie exhibition industry includes both digital and analog movie theaters but excludes drive-in movie theaters. The number and percentage of firms and establishments by revenue category is presented in table 8. According to the 2012 SUSB, 1,876 movie theater firms operated 4,540 movie theater establishments. Approximately 1,833 of those firms (98 percent) are categorized as a small business according to the SBA size standard ($38.5 million) and therefore are small entities for purposes of this FRFA. The 1,833 firms categorized as small entities operated approximately 2,381 movie theater establishments (52 percent of the total).
| Firms with annual revenue | Number of firms | Percentage of total firms (%) | Cumulative total of firms (%) | Number of establish-ments | Percentage of total establish-ments (%) | Cumulative total of establish-ments (%) |
|---|---|---|---|---|---|---|
| Less than $100,000 | 244 | 13.0 | 13.0 | 246 | 5.4 | 5.4 |
| $100,000 to $499,999 | 618 | 32.9 | 45.9 | 630 | 13.9 | 19.3 |
| $500,000 to $999,999 | 332 | 17.7 | 63.6 | 353 | 7.8 | 27.1 |
| $1,000,000 to $2,499,999 | 399 | 21.3 | 84.9 | 460 | 10.1 | 37.2 |
| $2,500,000 to $4,999,999 | 125 | 6.7 | 91.6 | 189 | 4.2 | 41.4 |
| $5,000,000 to $7,499,999 | 35 | 1.9 | 93.4 | 66 | 1.5 | 42.8 |
| $7,500,000 to $9,999,999 | 19 | 1.0 | 94.5 | 49 | 1.1 | 43.9 |
| $10,000,000 to $14,999,999 | 26 | 1.4 | 95.8 | 107 | 2.4 | 46.3 |
| $15,000,000 to $19,999,999 | 9 | 0.5 | 96.3 | 41 | 0.9 | 47.2 |
| $20,000,000 to $24,999,999 | 10 | 0.5 | 96.9 | 60 | 1.3 | 48.5 |
| $25,000,000 to $29,999,999 | 6 | 0.3 | 97.2 | 66 | 1.5 | 49.9 |
| $30,000,000 to $34,999,999 | 4 | 0.2 | 97.4 | 66 | 1.5 | 51.4 |
| $35,000,000 to $39,999,999 | 6 | 0.3 | 97.7 | 48 | 1.1 | 52.4 |
| $40,000,000 and greater * | 43 | 2.3 | 100.0 | 2,159 | 47.6 | 100.0 |
| Total Firms (Less than $40,000,000) | 1,833 | 98 | 2,381 | 52 | ||
| Total Firms | 1,876 | 4,540 |
* This category sums the firms and establishments included in the following categories: $40,000,000 to $49,999,999; $50,000,000 to $74,999,999; $75,000,000 to $99,999,999; $100,000,000 and greater.
Table 9 presents the number of firms, the number of establishments, and the annual revenue of firms by revenue size category. The calculated average annual revenue per firm and the average annual revenue per establishment are also provided.
| Firms with annual revenue | Number of firms | Number of establish-ments | Annual revenue for all firms ($ millions) | Annual revenue per firm * | Annual revenue per establish-ment * |
|---|---|---|---|---|---|
| Less than $100,000 | 244 | 246 | $13.3 | $54,508 | $54,065 |
| $100,000 to $499,999 | 618 | 630 | 158.5 | 256,537 | 251,651 |
| $500,000 to $999,999 | 332 | 353 | 237.3 | 714,762 | 672,241 |
| $1,000,000 to $2,499,999 | 399 | 460 | 615.4 | 1,542,318 | 1,337,793 |
| $2,500,000 to $4,999,999 | 125 | 189 | 424.4 | 3,394,864 | 2,245,280 |
| $5,000,000 to $7,499,999 | 35 | 66 | 192.4 | 5,497,029 | 2,915,091 |
| $7,500,000 to $9,999,999 | 19 | 49 | 146.2 | 7,697,211 | 2,984,633 |
| $10,000,000 to $14,999,999 | 26 | 107 | 312.3 | 12,013,115 | 2,919,075 |
| $15,000,000 to $19,999,999 | 9 | 41 | 127.8 | 14,200,444 | 3,117,171 |
| $20,000,000 to $24,999,999 | 10 | 60 | 143.1 | 14,314,600 | 2,385,767 |
| $25,000,000 to $29,999,999 | 6 | 66 | 136.4 | 22,734,000 | 2,066,727 |
| $30,000,000 to $34,999,999 | 4 | 66 | ** n/a | ** n/a | ** n/a |
| $35,000,000 to $39,999,999 | 6 | 48 | 165.1 | 27,514,000 | 3,439,250 |
| $40,000,000 and greater | 43 | 2,159 | 10,520 | 244,639,651 | 4,872,397 |
* Calculated.
** Annual revenue data withheld and value set to 0 to avoid disclosing information of individual businesses.
26. U.S. Small Business Administration, Table of Small Business Size Standards Matched to North American Industry Classification System Codes at 28 (July 14, 2014), available at https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf (last visited Sept. 12, 2016).
27. The SBA's Office of Advocacy partially funds the Census Bureau to produce data on employer firm size including the number of firms, number of establishments, employment, and annual payroll and annual sales/receipts/revenue for employment size of firm categories by location and industry as part of the SUSB program. See U.S. Census Bureau, Statistics of U.S. Businesses, available at https://www.census.gov/data/tables/2012/econ/susb/2012-susb-annual.html (see Data by Enterprise Receipt Size, U.S., 6-digit NAICS) (last visited Sept. 12, 2016). The information is available in an Excel file which lists all information by NAICS Code.
28. The U.S. Census Bureau defines a “firm” as a “business organization consisting of one or more domestic establishments in the same state and industry that were specified under common ownership or control. The firm and the establishment are the same for single-establishment firms. For each multi-establishment firm, establishments in the same industry within a state will be counted as one firm—the firm employment and annual payroll are summed from the associated establishments.” U.S. Census Bureau, Statistics of U.S. Businesses: Glossary, available at https://www.census.gov/programs-surveys/susb/about/glossary.html (last visited Sept. 12, 2016).
29. The U.S. Census Bureau defines an “establishment” as “a single physical location where business is conducted or where services or industrial operations are performed.” U.S. Census Bureau, North American Industry Classification System: Frequently Asked Questions (FAQs), available at http://www.census.gov/eos/www/naics/faqs/faqs.html#q2 (last visited Sept. 12, 2016).
30. “Receipts (net of taxes collected from customers or clients) are defined as operating revenue for goods produced or distributed, or for services provided. Receipts excludes local, state, and federal sales and other taxes collected from customers or clients and paid directly to a tax agency. Receipts are acquired from economic census data for establishments in industries that are in-scope to the economic census; receipts are acquired from IRS tax data for single-establishment businesses in industries that are out-of-scope to the economic census; and payroll-to-receipts ratios are used to estimate receipts for multi-establishment businesses in industries that are out-of-scope to the economic census. Statistics of U.S. Businesses tabulations provide summed establishment receipts which creates some duplication of receipts for large multi-establishment enterprises. Receipts data are available for years ending in 2 and 7 only.” U.S. Census Bureau, Statistics of U.S. Businesses: Glossary, available at https://www.census.gov/programs-surveys/susb/about/glossary.html (last visited Sept. 12, 2016).
D. Costs to Impacted Small Entities
Annual revenue data from the SUSB program is used, together with information regarding likely per-theater upfront and ongoing annual costs (section 4.1.4 of the Final RA), to estimate the impact of this rulemaking on small entities relative to their resources. As described in section 2.1.4 of the Final RA, movie theater complexes vary greatly by the number of auditoriums that they contain, and the per-theater cost varies according to the number of auditoriums within a theater exhibiting digital movies. Therefore, the Final RA breaks the movie exhibition industry into four venue types based on size:
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Megaplex (16+ auditoriums);
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Multiplex (8-15 auditoriums);
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Miniplex (2-7 auditoriums); and
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Single-Auditorium movie theaters.
The FRFA uses the estimated number of movie theaters by venue type to determine the cost impact per firm. Table 10 presents estimates of the percentage of movie theaters by venue type, calculated from the 2015 distribution of auditoriums by venue type (table 3-3 of the Final RA) and the average number of auditoriums per venue type.[31] The table indicates that approximately 40 percent of movie theater establishments are multiplex theaters, and 43 percent are either miniplex (22 percent) or single-auditorium theaters (21 percent), with the remaining 17 percent being megaplex theaters.
| Venue type | Number of auditoriums exhibiting digital movies (2015) | ÷ | Average number of auditoriums by venue type | = | Estimated number of movie theaters by venue type (2015) | Percentage of movie theaters by venue type (2015) |
|---|---|---|---|---|---|---|
| Megaplex | 12,812 | ÷ | 18 | = | 712 | 17 |
| Multiplex | 20,322 | ÷ | 12 | = | 1,693 | 40 |
| Miniplex | 4,666 | ÷ | 5 | = | 933 | 22 |
| Single-Auditorium | 889 | ÷ | 1 | = | 889 | 21 |
| Total | 38,688 | ÷ | = | 4,227 | 100 |
As previously discussed, movie theaters, including small movie theaters, will incur upfront costs as well as ongoing costs to comply with the requirements of this rulemaking. Table 11 below presents the undiscounted upfront costs incurred by the average movie theater within each venue type.
| Venue type | Captioning hardware acquisition | Audio description hardware acquisition | Captioning device acquisition | Audio description device acquisition | Installation costs | Total upfront costs |
|---|---|---|---|---|---|---|
| Megaplex | $16,158 | $205 | $8,728 | $1,470 | $797 | $27,358 |
| Multiplex | 10,772 | 205 | 5,819 | 980 | 533 | 18,309 |
| Miniplex | 4,488 | 205 | 4,364 | 490 | 286 | 9,834 |
| Single-Auditorium | 1,097 | 308 | 1,864 | 190 | 104 | 3,562 |
* Totals may differ due to rounding.
Because movie theaters will incur the highest costs to acquire the necessary equipment, tables 12 through 19 provide the data used to estimate these costs. Table 12 presents the average number of auditoriums by venue type and estimates the relevant number of captioning hardware units required by the scoping requirements using the one-unit-per-auditorium assumption discussed in section 3.3.1 of the Final RA. The average number of auditoriums across each venue type was provided by NATO in its public comment on the 2014 NPRM.
| Venue type | Average number of auditoriums | Captioning hardware units required per venue type |
|---|---|---|
| Megaplex (16+ auditoriums) | 18 | 18 |
| Multiplex (8-15 auditoriums) | 12 | 12 |
| Miniplex (2-7 auditoriums) | 5 | 5 |
| Single-Auditorium | 1 | 1 |
Similarly, table 13 presents the average number of auditoriums by venue type and estimates the relevant number of audio description hardware units required by the scoping requirements using the one-unit-per-movie-theater assumption discussed in section 3.3.2 of the Final RA. The average number of auditoriums across each venue type was provided by NATO in its public comment on the 2014 NPRM.
| Venue type | Average number of auditoriums | Audio description hardware units required per venue type |
|---|---|---|
| Megaplex (16+ auditoriums) | 18 | 1 |
| Multiplex (8-15 auditoriums) | 12 | 1 |
| Miniplex (2-7 auditoriums) | 5 | 1 |
| Single-Auditorium | 1 | 1 |
Tables 14 and 15 below estimate the minimum number of captioning devices required per venue type. The Department emphasizes that these figures are merely estimates based on the average number of auditoriums across each venue type. The exact number of captioning and audio description devices required at a particular movie theater establishment depends on the number of auditoriums showing digital movies.
| Venue type | Minimum number of captioning devices required per venue type |
|---|---|
| Megaplex (16+ auditoriums) | 12 |
| Multiplex (8-15 auditoriums) | 8 |
| Miniplex (2-7 auditoriums) | 6 |
| Single-Auditorium | 4 |
| Venue type | Average number of auditoriums | Minimum number of audio description devices required per venue type |
|---|---|---|
| Megaplex (16+ auditoriums) | 18 | 9 |
| Multiplex (8-15 auditoriums) | 12 | 6 |
| Miniplex (2-7 auditoriums) | 5 | 3 |
| Single-Auditorium | 1 | 2 |
Finally, the unit costs for the necessary equipment are presented in table 16, Table 17, Table 18, and Table 19 below. This information was provided in NATO's public comment on the 2014 NPRM. For further detail regarding the unit costs used to develop the total equipment acquisition costs estimate, please see section 3.4 of the Final RA.
| Technology | Cost per captioning hardware unit |
|---|---|
| Doremi Captiview | $864 |
| USL | 1,371 |
| Sony | 500 |
| Average (Excluding Sony) | 1,118 |
| Average (All Technologies) | 912 |
| Technology | Cost per theater for audio description hardware |
|---|---|
| Doremi Captiview | $615 |
| USL | 0 |
| Sony | 0 |
| Average (Excluding Sony) | 308 |
| Average (All Technologies) | 205 |
| Technology | Cost per captioning device |
|---|---|
| Doremi Captiview | $453 |
| USL | 479 |
| Sony | 1,250 |
| Average (Excluding Sony) | 466 |
| Average (All Technologies) | 727 |
| Technology | Cost per audio description device |
|---|---|
| Doremi Captiview | $121 |
| USL | 69 |
| Sony | 300 |
| Average (Excluding Sony) | 95 |
| Average (All Technologies) | 163 |
In addition to incurring upfront costs, movie theaters will also incur ongoing costs to comply with the final rule. Table 20 below presents the estimated total ongoing costs and the annual ongoing costs that the average movie theater within each venue type will incur over the 15-year period of analysis. More detailed information about how these costs were calculated can be found in section 3.6 (replacement costs), section 3.7 (training costs), and section 3.8 (maintenance and administrative costs) of the Final RA.
| Venue type | Total replacement costs | Total staff training costs | Total maintenance and administrative costs | Total ongoing costs | Ongoing costs per year |
|---|---|---|---|---|---|
| Megaplex | $46,957 | $7,058 | $11,952 | $65,968 | $4,398 |
| Multiplex | 31,373 | 4,705 | 7,999 | 44,077 | 2,938 |
| Miniplex | 19,255 | 1,961 | 4,296 | 25,512 | 1,701 |
| Single-Auditorium | 7,566 | 392 | 1,556 | 9,514 | 634 |
* Totals may differ due to rounding.
Table 21 summarizes the estimated per movie theater costs by venue type, as explained above and in further detail in section 4.1.4 of the Final RA. The first column in table 21 presents the average upfront costs (acquisition, installation) by venue type while the second column shows the average ongoing annual costs (replacement, training, and maintenance and administrative costs) by venue type. The rightmost column shows the total undiscounted cost to an average theater by venue type over the 15-year period of analysis.
| Venue type | Average per theater upfront costs (acquisition, installation) | Average annual per theater ongoing costs (replacement, training, maintenance and administrative) | Total per theater costs over period of analysis |
|---|---|---|---|
| Megaplex | $27,358 | $4,398 | $93,325 |
| Multiplex | 18,309 | 2,938 | 62,386 |
| Miniplex | 9,834 | 1,701 | 35,346 |
| Single-Auditorium | 3,562 | 634 | 13,076 |
The FRFA quantifies the impact on small entities by calculating the average upfront costs and the ongoing costs as a percentage of average annual revenue. As presented in the table above, the per movie theater costs are calculated by venue type. However, the SUSB program provides no information regarding the venue types operated by firms in each revenue category. As a result, the analysis uses the following information to estimate the venue types operated by firms in each revenue category:
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The average annual revenue per auditorium is approximately $200,000 to $250,000.[32]
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Industry research indicates that the firms with the largest annual revenue operate most megaplex and multiplex movie theaters, whereas the firms with smaller annual revenues operate most miniplex and single-auditorium movie theaters.
Based on this information, the FRFA makes the following assumptions regarding the venue types operated by firms in each revenue category:
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Firms with less than $499,999 in annual revenue operate single-auditorium movie theaters.[33] As presented in table 9, firms with less than $100,000 in annual revenue have an average annual revenue of $54,065 per theater; firms with $100,000 to $499,999 in annual revenue have an average annual revenue of $251,651 per theater. These average revenue figures are close to or below NATO's estimated annual revenue per auditorium.
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Firms with annual revenues from $500,000 to $999,999 operate miniplex movie theaters (2-7 auditoriums). The average annual revenue in this category is $714,762, which is equivalent to the revenue generated by approximately three auditoriums according to NATO's estimated annual revenue per auditorium.
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Firms with annual revenues between $1 million and $2.5 million operate miniplex and multiplex movie theaters. Costs to firms with annual revenues between $1 million and $2.5 million are an average of the costs to miniplex and multiplex movie theaters.
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Firms with annual revenues between $2.5 million and $40 million operate multiplex and megaplex movie theaters. Costs to firms with revenues between $2.5 million and $40 million are estimated using a weighted average [34] of the costs to multiplex and megaplex movie theaters based on the number of movie theaters presented in table 10.
Using the above assumptions, table 22 presents the estimated upfront and ongoing annual costs for small entity movie theater firms, grouped into four revenue categories.
| Firms with annual revenue of | Venue type used to estimate costs to firms | Estimated upfront costs to average movie theater establishment | Estimated annual ongoing costs to average movie theater establishment |
|---|---|---|---|
| Less than $499,999 | Single-Screen | $3,562 | $634 |
| $500,000 to $999,999 | Miniplex | 9,834 | 1,701 |
| $1,000,000 to $2,499,999 | Miniplex/Multiplex | * 14,071 | * 2,320 |
| $2,500,000 to $39,999,999 | Multiplex/Megaplex | ** 20,987 | ** 3,370 |
* Average of Miniplex/Multiplex costs.
** Weighted Average of Multiplex and Megaplex costs based on number of theaters (table 10).
Table 23 below shows the upfront costs as a percentage of annual revenue for firms by revenue category. The average costs per firm are derived from the average number of establishments per firm (first column) and the average upfront costs per theater for each revenue category (second column). As the table shows, the upfront costs make up less than 1.5 percent of annual revenue for all firms except those with revenues of less than $100,000. For all firms with revenues of $2,500,000 or greater, the upfront cost was less than 1 percent of annual revenues.
As discussed previously, the data from the 2012 SUSB that is provided in this section also includes data from movie theaters operating auditoriums that exhibit analog movies exclusively, which are not subject to the requirements of this rulemaking. Based on its own independent research and analysis, the Department believes that most firms with annual revenue less than $100,000 are not subject to the requirements of this rule. Although the FRFA calculates the costs as a percent of annual revenue for this category of firms, the information available to the Department supports its view that most of these firms are likely operating single auditoriums that exhibit analog movies exclusively and are therefore not subject to the requirements of this rule. First, according to industry experts, the average annual revenue per auditorium is approximately $200,000 to $250,000, thus making it reasonable to assume that firms with annual revenue less than $100,000 operate single-auditorium movie theaters. Second, the Department received information from industry experts that the majority of single-auditorium movie theaters still use analog projection systems. Third, commenters indicated that the remaining movie theaters with analog projection systems have not converted to digital projection systems because they cannot afford the high cost to do so ($60,000 to $150,000 per auditorium [35] ). Therefore, it is reasonable to assume that most of the movie theater firms with less than $100,000 in annual revenue operate movie theaters with analog auditoriums that are not subject to this rulemaking. In addition, all movie theaters with auditoriums exhibiting digital movies—including any firms with less than $100,000 in annual revenue—continue to have available to them the individualized and fact-specific undue burden limitation specified in § 36.303(a).
| Revenue category | Establish-ments per firm | Average upfront costs per establish-ment | Average upfront costs per firm | Average revenue per firm | Upfront costs as a percentage of revenue |
|---|---|---|---|---|---|
| Less than $100,000 * | 1.01 | $3,562 | $3,591 | $54,508 | 6.6 |
| $100,000 to $499,999 | 1.02 | 3,562 | 3,631 | 256,537 | 1.4 |
| $500,000 to $999,999 | 1.06 | 9,834 | 10,456 | 714,762 | 1.5 |
| $1,000,000 to $2,499,999 | 1.15 | 14,071 | 16,223 | 1,542,318 | 1.1 |
| $2,500,000 to $4,999,999 | 1.51 | 20,987 | 31,732 | 3,394,864 | 0.9 |
| $5,000,000 to $7,499,999 | 1.89 | 20,987 | 39,575 | 5,497,029 | 0.7 |
| $7,500,000 to $9,999,999 | 2.58 | 20,987 | 54,124 | 7,697,211 | 0.7 |
| $10,000,000 to $14,999,999 | 4.12 | 20,987 | 86,368 | 12,013,115 | 0.7 |
| $15,000,000 to $19,999,999 | 4.56 | 20,987 | 95,606 | 14,200,444 | 0.7 |
| $20,000,000 to $24,999,999 | 6.00 | 20,987 | 125,920 | 14,314,600 | 0.9 |
| $25,000,000 to $29,999,999 | 11.00 | 20,987 | 230,853 | 22,734,000 | 1.0 |
| $30,000,000 to $34,999,999 | 16.50 | 20,987 | 346,280 | ** n/a | ** n/a |
| $35,000,000 to $39,999,999 | 8.00 | 20,987 | 167,893 | 27,514,000 | 0.6 |
* Likely firms operating single-auditorium movie theaters that exhibit analog movies exclusively, and therefore not subject to this rulemaking.
** Annual revenue data withheld and value set to 0 to avoid disclosing information of individual businesses.
Table 24 presents the average annual ongoing cost as a percentage of average annual revenue for firms in each revenue category. For all firms, except those with annual revenues of $100,000 or less, annual ongoing costs make up less than 0.3 percent of annual revenue.
| Revenue category | Establish-ment/firm | Average ongoing costs per establish-ment | Average annual ongoing cost per firm | Average revenue per firm | Annual ongoing cost as a percentage of revenue |
|---|---|---|---|---|---|
| Less than $100,000 * | 1.01 | $634 | $639 | $54,508 | 1.2 |
| $100,000 to $499,999 | 1.02 | 634 | 647 | 256,537 | 0.3 |
| $500,000 to $999,999 | 1.06 | 1,701 | 1,808 | 714,762 | 0.3 |
| $1,000,000 to $2,499,999 | 1.15 | 2,320 | 2,674 | 1,542,318 | 0.2 |
| $2,500,000 to $4,999,999 | 1.51 | 3,370 | 5,096 | 3,394,864 | 0.2 |
| $5,000,000 to $7,499,999 | 1.89 | 3,370 | 6,356 | 5,497,029 | 0.1 |
| $7,500,000 to $9,999,999 | 2.58 | 3,370 | 8,692 | 7,697,211 | 0.1 |
| $10,000,000 to $14,999,999 | 4.12 | 3,370 | 13,870 | 12,013,115 | 0.1 |
| $15,000,000 to $19,999,999 | 4.56 | 3,370 | 15,354 | 14,200,444 | 0.1 |
| $20,000,000 to $24,999,999 | 6.00 | 3,370 | 20,222 | 14,314,600 | 0.1 |
| $25,000,000 to $29,999,999 | 11.00 | 3,370 | 37,074 | 22,734,000 | 0.2 |
| $30,000,000 to $34,999,999 | 16.50 | 3,370 | 55,611 | ** n/a | ** n/a |
| $35,000,000 to $39,999,999 | 8.00 | 3,370 | 26,963 | 27,514,000 | 0.1 |
* Likely firms operating single-auditorium movie theaters that exhibit analog movies exclusively, and therefore not subject to this rulemaking.
** Annual revenue data withheld and value set to 0 to avoid disclosing information of individual businesses.
31. See NATO, Statement of Position on RIN 1190-AA63, CRT Docket No. 126, Nondiscrimination on the Basis of Disability by Public Accommodations—Movie Theaters; Movie Captioning and Audio Description 22, available at http://www.regulations.gov/contentStreamer?documentId=DOJ-CRT-2014-0004-0401&attachmentNumber=4&disposition=attachment&contentType=pdf (last visited Sept. 12, 2016).
32. NATO, Attachment A, Spring 2014 Accessibility Survey Results, submitted in RIN 1190-AA63, CRT Docket No. 126, Nondiscrimination on the Basis of Disability by Public Accommodations—Movie Theaters; Movie Captioning and Audio Description, available at https://www.regulations.gov/contentStreamer?documentId=DOJ-CRT-2014-0004-0401&attachmentNumber=3&disposition=attachment&contentType=pdf (last visited Sept. 12, 2016).
33. According to the 2012 SUSB, firms with less than $499,999 in annual revenue operated 19.3 percent of all establishments in 2012. See U.S. Census Bureau, Statistics of U.S. Businesses, available at http://www.census.gov/econ/susb/ (see Data by Enterprise Receipt Size, U.S., 6-digit NAICS) (last visited Sept. 12, 2016). The information is available in an Excel file which lists all information by NAICS Code. The relevant NAICS Code for Motion Picture Theaters (except Drive-Ins) is 512131. This figure is slightly less than the estimate in table 10, which finds that 21 percent of all movie theaters are single-auditorium.
34. According to table 10, there are approximately 2,405 megaplex and multiplex theaters, of which 712 are megaplexes and 1,693 are multiplexes. The weighted average assumes that 30 percent of the movie theaters in this revenue category are megaplex movie theaters (712/2,405) and 70 percent are multiplex movie theaters (1,693/2,405).
35. See Helen Alexander & Rhys Blakely, The Triumph of Digital Will Be the Death of Many Movies, New Republic (Sep. 12, 2014), available at http://www.newrepublic.com/article/119431/how-digital-cinema-took-over-35mm-film (last visited Sept. 12, 2016).
E. Reporting, Recordkeeping, and Other Compliance Requirements
The final rule imposes no new recordkeeping or reporting requirements. However, the final rule does require that movie theaters disclose to the public information concerning the availability of captioning and audio description for movies shown in their auditoriums. Specifically, § 36.303(g)(8) of the final rule requires movie theaters to inform the public of the availability of captioning and audio description on all notices of movie showings and times at the box office and other ticketing locations, on Web sites and mobile apps, in newspapers, and over the telephone. This requirement applies to any movie theater showing digital movies with captioning and audio description on or after January 17, 2017. Notices of movie showings and times posted by third parties not subject to or under the control of a covered movie theater are not subject to this requirement.
As discussed throughout the Final RA, movie theaters, including small entities, may incur costs as a result of complying with the final rule. These costs are detailed in section 7.4 of the Final RA and section VI.D above but do not include the costs associated with the notice requirement. As discussed in section V.A.3 above, the Department expects that the additional cost and burden of noting which screenings will be captioned or audio-described is de minimis when a movie theater is already preparing a communication listing movie titles and screening times. Therefore, the Department anticipates that the costs and burdens associated with this requirement will also be de minimis for small entities.
Additionally, the Department does not expect that movie theater personnel will need to acquire additional professional skills to comply with this requirement. A specific form of notice is not required. Movie theaters routinely use “CC” and “AD” or “DV” to indicate the availability of closed movie captioning and audio description in their communications, and the Department's research indicates that the inclusion of such abbreviations does not require additional technical knowledge. Moreover, the movie exhibition industry has largely moved away from print advertising in favor of digital advertising. As one commenter indicated, digital advertising allows movie theaters to add information concerning the availability of captioning and audio description without much difficulty or cost.
More detailed information on the estimated burden and costs associated with the final rule's notice requirement is provided in the Department's 60-day Paperwork Reduction Act Notice published in the Federal Register on June 10, 2016. 81 FR 37643. The Department published a second notice in the Federal Register on August 30, 2016. 81 FR 59657. The 30-day comment period for the second notice closed on September 29, 2016.
F. Measures Taken To Limit Impact on Small Entities
The Department is aware of potential limitations to compliance for small entities—specifically, small movie theater firms with less than $38.5 million in annual revenue—and has taken measures to lessen the impact on those entities. In addition to soliciting comments regarding methods to reduce the regulatory impact on small movie theaters, the Department also participated in a roundtable sponsored by the Office of Advocacy of the SBA at which organizations representing small movie theaters as well as individual owners expressed their views. As a result of the information provided, the Department considered a variety of alternatives in the final rule. The different alternatives considered and their relevance to small movie theaters are summarized below. See chapter 6 of the Final RA for further information and detail regarding the alternatives that the Department considered.
Changes to the Compliance Date
In the final rule, movie theaters have 18 months to acquire and install the necessary equipment to provide closed movie captioning and audio description in their auditoriums exhibiting digital movies. The Department also considered other compliance windows, including a 6-month and a 2-year compliance window. Some commenters suggested that the Department defer the requirements of this rule for small movie theaters with annual revenue less than $500,000 because these movie theaters might have financial difficulty complying with the requirements.
The Department ultimately decided that an 18-month compliance date was the most appropriate choice for all movie theaters exhibiting digital movies and is only deferring application of the rule's requirements for movie theater auditoriums that exhibit analog movies exclusively. The Department's decision regarding the 18-month compliance date in the final rule is based on the Department's independent research and the information provided in comments during the 2014 NPRM comment period. Based on this information, the Department determined that 6 months may be an insufficient amount of time for movie theaters to comply with the requirements of this rulemaking, especially small movie theaters. However, the Department believes that an 18-month compliance date gives small movie theaters, especially those struggling financially as a result of the unrelated costs of digital conversion, a sufficient amount of time to plan and budget accordingly. Although some commenters suggested a deferral for a category of smaller movie theaters, the Department found that to be unnecessary because movie theaters do not have to comply with requirements of the final rule to the extent that complying would constitute an undue burden or a fundamental alteration.
Changes to the Scoping Requirements
In the 2014 NPRM, the Department proposed scoping requirements for captioning devices based on the number of seats in a movie theater, which were equivalent to approximately 2 percent of seats. The Department further proposed that movie theaters maintain one audio description device per auditorium, with a minimum of two devices per movie theater. However, in light of the public comments received and proposals made by the movie exhibition industry and multiple disability advocacy groups, those scoping requirements have been reduced in the final rule. Because movie theaters are rarely at 100 percent occupancy, the Department determined that the number of seats within a movie theater is an inappropriate proxy for determining the number of captioning devices required. One commenter noted that the scoping requirements based on seat count could disproportionately impact small movie theaters because many single-auditorium movie theaters are historic establishments with many seats but low occupancy rates. Additionally, usage data indicates that audio description devices are used less frequently than the proposed scoping required. As a result, the Department adopted lower scoping requirements for both captioning and audio description devices based on the number of auditoriums showing digital movies within a movie theater. The reduced scoping in the final rule substantially lowers costs per movie theater and thus reduces burdens on small movie theaters.
Auditoriums Exhibiting Analog Movies Exclusively
The Department considered giving movie theaters with auditoriums equipped to exhibit analog movies exclusively 4 years to comply with the rule's requirements, as opposed to deferring the decision whether to engage in rulemaking with respect to such auditoriums (see section 1.4.1 and section 6.3 of the Final RA). Based on public comments and analysis of the most current data, the Department ultimately decided to defer analog auditoriums from coverage of this rule. As previously discussed, the movie industry continues to undergo significant changes in the production and distribution of movies, resulting in the near elimination of first-run movies in analog film format. Most movie theaters have converted to digital projection systems to the extent that they are financially able to do so, and as a result, small theaters that still have analog projection systems tend to have fewer financial resources than other movie theaters. The Department rejected the alternative 4-year compliance date for analog movie theaters and is deferring until a later date the decision whether to apply the rule's requirements to movie theater auditoriums exhibiting analog movies exclusively. Because the remaining analog movie theaters likely qualify as small entities, the deferral of rulemaking with respect to analog auditoriums will reduce the burdens on small movie theaters.
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