28 CFR Parts 35 and 36, Nondiscrimination on the Basis of Disability by Public Accommodations - Movie Theaters; Movie Captioning and Audio Description (NPRM)

c.  Estimated Number and Type of Small Entities in the Movie Exhibition Industry

The Regulatory Flexibility Act defines a “small entity” as a small business (as defined by the Small Business Administration Size Standards) or a small organization such as a nonprofit that is “independently owned and operated” and is “not dominant in its field.”  5 U.S.C. 601(6); see id. 601(3) and (4); 15 U.S.C. 632.  For motion picture theaters (North American Industry Classification System Code 512131), small businesses constitute the vast majority of firms in the industry.  The current size standard for a small movie theater business is $35.5 million dollars in annual revenue.⁴⁷  In 2007, 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 53 percent of movie theater establishments.  Data from the 2007 Economic Census, prepared for the Small Business Administration (SBA) and downloaded from its Web site, report that 2,004 movie theater firms operated 4,801 establishments that year; of those 2,004 movie theater firms, approximately 1,965 would meet the current SBA standard for a small business.⁴⁸  These 1,965 firms operated 2,566 establishments. 

Distribution of Movie Theater Firms, by Revenue, 2007 the future.

[Click image above to view HTML version]

* Firms with sale/receipts/revenue of higher than $35,500,000 are not considered small businesses under SBA size standards.  The SBA database presents data for these firms in six categories, which have been consolidated into one for this table.

Source: number of firms and number of establishments from Small Business Administration, Statistics of U.S. Businesses, Business Dynamics Statistics, Business Employment Dynamics, and Nonemployer Statistics.  http://www.sba.gov/advocacy/849/12162 (last visited July 14, 2014).  Downloaded from SBA web site December 2013.

As part of a larger movement within the film producing industry, nearly all (if not all) film production is moving to digital, and the vast majority of, if not nearly all, movie theaters likely will convert to the digital format.  Because of the cost of transitioning to digital, large firms are more likely to have already converted to digital, or plan to do so soon.  For these same reasons, analog theaters are more likely to be small businesses.  At the same time, per screen costs of captioning equipment are significantly higher for analog theaters than for digital theaters. 

While the first movie theaters were facilities with a single screen and auditorium, in recent years larger facilities are being built, some with a dozen or more auditoriums and screens each capable of showing movies at the same time.  Yet, at this time, many single screen theaters remain open.  The Initial RA prepared detailed costs estimates, over time, using four theater size categories based on data presented by the MPAA.  To estimate the costs to small businesses, this IRFA examined the percentages of small businesses and the distribution of theaters and screens by theater size type, and made estimations regarding the likely prevalence of small businesses among each size type (see the table below).  No Megaplexes are expected to be small businesses.

Theaters by Type and Estimated Prevalence of Small Businesses

[Click image above to view HTML version]

Source: Estimated using data for 2008-2012 as in MPAA, Theatrical Market Statistics (2012), available at http://www.mpaa.org/wp-content/uploads/2014/03/2012-Theatrical-Market-Statistics-Report.pdf (last visited July 14, 2014).

Estimates of Digital and Analog Theaters and Screens in 2015

[Click image above to view HTML version]

The proposed rule does not apply different requirements to firms by size.  It does, however, seek public comment on two options for theaters with analog screens.  Option 1 would delay the compliance date for analog screens for four years after publication of the final rule.  Option 2 would defer rulemaking altogether for analog screens until a later date.  As stated previously, the vast majority of theaters with analog screens are small businesses, and the Department believes that both of the options for analog screens under consideration in the proposed rule will result in fewer burdens on small movie theater businesses with analog screens. While this small business assessment necessarily draws on the Initial RA’s “main” cost model, it also incorporates data specific to small businesses.  As required by the Regulatory Flexibility Act,⁴⁹ the cost model underlying the Initial RA’s small business assessment uses SBA-defined small business size standards.⁵⁰  A dataset downloaded from SBA’s Web site presents data for 18 different revenue size categories (12 of those categories for firms with estimated annual receipts of less than the $35.5 million size standard for a small firm in this industry).  These 18 revenue size categories were consolidated into four categories, with the following three meeting the SBA size standard for a small business: Firms with sales/receipts/revenue of (a) $499,999 and under; (b) $500,000-$4,999,999; and (c) $5,000,000-$ 35,500,000.  One of the 18 revenue categories in the SBA dataset (firms with sales/receipts/revenue of $30,000,000-$34,999,999) had only two firms included.  To prevent the release of proprietary financial information, the SBA dataset only includes the number of firms and their establishments in this category; it does not include any information on sales, receipts or revenues.  Therefore, while the estimate of the total number of small businesses that could be impacted by the proposed rule includes these two firms, the calculations for costs of compliance by revenue category do not.

Question 18a: Numbers of Small Businesses
The Department is interested in receiving comments and data on all of the assumptions regarding the numbers of small entities impacted by this regulation, particularly on the numbers of small entities that have digital or analog screens (or both), the number of screens in each theater, the type of movies shown at these theatres (first-run commercial films, independent films, etc.), and the type of captioning equipment and devices these theatres already have.  The Department is particularly interested in data regarding small analog theatres, such as the availability of analog film prints, the availability of movies with captions and audio description (in both analog and digital formats), the rate at which small theatres are converting to digital cinema, and the economic viability of both small analog and small digital theatres.  The Department would also be interested in data on the number of analog and digital theaters by theater type and annual receipts.  Finally, the Department is interested in whether and to what extent small analog and small digital theaters are participating in certain cost-sharing programs to help convert theaters to digital technology, such as a virtual print fee (VPF) program.  If they are not participating in such cost-sharing programs, why not? (See Question 1 for additional questions about analog theatres).

Question 18b: Numbers of Small Nonprofit Entities
The Department seeks comment and data on small nonprofits that operate theatres that would be covered by this proposed rule, particularly on the number of small entities in this category, and the potential costs and economic impacts of the proposed rule.  Should the Department adopt a different compliance schedule for these theaters?

47. The size standard of $35.5 million can be found in U.S. Small Business Administration, Table of Small Business Size Standards Matched to North American Industry Classification System Codes at 28, available at http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf  (last visited July 14, 2014).  

48. Data taken from Excel file “static_us” downloaded from SBA Web site for “Firm Size Data,” available at http://www.sba.gov/advocacy/849/12162 (last visited July 14, 2014).  Calculations were also performed using a dataset from the Census Bureau’s American FactFinder.  See http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml (last visited July 14, 2014).  Both datasets are derived from the 2007 Economic Census, but differ slightly.

49. See 5 U.S.C. 601 et seq. 

50. The Small Business Size Regulations can be found at 13 CFR part 121.