28 CFR Part 36 Nondiscrimination on the Basis of Disability by Public Accommodations - Movie Theaters; Movie Captioning and Audio Description Final Rule

C. Costs and Benefits

In accordance with OMB Circular A-4, the Department has prepared a Final Regulatory Assessment (Final RA), which assesses the likely costs and benefits of the rule for all movie theaters subject to the rulemaking over the projected life of the rule (15 years). The Final RA captures the total costs of this rulemaking using a baseline, which represents the Department's best assessment of the current state of the movie exhibition industry, including the availability of closed movie captioning and audio description, if the rule were not implemented. The Department's Final RA projects that the total costs, benefits, or transfer payments ^[5] of this rule will not reach $100 million in any single year, and thus, the rule is not economically significant under Executive Order 12866.

For movie theaters with auditoriums exhibiting digital movies, total costs are composed of the following components:

• Acquisition costs for captioning hardware;

• Acquisition costs for audio description hardware;

• Acquisition costs for captioning devices;

• Acquisition costs for audio description devices;

• Installation costs for captioning and audio description equipment;

• Replacement costs for captioning and audio description equipment;

• Staff training costs for the provision of captioning and audio description equipment; and

• Maintenance and administrative costs.

Based on the Department's calculations, total costs to the movie exhibition industry to provide closed movie captioning and audio description in accordance with this final rule are estimated to be $88.5 million over 15 years when discounted by 7 percent, and $113.4 million over 15 years when discounted by 3 percent. This total costs estimate was calculated in the primary analysis of the Department's Final RA. The primary analysis analyzes the cost impact of the final rule by making assumptions about the available data, such as the current availability of closed movie captioning and audio description in movie theaters. The primary analysis represents the Department's best estimate of the total costs that movie theaters will incur as a result of this rulemaking given the available data. Unless otherwise stated, the Department refers to cost estimates developed in the primary analysis of the Final RA throughout this rule. See chapters 2 and 3 of the Final RA for a more detailed explanation of the primary analysis and the data and assumptions relied upon to develop the total costs estimate.

Total Costs by Cost Category in Primary Analysis Over 15 Years

[$ millions]

* Totals may differ due to rounding.

The highest costs occur in the first 2 years of the analysis when movie theaters incur upfront costs for acquiring and installing the captioning and audio description equipment in accordance with the 18-month compliance date. The table below presents the annual costs to the movie exhibition industry over the 15-year analysis, and it should be noted that these annual costs are well below the $100 million mark that signifies an economically significant regulation under Executive Order 12866.

Annual Costs in Primary Analysis, Discounted at 7 percent ($ millions)

Movie theaters vary greatly by number of auditoriums, which significantly impacts overall costs per facility. Thus, the analysis breaks the movie exhibition industry into four venue types based on size: Megaplex movie theaters (16+ auditoriums), multiplex movie theaters (8-15 auditoriums), miniplex movie theaters (2-7 auditoriums), and single-auditorium movie theaters. The upfront costs per theater are calculated for the average movie theater within each venue type and presented in the table below. The largest cost per year for any single movie theater with auditoriums subject to the rulemaking would occur in the second year due to the upfront costs to acquire and install the necessary equipment by the 18-month compliance date. The average upfront costs for a megaplex movie theater are estimated to total $27,358, while the average upfront costs for a single-auditorium movie theater are estimated to total $3,562.

Average per Movie Theater Upfront Costs by Venue Type in Primary Analysis, Undiscounted

[$]

 * Totals may differ due to rounding.

The Final RA also estimates the annualized costs of the rule by venue type, as presented in the table below. With a 7-percent discount rate, the annualized costs of the $88.5 million in total costs over the 15-year period of analysis are $9.7 million. With a 3-percent discount rate, the annualized costs of the $113.4 million in total costs are $9.5 million.

Annualized Costs by Venue Type in Primary Analysis

[$ millions]

* Totals may differ due rounding.

As part of this regulatory analysis and in accordance with the Regulatory Flexibility Act (5 U.S.C. 604), the Department has conducted a Final Regulatory Flexibility Analysis (FRFA) on the economic impact of this rule on small entities. The FRFA has been used by the Department to help determine whether small entities would be disproportionately burdened. In addition, the Department has used the FRFA to examine other ways, if possible, to accomplish the Department's goals while imposing fewer burdens on small entities. Based on its analysis, the Department has determined that this rule will have a significant economic impact on a substantial number of small entities in the movie exhibition industry. However, as described in further detail in section VI, infra, the Department has taken appropriate steps to reduce the economic impact of this rule while still meeting the Department's rulemaking objectives under the ADA.

The table below presents the average upfront costs as a percentage of annual revenue for firms categorized as small businesses according to the Small Business Association (SBA) size standard for the movie exhibition industry, which is $38.5 million in annual revenue. For all firms with revenue greater than $100,000,^[6] the average upfront costs are less than 1.5 percent of average annual revenue. For all firms with revenues of $2,500,000 or greater, the average upfront costs are less than 1 percent of annual revenues.

Average Upfront Costs as a Percentage of Annual Revenue per Firm, by Revenue Category, Undiscounted

[2015 $]

* Annual revenue data withheld and value set to 0 to avoid disclosing information of individual businesses. 

The final rule, consistent with the ADA's mandate, explicitly addresses equity and fairness considerations. The Department believes that this regulation will benefit millions of Americans, including those with and without disabilities. Although these benefits are difficult to quantify, they are nonetheless significant. Foremost among the expected benefits from the regulation is the opportunity for a greater number of individuals who are deaf or hard of hearing, or blind or have low vision, to better understand what is being said and shown in digital movies exhibited at movie theaters so that they may fully and equally participate in the movie-going experience to the same extent as persons without these disabilities. In addition to the benefits to individuals with disabilities, individuals without disabilities—who will now be able to attend, enjoy, and discuss movies with their family and friends that have disabilities—will also benefit from this rule. For example, because of this rule, a parent without a disability can now attend the movies with a child who has a hearing or vision disability. The parent will now be able to share the movie-going experience with her child and discuss the film and experience with the child. Similarly, individuals without disabilities who are learning English as an additional language or may be working to improve their literacy skills may also benefit from the availability of closed movie captioning.

While many movie theaters do provide captioning and audio description to their patrons, many still do not provide these auxiliary aids and services at all or they do not provide them regularly, creating barriers for persons with disabilities to take part in the social and cultural movie-going experience. As a result, the Department is confident that the qualitative benefits of this rulemaking justify the associated costs.

5. Transfer payments are the distributional effects of a regulatory action that may arise through the transfer of resources from one group to another but do not impact the total value of resources available to society. See Office of Management and Budget, Circular No. A-4, Regulatory Analysis (Sept. 17, 2003), available at http://www.whitehouse.gov/​omb/​circulars_​a004_​a-4/​ (last visited Sept. 12, 2016).

6.  Although the FRFA calculates the upfront costs as a percent of annual revenue for the category of firms with less than $100,000 in annual revenue for transparency, most of these firms likely operate single-auditorium movie theaters that exhibit analog movies exclusively and are therefore not subject to the requirements of this rule. See infra section VI.D for further detail.