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

B.  Regulatory Flexibility Act—Impact on Small Businesses

1.  Small Business Threshold Assessment—Methodology and Summary of Results

Consistent with the provisions of the Regulatory Flexibility Act, the Department has also carefully considered the likely impact of the proposed regulation on small businesses in the movie exhibition industry.  See 5 U.S.C. 605(b); Memorandum for the Heads of Executive Departments and Agencies, Regulatory Flexibility, Small Business, and Job Creation, 76 FR 3827 (Jan. 18, 2011).  The Department has determined that this proposed rule will have a significant economic impact on a substantial number of small businesses.

For motion picture theaters, 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.  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.⁴⁵  As noted earlier, the Department is considering two options for 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. The IRFA estimates for Option 1 the average initial capital costs per firm for firms that display digital or analog movies.  The average costs for small firms are estimated to be between 0.7 percent to 2.1 percent of their average annual receipts for firms with digital theaters, and between 2.0 percent to 5.7 percent of average annual receipts for firms with analog theaters.  The Department has used the IRFA to examine other ways, if possible, to accomplish the Department’s goals with fewer burdens on small businesses.  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.

45. 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).

2.  Initial Regulatory Flexibility Analysis

a.  Summary of Reasons for Proposed Regulation

Because the Department’s rationale for proposing these requirements for movie captioning and audio description have already been discussed in full throughout this preamble (see, e.g., section II.C, supra), such reasoning is merely summarized here.  There are, in sum, four primary reasons why the Department is proposing regulatory action at this time.  First, for persons who are deaf or hard of hearing or blind or have low vision, the unavailability of captioned or audio-described movies inhibits their ability to socialize and fully take part in social and family outings and deprives them of the opportunity to meaningfully participate in an important aspect of American culture.  Second, a significant—and increasing—proportion of Americans have hearing or vision limitations that prevent them from fully and effectively understanding movies without auxiliary aids such as captioning and audio description.  Third, technological advancements mean not only that an ever-increasing number of movie theaters have been converted to digital cinema systems, but also that such theaters can exhibit movies with closed captions using commercially-available equipment at relatively low cost.  And, lastly, despite the availability of these auxiliary aids and the general ADA obligation to provide effective communication to patrons with disabilities, individuals with disabilities in many parts of the United States continue to lack access to movies with captioning and audio description.  Movie theaters’ collective compliance efforts to date simply have not resulted in equal access to movies exhibited at theaters nationwide for individuals who are deaf or hard of hearing or blind or have low vision.  The Department is thus convinced that regulation is warranted at this time to explicitly require movie theaters to exhibit movies with closed captioning and audio description at all times and for all showings whenever movies are produced, distributed, or otherwise made available with captioning and audio description, unless to do so would result in an undue burden or fundamental alteration.  This proposed regulation is necessary in order to achieve the goals and promise of the ADA.

b.  Summary of Objectives of, and Legal Basis for, the Proposed Regulation

The proposed rule for captioning and audio description rests on the existing obligation of title III-covered facilities—such as movie theaters—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 proposed rule states that a movie theater owner or operator is required to exhibit movies with closed captioning and audio description for all screenings so long as the movie has been produced by the movie studio or distributor with captioning or audio description (unless doing so would result in an undue burden or fundamental alteration).  The proposed rule imposes no independent obligation on movie theaters to provide captions and audio description if the movie is not available with these features.

The Department expects that implementation of the proposed 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 movies theaters.

The legal basis for the Department’s proposed regulation—discussed at length in other parts of this preamble (see section II.B, supra)—rests on both title III of the ADA and its existing implementing regulation.  Title III prohibits public accommodations, which, by statutory definition, include movie theaters, from discriminating against any individual on the basis of disability in the full and equal enjoyment of their goods and services.  42 U.S.C. 12182(a).  Further, of particular import to the proposed regulation, title III also requires public accommodations to take whatever affirmative steps may be necessary “to ensure that no individual with a disability is excluded, denied services, segregated or otherwise treated differently * * * because of the absence of auxiliary aids and services” absent a showing of fundamental alteration or undue burden by such public accommodation.  42 U.S.C. 12182(b)(2)(A)(iii).

The Department’s recently-revised title III regulation reiterates these statutory requirements—which were first incorporated into the implementing regulation in 1991—and emphasizes that the overarching obligation of a public accommodation is to ensure effective communication with individuals with disabilities through the provision of necessary auxiliary aids and services.  28 CFR 36.303(c).  While the type of auxiliary aid or service necessary to ensure effective communication depends on several factors, including the method of communication used by the individual and the communication involved, closed captioning and audio recordings are specifically referenced as aids or services contemplated by the rule.  28 CFR 36.303(b)(1), (2).  Here, in the context of movie screenings at movie theaters, captioning is the only auxiliary aid presently available that effectively communicates the dialogue and sounds in a movie to individuals who are deaf or whose hearing impairments otherwise preclude effective use of assistive listening systems.⁴⁶  Likewise, for individuals who are blind or who have low vision, the only auxiliary aid presently available that effectively communicates the visual components of a movie is audio description.

46. Proposed § 36.303(g)(2)(ii) states that “[m]ovie theaters may meet their obligation to provide captions to persons with disabilities through use of a different technology, such as open movie captioning, so long as the communication provided is as effective as that provided to movie patrons without disabilities.”  This provision will allow theaters the option to choose newer and more cost effective technologies to provide effective communication to movie patrons, if such technologies are developed in the future.

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.

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* 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

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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

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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.

d.  Estimated Cost of Compliance for Small Entities⁵¹

The SBA/U.S. Economic Census data was incorporated into the Initial RA’s estimation for impacts on small businesses.  First, receipt data was used to develop assumptions regarding the distribution of “small businesses” among the four theater size types.  The assignment of theater size type is critical to the estimation because it determines the number of screens and, therefore, total costs per establishment. 

Using the Initial RA cost model estimation of the number of theaters by size type in 2015, the IRFA distributed the number of establishments of small business movie theater firms beginning with all Single Screen establishments and then applied the remaining portion to Miniplex and Multiplex establishments.

2015 Distribution of Theaters (Model Projection)

For this distribution, Single Screen theaters made up 89.6 percent of establishments in the smallest revenue category.  The remaining establishments in this category were assumed to be Miniplexes.  All of the establishments with receipts between $500,000 and $4,999,999 were assumed to be Miniplex theaters.  After allocating those theaters, the remaining Miniplex theaters estimated for 2015 were distributed to the largest revenue category.  Because there were more theaters in the largest revenue category than the remaining estimated Miniplex theaters, the other theaters in this revenue category were assumed to be all Multiplexes (approximately 41 percent).  These distributions are summarized below.  These distributions were then used to estimate the average cost per firm in each of the three consolidated small business revenue categories.

Distribution of Theater Size Type for Consolidated Revenue Groups

Theater Equipment Requirements Based on Scoping and Theater Size

Using the average costs per theater developed in the Initial RA, we were able to calculate the average costs per theater and per firm for the three consolidated revenue groups ($499,999 and under; $500,000-$4,999,999; and $5,000,000-$35,500,000).  Costs were first calculated on a per-establishment basis, and then using the average number of establishments per firm for each of the three consolidated revenue groups, translated into an average per firm cost.  This cost was then compared to the average receipts per firm for that consolidated revenue group.

The resulting ratio of average costs to average receipts ranges from a low of 0.7 percent (for digital firms with revenues of $5,000,000 to $35,500,000) to a high of 5.7 percent (for analog firms with revenues of $499,999 or less).  The impact on firms with digital projection is comparatively smaller than the impact on firms maintaining analog projection.  The ratio of average costs/receipts is estimated to range from 0.7 percent to 2.1 percent for all movie theater companies using digital systems.  In contrast, the same ratio ranges from 2.0 percent to 5.7 percent for all firms using analog projection.

Estimation of Costs for Small Movie Theaters, By Firm Size, Based on 2015 Size/Revenue Distribution

* The ranges represent the figures calculated using the two datasets created from data from the 2007 Economic Census, which breaks out data by revenue category (downloaded from SBA’s Web site (http://www.sba.gov) and the Census Bureau’s American FactFinder Web site (http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml), respectively), but which differ slightly.  Note that the composition of theater size types also varies per revenue group depending on the dataset used, and therefore the average cost per theater varies as well.

** Note that the calculations for this category using the dataset downloaded from the SBA Web site do not include any data for the two firms in the revenue category for firms with sales/receipts/revenue of $30,000,000-$34,999,999 because no data on annual receipts for those two firms was included.  The dataset downloaded from American FactFinder had different revenue categories from those downloaded from SBA’s Web site.  To estimate those firms meeting the SBA size standards using the dataset downloaded from the American FactFinder Web site, all the firms with revenues less than $25 million, and half of those with revenues from $25,000,000 to $49,999,999 were counted as a way of estimating the number of entities that fall under $35.5 million within that revenue category.

Average capital costs per theater type were estimated by multiplying the number of screens by the required analog or digital equipment and the scoped number of devices.  These average costs are presented below.

Estimated Average Receipts and Costs per Firm, Digital and Analog

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Based on data from Small Business Administration, Statistics of U.S. Businesses, Business Dynamics Statistics, Business Employment Dynamics, and Nonemployer Statistics, available at  http://www.sba.gov/advocacy/849/12162 (data downloaded Dec. 2013).  See Table 38 in the Initial Regulatory Assessment and Initial Regulatory Flexibility Analysis (available at http://www.ada.gov) for more information on how the figures in this table were calculated.

Digital Captioning Equipment Unit Costs

Analog Captioning Equipment Unit Costs

Average per Establishment Costs of Purchasing Digital Closed Captioning and Audio Description Equipment

* Note that the Initial RA assumes that no small business firm has Megaplexes; this data is presented for informational purposes only, to help illustrate the differences in average costs per digital theaters by type.

Average per Establishment Costs of Purchasing Analog Closed Captioning and Audio Description Equipment

** 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.

Question 19: Small Business Compliance Costs
The Department seeks comment and data on the small business compliance cost estimates, including the costs associated with procuring and maintaining digital and analog equipment, the availability of this equipment, estimates of the average cost of this proposed rule by establishment and firm, and the ratio of average costs of this proposed rule to firm receipts.  The Department is interested in comment on whether small theaters will incur higher prices in the purchase and installation of this equipment due to the lower volume needed.  The Department also seeks public comment on its proposed scoping for individual captioning devices.  Should the Department consider approaching scoping differently for small theatres?  How so and why?  (Please see Question 10 for additional questions about scoping for captioning devices).  How many devices capable of transmitting audio description to individuals should each movie theater have on hand for use by patrons who are blind or have low vision?  (Please see Question 12 for additional questions about scoping for audio description).  Do small theaters face any additional costs not already included in these cost estimates?  The Department seeks comment and data on what, if any, particular requirement of this rule would cause a small business to claim that it is an undue burden to comply with the requirements of this proposed rule.

51. This estimate of costs for small businesses assumes that the Department would proceed under Option 1 (four-year compliance date for analog screens).  If the Department decides to adopt Option 2 for the final rule and defer application of the requirements of the rule for analog screens, the costs for small businesses will be significantly less because the rule will only apply to small business digital theaters.

52. The distribution is slightly different using the dataset from American FactFinder: For firms with revenue $499,999 and under, 100 percent were assumed to be Single Screen; for those with revenue $500,000-$4,999,999, 7 percent were Single Screens and 93 percent  Miniplexes; for those with revenue $25,000,000 to $35,5000,000, 79 percent were Miniplexes and 21 percent Multiplexes.

53. The hardware required for Rear Window technology includes a LED display necessary to show captions in each analog projection auditorium, a Datasat/DTS XD20 interface, and individual Reflectors that are used by patrons. The cost for the LED display ranges from $2,850 to $3,975, depending on whether it is a 2- or 3-line display (a 2-line display is recommended); the LED display cost used in Regulatory Analysis is an average of the cost of the two sizes of display.  The Datasat/DTS XD20 interface, which is an interface connecting the Rear Window LED display to the theater system, costs about $4,200 per auditorium. The only device for individual use is the Rear Window Reflector, which fits into cup holders and costs $95 each.  (Note: all these prices are taken from the “Rear Window® Captioning (RWC) Components Cost Overview” released by Median Access Group at WGBH August 2010, and adjusted for the fact that licensing fees are no longer required.)  For audio description, the Williams Sound Audio System is compatible with analog captioning systems and was used to estimate video description equipment costs for analog systems.  The Williams Sound Audio System requires an audio transmitter for each auditorium, which costs $467.  Patrons may use a receiver and a headset, which cost $88 and $18, respectively.

54. Note that in the main Initial RA, all of the Megaplexes and Multiplexes are assumed to have converted to digital projection.  This assumption was made because NATO had estimated at a Congressional hearing in May 2013 that 88 percent of screens in the nation now have digital projection, making it very unlikely that any large theater complex remains analog.  If any Megaplexes and/or Multiplexes stayed with analog projection, their average costs for purchasing analog closed captioning and audio description equipment would be $141,578 and $87,206, respectively.

e.  Projected Reporting, Record-Keeping Requirements and Other Compliance Requirements of the Rule

As noted below in section VI.F, discussing the Paperwork Reduction Act, the proposed regulation imposes no reporting or record-keeping requirements on any movie theaters regardless of size.  The Department acknowledges that there may be other compliance-related administrative costs incurred by all movie theaters—including small entities—as a result of the proposed regulation, including such tasks as having theater staff keep track of individual captioning devices or audio description headsets.  However, such compliance costs are expected to be neither disproportionately borne by small entities nor significant.  The proposed scoping requirements for individual captioning devices are directly proportional to total seat count or screen.  The proposed scoping for individual audio-description devices is minimal and only applies to those theaters that do not currently have assistive listening receivers with at least two channels.  Thus, smaller movie theaters (such as Miniplexes and Single Screen Theaters) necessarily would have relatively few pieces of required captioning and audio description equipment to inventory and maintain.  Moreover, any costs related to such administrative tasks are expected to be minimal.  The Department has also asked whether it should take a different approach to scoping for individual captioning devices for small theaters.

The rule will require that at least one person at the theater be able to provide patrons with captioning and audio description and direct patrons on the equipment’s use.  This requirement can most easily be met by expanding the training for those persons who will already be required to be on-site to manage or oversee overall operations and the start of the exhibition of the movies.  In addition, theaters already provide staff to distribute assistive listening devices when requested by patrons and to direct patrons on how to use those devices.  It is reasonable to assume that the same staff member would provide assistance with captioning and audio description devices as well.  A separate staff with ADA expertise is not required.  The costs of this part of the rule will include any additional training time and any time spent providing and collecting devices and demonstrating their use, if needed.

The Initial RA uses a value equivalent to 3 percent of all the captioning and audio description equipment owned by the theater to capture the afore-discussed minimal operations and maintenance cost and incremental increase to staff time; costs of adding information that captioning or audio description is available when preparing communications regarding movie offerings, and other potential increases in administrative costs.  This 3 percent is a factor commonly used in construction and equipment maintenance.  See, e.g., Final Regulatory Impact Analysis of the Proposed Revised Regulations Implementing Titles II and III of the ADA, Including Revised ADA Standards for Accessible Design: Supplemental Results (Sept. 15, 2010), available at http://www.ada.gov/regs2010/RIA_2010regs/ria_supp.htm (last visited July 14, 2014).⁵⁵  The Department expects that annual operations, maintenance, and training costs for analog theaters are estimated 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.⁵⁶

Question 20: Other Costs for Small Businesses

The Department invites comment on the estimation of operation and maintenance costs for this proposed rule, which include administrative costs to keep track of equipment, staff training and availability (see Question 15 for additional questions related to staff training), maintenance and replacement of captioning and audio description hardware and individual devices, and the notice requirement (see Questions 14 and 16 for additional questions about the notice requirement).  The Department is particularly interested in receiving comments about the costs and frequency of replacing captioning and audio description equipment.  Are there other compliance costs, such as regulatory familiarization, that should be included in this small business analysis?

55. See id. app. I: Operations and Maintenance, for more information on standard operations and maintenance costs, and the sources from which those were derived.

56. See the Initial RA, Section 7 for the Sensitivity Analysis with two alternative rates—5 percent and 8 percent—for calculating operations and maintenance costs.

f.  Duplicative or Overlapping Federal Rules

The Department is not aware of any existing federal regulations that impose duplicative, overlapping, or conflicting requirements relative to the requirements in the proposed movie captioning and audio description regulation.

g.  Discussion of Significant Regulatory Alternatives That Minimize Impact on Small Entities

In crafting this proposed regulation for movie captioning and audio description, the Department has taken care to propose requirements that temper effectiveness with cost considerations.  That is, while the Department believes this regulatory action is required to support and enforce the ADA’s effective communication mandate, the proposed requirements also are intended to regulate in a manner that is cost-efficient, easily understood by the movie exhibition industry, and—to the greatest extent possible—minimizes the economic impact on small entities.

As detailed earlier in this preamble (see section IV, Section–by–Section Analysis, “Movie Captioning—Coverage, supra), the Department is proposing that all movie theaters covered by the rule, regardless of size, location, or type of movies exhibited, must exhibit captioned or audio-described movies (when available) for all screenings absent a showing of undue burden.  Only such an across-the-board requirement fulfills the effective communication objective by permitting individuals who are deaf or hard of hearing or blind or have low vision disabilities to fully and equally participate in one of the most quintessential forms of American entertainment—going out to the movies—in the same manner as the rest of the movie going public.

Yet, while the proposed regulation imposes captioning and audio description requirements on all movie theaters irrespective of size, there are nonetheless several provisions that serve to ameliorate their relative economic impact on small entities.  For example, the Department’s regulatory proposal:

• Proposes two alternatives for theaters with analog screens: a four-year delayed compliance date (Option 1), or deferral of the requirements of this proposed rule for analog screens (Option 2);
• Establishes performance (rather than design) standards that enable small entities (as well as other movie theaters) to meet their captioning requirements in a flexible and cost-effective manner (§ 36.303(g)(2)(i));
• Specifies scoping requirements for individual captioning devices that are proportional to a theater’s total seat count (i.e., fewer seats means fewer devices are required), thereby ensuring that small theaters have reduced device costs (§ 36.303(g)(2)(iii)(A), (g)(3)(ii));
• Specifies a minimal number of individual audio-description listening devices that must be provided by a theater and permits “overlap” of scoping for audio-description listening devices and assistive listening headsets so long as such headsets are capable of receiving both types of audio signals (§ 36.303(g)(3)(ii)).

Moreover, while not expressly referenced in the text of proposed § 36.303(g), the Department has reiterated—at several points in this preamble—that those movie theaters that find that it is a significant difficulty or expense to comply with the requirements of this regulation will be able to assert the “undue burden defense” (see section II.B.2 supra, for an explanation of the factors that should be considered in asserting the defense).  Throughout the last two decades, even without this regulation, movie theaters have been able to assert this defense when facing litigation alleging failure to provide effective communication to patrons with disabilities.  Thus, while a large movie theater trade association suggested that many—if not most—small theaters would be forced out of business unless exempted entirely from any captioning requirements, the Department believes that such dire predictions are misplaced.⁵⁷  The “undue burden” defense serves as a limit should there be regulatory compliance costs that under particular circumstances would impose significant difficulty or expense.  Where the costs of screening closed-captioned or audio-described movies in compliance with the proposed regulation are sufficiently burdensome as to place a small theater at financial risk, then such costs would—by definition—pose an “undue burden.”  Such a movie theater would then be entitled to provide alternate compliance measures for auxiliary aids or services (if any) that were affordable in light of its particular circumstances.

Taken together, the foregoing considerations demonstrate the Department’s sensitivity to the potential economic (cost) impact of the proposed regulation on small theaters (such as Miniplexes and Single Screen Theaters) and—to the extent consistent with the ADA—mitigate potential compliance costs.

In addition, the Department considered multiple alternatives for this rulemaking with a focus on choosing the alternative that best balances the requirements of the ADA with the potential costs to small business movie theaters.  Among those alternatives weighed most heavily for the proposed rule are the two discussed below. 

Requiring only 50 percent of screens to have closed captioning and audio description.  The Department considered a proposal limiting the requirement for closed captioning and audio description to only 50 percent of movie screens.  This alternative was discussed in the July 26, 2010, ANPRM.  The ADA requires places of public accommodation “to ensure that no individual with a disability is excluded, denied services, segregated or otherwise treated differently than other individuals because of the absence of auxiliary aids and services, unless the entity can demonstrate that taking such steps would fundamentally alter the nature of the good, service, facility, privilege, advantage, or accommodation being offered or would result in an undue burden.”  42 U.S.C. 12182(b)(2)(A)(iii).  After considering public comment and additional research, the Department has determined that it is not possible for movie theaters to meet their ADA obligation to provide equally effective communication to patrons with hearing and vision disabilities unless they have the capacity to show the movies that are available with captions and audio description at all showings when those same movies are available to patrons without disabilities; to only require access to 50 percent of movies being shown would be inappropriate.  Unless a movie theater showed every movie on two screens in comparable auditoriums at all times—one screen showing the captioned and audio-described version and the other showing the same movie without captions and audio description—the Department is concerned that a 50 percent requirement would regularly lead to the circumstance where a movie theater would have a captioned or audio described movie, but would have no screen available on which to show it because all the appropriately equipped auditoriums were otherwise in use. 

The Department considered whether it would be possible for movie theaters to meet their effective communication obligations by switching movies into auditoriums equipped to show movies with closed captions and audio description when a patron with a hearing or vision disability needed those accessibility features.  But, the Department’s research indicated that the business agreements regarding movie exhibitions limit this type of flexibility.  Movie theaters regularly negotiate with film distributors regarding which auditoriums in a theater with more than one screen will show which films.  Generally, if a film is expected to be very popular, it will open in the largest auditorium or in several auditoriums within the same complex.  As the popularity decreases, the film will be moved from larger auditoriums to smaller auditoriums and from multiple auditoriums to a single auditorium.  The timing of such moves will vary from theater to theater and from film to film.

Those theaters that do have the flexibility to switch auditoriums upon request to provide closed captioning or audio description would have other added costs associated with changing the auditoriums for showings.  Costs could include the additional employee time and resources needed to physically switch the movie from one auditorium to another, as well as potential lost ticket sales if a more popular movie is displaced into a much smaller theater that sells out faster.  Additionally, switching auditoriums to allow use of captioning or audio description equipment may result in auditorium changes for other patrons after they had purchased tickets and are possibly already seated.  This would result in an inconvenience to many patrons, including the possibility that the switch would result in a different viewing experience than expected when purchasing a ticket due to differing auditorium sizes and comfort levels. 

The Department also believes that this alternative would carry a much higher litigation risk.  Patrons with disabilities would not have any way of assessing whether the failure to show a particular movie with closed captions and audio description was because the theater was failing to comply with its obligations under the regulation to provide these auxiliary aids and services or because that particular movie was not available with closed captions or audio description.  Whether a theater had the capacity to move a film to accommodate a patron with a disability and should have done so upon request, or whether the theater did everything to meet its obligations under the regulation, would become murky and create confusion that could result in an increased risk of litigation.

Finally, this alternative favors larger movie theaters and disadvantages single screen theaters, which are more likely to be small businesses.  Under a 50 percent requirement, at least one auditorium at every theater must have closed captioning and audio description capabilities.  Thus, single screen theaters would see no reduction in costs under this alternative. 

As such, the Department has rejected this alternative due to concerns that requiring only 50 percent of screens to have closed captioning and audio description capabilities would not comply with the ADA itself, that this approach would require substantial changes to the movie theater business model, that the initial perceptions that this approach would have substantially lower total costs are actually misleading, and that this approach would not address in any meaningful way the concerns for small business single screen theaters.

Compliance by analog theaters required in two years.  The Department considered providing theaters with analog screens two years after the rule’s publication date to become compliant, as opposed to the six-month compliance date provided for digital screens.  This delay was considered for analog movie screens because such a large number of theaters are in the midst of transitioning to digital cinema, that additional time might be necessary.  In addition, the delayed compliance date would have allowed small theaters that remain analog more time to obtain the necessary resources to purchase the equipment to provide closed captioning and audio description.  The 15-year, discounted costs for this alternative range from $189.4 million to $237.5 million under a 7 percent discount rate, which are higher than the total costs for the proposed rule. 

Upon review of the higher cost burden for firms still using analog projection, and with consultation from the Small Business Administration’s Office of Advocacy, and as previously discussed, the Department is considering two alternative options for theaters with analog screens: (1) a four-year compliance date for theaters with analog screens (Option 1); or (2) deferring application of the requirements to analog screens until a later date (Option 2).  In making the decision, the Department also took into consideration the fact that those movie theaters that have not yet made the transition to digital systems are more likely to be small businesses than those movie theaters that are already exhibiting in digital format.  The Department also considered publicly available information that movie studios are in the process of phasing out analog film, and it is anticipated that by 2015, studios will not be producing analog prints of first run films.  On the basis of this information, it appears likely that movie theaters that rely on first-run films for revenue will either convert to digital or go out of business before the four-year compliance date (sometime in 2018 or 2019), and thus there will actually be many fewer analog theaters that will need to comply with the rule if the Department proceeds under Option 1.   If the Department proceeds under Option 2, there will be fewer small business theaters affected by the rule, because it will only apply to small business digital theaters.

Question 21a: Significant Alternatives for Small Analog Theaters under the RFA 
Is the four-year compliance date in Option1 reasonable for those screens that will remain analog?  If not, why not?  Should the Department adopt Option 2 and defer requiring theaters with analog screens to comply with the specific requirements of this rule?  (See Questions 6 and 8).  

Question 21b: Significant Alternatives for Small Digital Theaters under the RFA
Is the proposed six-month compliance date for digital screens a reasonable timeframe to comply with the rule?  Is six months enough time to order, install, and gain familiarity with the necessary equipment; train staff so that they can meaningfully assist patrons; and meet the notice requirement of the proposed rule?  If the proposed six-month date is not reasonable, what should the compliance date be and why?  (See Question 7). 

Question 21c: Other Significant Alternatives for Small Theaters under the RFA
The Department invites comment on ways to tailor this regulation to reduce unnecessary regulatory burdens on small businesses.⁵⁸  For example: Should the Department have a different compliance schedule for digital or analog theaters that have annual receipts below a certain threshold?  If so, what should the financial threshold be?  (See Question 6).  The Department is also interested in receiving comment and data on the use of the undue burden defense by small businesses.

57. While the number of public comments received in response to the 2010 ANPRM was extraordinary, there were relatively few comments that specifically addressed the impact of captioning requirements on small theaters.  No comments were received from representatives of independent movie theaters or from individual small (indoor) movie theater operators other than representatives of drive-in theaters (which are not covered by this rule).  The referenced comment from the movie theater trade association is the only comment by representatives of the theatrical or movie exhibition industry to address the potential impact of the captioning regulation on small theaters affected by this rule.

58. See Memorandum for the Heads of Executive Departments and Agencies, Regulatory Flexibility, Small Business, and Job Creation, 76 FR 3827 (Jan. 18, 2011).