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

2.  Costs—Summary of Likely Economic Impact

The Initial RA provides estimates of the total cost of the rule under Option 1 (a six-month compliance date for digital screens and a four-year compliance date for analog screens) and Option 2 (a six-month compliance date for digital screens and a deferral of new regulatory requirements on analog screens) over a 15-year time horizon.  For Option 1, we estimate that the cost of the rule will range from $177.8 million to $225.9 million when using a 7 percent discount rate, and from $219.0 million to $275.7 million when using a 3 percent discount rate.  For Option 2, we estimate that the cost of the rule will range from $138.1 million to $186.2 million when using a 7 percent discount rate, and from $169.3 million to $226.0 million when using a 3 percent discount rate. 

The range of cost estimates for both options depends on the assumptions used regarding the extent to which theaters are or soon will be providing closed movie captioning and audio description as proposed in this rule, but independently of this rulemaking.  This Initial RA estimates costs using three different baselines due to a lack of information regarding the extent to which theaters are already providing captioning and audio description as proposed in this rule.  Under Option 1, each baseline assumes that 2 percent of analog theaters currently meet the requirements of this proposed rule.  Under Option 2, the baselines do not make assumptions about analog screens because the rule would defer requirements on such screens to future rulemaking.  See Initial RA section 4 for details.

• Baseline 1 (One Screen )—This baseline assumes that on average, every movie theater with digital screens has one screen that is captioning enabled³⁹ (based on an assumption of at least some compliance with the existing ADA requirements that public accommodations provide effective communication to persons with hearing and vision disabilities).  This assumption leads to an estimate of about 13 percent of all digital screens having captioning capabilities.  For Option 1, this baseline also assumes that 2 percent of analog screens are captioning enabled.

• Baseline 2 (Litigation-Based)—This baseline is derived using available data regarding movie theater companies that are now providing captioning and that have been involved in recent litigation challenging their failure to comply with existing ADA effective communication requirements.  This baseline assumes that 42 percent of digital screens are captioning enabled.  For Option 1, this baseline also assumes that 2 percent of analog screens are captioning enabled. 

• Baseline 3 (2013 NATO Survey-Based)—This baseline uses data provided in testimony by officials from the NATO before Congress in May 2013, in which 53 percent of digital screens were described as already captioning enabled.  For Option 1, this baseline also assumes that 2 percent of analog screens are captioning enabled.

Costs are estimated over a 15-year period, beginning with the year in which the rule becomes effective (assumed to be 2015).  For both options, costs are estimated for theaters with digital screens beginning in the first year after publication of the final rule (2015).  For Option 1, costs are estimated for theaters with analog screens beginning in the fourth year after publication of the final rule (2018).

The estimated costs primarily consist of the following: (1) the purchase of hardware and software to send the captions to users’ individual devices; (2) the purchase of individual devices as per the scoping requirements specified in the rule; (3) periodic costs to replace hardware, software, and devices; (4) annual operations and maintenance costs to cover storage, management, staff training, and other recurring costs; (5) any additional hardware costs to transmit audio description to individual devices; and (6) any additional costs associated with the purchase of additional of individual audio-description listening devices.  The costs do not include the costs to theaters to convert their screens from analog to digital, because this rule does not require any movie theater to convert to digital cinema, and doing so is not necessary to comply with the proposed requirements.

Estimated Costs Under Option 1 (2015 Dollars, 15-year Time Horizon)

Estimated Costs Under Option 2 (2015 Dollars, 15-year Time Horizon)

Under Option 1, the estimated annualized costs of the proposed regulation under each of the three baseline scenarios range from $19.5 million to $24.8 million when using a 7 percent discount rate, and from $18.3 million to $23.1 million when using a 3 percent discount rate. Under Option 2, the estimated annualized costs of the proposed regulation under each of the three baseline scenarios range from $15.2 million to $20.4 million when using a 7 percent discount rate, and from $14.2 million to $18.9 million when using a 3 percent discount rate.⁴⁰

The Initial RA shows that estimated annual costs for this proposed rule will not exceed $100 million in any year under any of three baseline scenarios, irrespective of which option the Department selects for analog screens.  Annual costs for each year during the 15-year expected term of the proposed regulation are depicted in the following figures:

Annual Costs of Rule Under Option 1, Discounted at 7 Percent

Annual Costs of Rule Under Option 2, Discounted at 7 Percent

Because movie theater complexes vary greatly by number of screens, which significantly impacts overall costs per facility, the analysis breaks the movie exhibition industry into four theater types based on size—Megaplexes (16 or more screens), Multiplexes (8-15 screens), Miniplexes (2–7 screens), and Single Screen Theaters—and by digital or analog system.  Per-facility costs were then calculated for each theater type.  The largest costs per year for any single movie theater would occur in the first year due to the purchase of necessary equipment.  The first year’s costs for digital Megaplex theaters are estimated to total $38,547, while comparable costs for digital single screen theaters would total $3,198.⁴¹

Per Digital Theater Initial Capital Costs for Captioning and Audio Description (Equipment (hardware, software and devices), 2015 Dollars*

Note: These initial capital costs include the costs to purchase and install: (1) captioning hardware and software (one per screen); (2) individual devices for captioning (ranging from 4 for Single Screens to 34 for Megaplexes); (3) additional hardware, if needed, to transmit audio description (from none to one device per screen); and (4) additional devices for audio description (ranging from 2 for Single Screens to 18 for Megaplexes). 

* Because unit costs for captioning and audio description equipment have either remained steady or declined between 2010 and 2013, they are assumed to remain constant from 2013 (when last researched) to 2015, when the final rule is expected to be published.

Should the Department proceed under Option 1 and cover analog screens, per theater costs for analog theaters would be higher than those for digital theaters for each type/size.⁴²  The first year costs for analog single screen theaters, which are measured in year four, would total $8,172.  The first year costs for digital single screen theaters, which are measured in year one, would average $3,198.

Per Analog Theater Initial Capital Costs of Captioning and Audio Description Equipment (hardware, software and devices), 2015 Dollars*

Note: These first year costs include (1) the costs to purchase and install: captioning hardware and software (one per screen); (2) individual devices for captioning (ranging from 4 for Single Screens to 34 for Megaplexes); (3) additional hardware, if needed, to transmit audio description (from none to one device per screen); and (4) additional individual audio description listening devices (ranging from 2 for Single Screens to 18 for Megaplexes).

* Since unit costs for captioning and audio description equipment have either remained steady or declined between 2010 and 2013, they are assumed to remain constant from 2013 (when last researched) to 2015, when the final rule is expected to be published.

** Note that the Initial RA assumes that all Megaplexes and Multiplexes have transitioned to digital projection systems by the time this rule goes into effect.

In addition, the Initial RA uses a value equivalent to 3 percent of all the captioning and audio-descriptive equipment owned by the theater to capture any operations and maintenance costs including the incremental increase to staff time, the costs of adding information that captioning or audio description is available when preparing communications regarding movie offerings, and other potential increases in administrative costs.  These costs are annual.  This 3 percent is a factor commonly used in construction and equipment maintenance.  See Regulatory Impact Analysis for the Final Revised Regulations Implementing Titles II and III of the ADA, app. 3.I (Sept. 15, 2010), available at http://www.ada.gov/regs2010/RIA_2010regs/ria_appendix03.htm#ai (last visited July 14, 2014).  

In dollar terms, operations, maintenance, and training costs for analog theaters are estimated on an annual basis to average from a low of $245 for Single Screens to a high of $957 for Miniplexes; for digital theaters’ operations, maintenance and training costs are estimated to average from a low of $96 for Single Screens to a high of $1,156 for Megaplexes.

Question 16: The Department invites comment on the Initial RA’s methodology, cost assumptions, and cost estimates, including the specific costs of purchasing, installing and replacing captioning and audio description equipment, and the costs of complying with the training and notice requirements of the rule.  The Department is particularly interested in receiving comments about the frequency with which captioning and audio description devices need to be replaced.  The Department is also interested in estimates of how much time it would take for theaters to acquire the equipment needed to comply with this rule.

39. The three baselines described in this section use the term “captioning enabled.”  This term refers to the extent to which movie theaters and movie screens currently have the hardware and captioning devices needed to comply with this NPRM.  Each baseline includes assumptions for what this term means, and those assumptions can be found in the initial regulatory impact analysis that accompanies this NPRM.

40. Annualized costs were calculated in a Microsoft Excel model using the PMT function (-PMT(discount rate, years of analysis, present value of total costs)).

41. Unless a dollar figure in the text or the tables specifically identifies a particular baseline, the default baseline for general dollar figures uses Baseline 1.

42. The Department’s analysis assumes that at the time this rule takes effect, theaters will either be exclusively digital or exclusively analog (that is, all of the screens in a theater will be either digital or analog).