Final Regulatory Assessment and Final Regulatory Flexibility Analysis Final Rule - Nondiscrimination on the Basis of Disability by Public Accommodations - Movie Theaters; Movie Captioning and Audio Description

This chapter explains the analytical framework used to calculate the impact of the final rule. Diagrams illustrate the methodology and calculations used to assess the impact of the rulemaking.  This chapter is divided into four sections.  Section 2.1 presents general assumptions used in the analysis.  Section 2.2 outlines the individual components of the total costs.  Section 2.3 shows the methodology used to calculate the upfront costs for movie theaters, including hardware acquisition, device acquisition, and installation costs.  Section 2.4 summarizes the ongoing annual costs and describes other costs determined to be de minimis.

This section details the general assumptions used in the cost estimation in the primary analysis.  First, the parameters of the analysis are covered.  Next, the assumptions regarding the “compliance year,” which is a construct for this analysis, and baseline are presented.  The final subsection explains the distinction among venue types and its relevance to the cost estimation.

The Final RA uses a 15-year time frame for the cost analysis, which is a time frame similar to that used in the Regulatory Impact Analysis of the Final Revised Regulations Implementing Titles II and III of the ADA (Sept. 15, 2010).  This time frame is the Department’s current best estimate of the impact of this rule before it is replaced by a revised regulation.  For the purposes of this cost analysis, the Final RA assumes that all movie theaters in the industry exhibiting digital movies will fully comply with the requirements of this rule even though some movie theaters may not comply because full compliance would constitute an undue burden or a fundamental alteration.  The results of the cost estimation are presented with 7- and 3- percent discount rates, with costs discounted to the year 2015.  The first year of the analysis is 2016, and costs are projected through 2030.

Under the final rule, movie theaters will have 18 months to purchase the necessary captioning and audio description equipment to comply with the rule.  The analysis begins in mid-2016, the expected publication date of the rulemaking.  With an 18 month compliance period, the Final RA assumes that all auditoriums will be equipped to provide closed movie captioning and audio description by the end of 2017, the “compliance year.” 

Movie theaters are assumed to purchase equipment throughout the 18 months leading up to the compliance date.  For the primary analysis, it is assumed that 33 percent of movie theaters with auditoriums not already equipped to provide closed movie captioning and audio description will purchase the required equipment in 2016, and the remaining 67 percent will purchase equipment in 2017.  This assumption is determined by the amount of time movie theaters will have to purchase the equipment in each year, relevant to the 18-month compliance date (i.e., six months in 2016 and 12 months in 2017).

The purpose of the RA is to capture the incremental costs of the rulemaking.  As a result, the Final RA only includes the costs that movie theaters will incur as a direct result of this rulemaking.  The analysis assumes that movie theaters with auditoriums currently equipped to provide closed movie captioning and audio description would also operate and maintain this equipment in the absence of this rule.  The costs associated with providing closed movie captioning and audio description in such auditoriums are not included in the analysis unless specifically noted (see Section 2.4.2) because these relevant movie theaters acquired the necessary equipment prior to the rulemaking.  Therefore, the costs incurred by these theaters are not a direct result of the rulemaking.

To estimate the incremental cost impact, the total costs are measured against a baseline.  The baseline represents the Department’s best assessment of the state of the movie exhibition industry.  The baseline is the estimated number of movie theater auditoriums already equipped to provide closed movie captioning and audio description, and the number of captioning and audio description devices already available for patrons in those auditoriums.  In this way, the resulting net costs appropriately reflect the incremental economic impact of the final rule. 

There is uncertainty regarding the number of auditoriums already equipped to provide closed movie captioning and audio description and the extent to which movie theaters would offer closed movie captioning and audio description if the Department had not undertaken this rulemaking process.  Therefore, the Final RA estimates costs against three different baseline scenarios, which are described in greater detail in Section 3.2.

In the movie exhibition industry’s early days, movies were shown primarily in establishments that had a single auditorium with a single screen.  In recent years, a single movie theater establishment can have more than a dozen auditoriums, all showing movies at the same time.  Because movie theater complexes vary greatly by the number of auditoriums, and the overall cost of this rule varies in direct relation to the number of auditoriums exhibiting digital movies within a movie theater, this Final RA breaks the movie exhibition industry into four venue types based on size:

• Megaplex (16+ auditoriums);

• Multiplex (8–15 auditoriums);

• Miniplex (2–7 auditoriums); and

• Single-Auditorium movie theaters.

The total number of movie theater auditoriums exhibiting digital movies is distributed among these venue types in accordance with research-based assumptions.  These assumptions, regarding the total number of auditoriums and the distribution of these auditoriums by venue type (Megaplex, Multiplex, Miniplex, or Single-Auditorium), are further detailed in Section 3.1. 

The distinction between venue types determines the captioning and audio description equipment required at each movie theater complex.  The number of hardware units and individual devices required by the rulemaking are the building blocks of the cost estimation for the average movie theater of each venue type.  Detailed assumptions and information regarding the scoping requirements by venue type are provided in Section 3.3.

The analysis also accounts for growth (or contraction) over time in the movie exhibition industry by venue type.  The four venue types have very different average costs due to their differences in size and differences in growth/contraction rates.  The assumptions made in the analysis regarding the growth of auditoriums and venue types are provided in Section 3.1.3.

The costs of a regulation are commonly defined relative to a “no action” baseline that reflects “what the world will be like if the proposed rule is not adopted.”⁸  In the case of this rule, the no action baseline should reflect the extent to which movie theaters would provide closed movie captioning and audio description in the absence of the rule and should reflect the determination many courts have made that closed movie captioning and audio description is already required under the ADA.

Using this baseline, the total incremental costs of the rule are calculated for 15 years at both 7-percent and 3-percent discount rates, discounted to 2015. The total costs quantified for the final rule are comprised of the following:

Upfront Costs (One-time)

• Acquisition costs for captioning hardware for existing and new auditoriums exhibiting digital movies;

• Acquisition costs for audio description hardware for existing and new auditoriums exhibiting digital movies;

• Acquisition costs for captioning devices for existing and new auditoriums exhibiting digital movies;

• Acquisition costs for audio description devices for existing and new auditoriums exhibiting digital movies; and

• Installation costs for captioning and audio description equipment;

Ongoing Costs (incurred each year over the rule’s 15-year time frame)

• The cost of replacing captioning and audio description equipment under the “replacement schedule” (for hardware and individual devices);

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

• Maintenance and administrative costs.

The methodology for combining the components of the total costs is presented in Figure 2-1 below. 

The closed movie captioning and audio description systems available on the U.S. commercial market require two separate types of equipment:

(1) “hardware” that transmits the captioning signal/text or descriptive audio to its associated end-use device;⁹ and
(2) “individual devices” that display the closed movie captions or transmit the descriptive audio to individual movie patrons at their seats, either via specially-designed eyewear/glasses/headsets or on cup holder-mounted LED display units. 

The Final RA assesses the costs of acquiring the equipment necessary to provide closed movie captioning and audio description in auditoriums exhibiting digital movies.  The acquisition costs, along with installation costs, are the upfront costs incurred by a movie theater as a result of the rulemaking.  The upfront costs are divided into five components in the Final RA:

• Captioning Hardware Acquisition

• Audio Description Hardware Acquisition

• Captioning Device Acquisition

• Audio Description Device Acquisition

• Installation Costs

The acquisition costs for hardware and devices are determined by the total units required for compliance and the relevant unit costs.  Generally speaking, one unit of captioning hardware is needed for each auditorium exhibiting digital movies.  For some manufacturers, captioning hardware also includes audio description capabilities.  Other manufacturers require an additional programming station to enable audio description.  Typically, one captioning or audio description device is required per patron.  The final rule sets forth captioning and audio description device scoping requirements, or the number of captioning and audio description devices a movie theater is required to maintain.

The scoping requirements for captioning and audio description hardware and devices are outlined in Section 3.3. The unit costs for this equipment are outlined in Section 3.4.

Section 3.2 presents the assumptions regarding the number of auditoriums currently equipped to provide closed movie captioning and audio description.  The assumptions are based on an accessibility survey conducted by NATO in 2015.  Using this information, the number of hardware and device units required as a result the rulemaking is determined.  For example, a movie theater with an auditorium that is not already equipped to provide closed movie captioning or audio description will purchase all hardware and devices outlined by the scoping requirements presented in Section 3.3.

Some movie theaters have already equipped their auditoriums to provide closed movie captioning or audio description.  These auditoriums are assumed to already have the necessary captioning or audio description hardware.  However, some of these movie theaters with auditoriums already equipped to provide such features may need to purchase additional devices or replace devices to comply with the scoping requirements of the rulemaking.

In addition to acquisition, the costs of installation are also included as an upfront cost. Installation costs account for any additional cost a theater may incur to install captioning and audio description hardware in each auditorium, or the costs of synchronizing captioning and audio description devices to the hardware units in each auditorium.  The assumptions used to calculate installation costs are presented in Section 3.5.

This section continues by explaining the assumptions and methodology regarding equipment acquisition and installation costs.  Section 2.3.1 outlines the assumptions and methodology of calculating acquisition costs for captioning and audio description hardware.  Section 2.3.2 details the assumptions for calculating captioning and audio description device acquisition costs.

Captioning and audio description hardware acquisition is calculated and presented separately in the Final RA. However, the methodology for calculating hardware acquisition is identical for both captioning and audio description hardware.  Hardware acquisition costs are a function of:

• The number of auditoriums that are already equipped to provide closed movie captioning or audio description;

• The number of auditoriums that are not already equipped to provide closed movie captioning or audio description;

• The number of new auditoriums opening after the 18-month compliance date;

• The number of captioning or audio description hardware units required per auditorium; and

• The captioning or audio description hardware unit costs.  

The primary analysis uses the Medium Accessibility baseline presented in Section 3.2.2.2 to determine the number of auditoriums already equipped to provide closed movie captioning and audio description.  For the hardware acquisition calculation, the analysis assumes that movie theaters with auditoriums already equipped to provide closed movie captioning or audio description will purchase no additional hardware as a result of this rulemaking; however, all movie theaters with auditoriums not already equipped to provide closed movie captioning or audio description and all new auditoriums opening after the 18-month compliance date will purchase the hardware outlined by the scoping requirements presented in Section 3.3.1 and Section 3.3.2.

The calculation used for hardware acquisition is diagrammed in Figure 2-2.  In the first row, the number of auditoriums that are not already equipped to provide closed movie captioning or audio description (Section 3.2.2) and the new auditoriums opening after the 18-month compliance date are added together to determine the number of auditoriums purchasing hardware units throughout the analysis period.  In the second row, the number of auditoriums requiring hardware and the units required per auditorium (Section 3.3.1 and 3.3.2) determine the total number of hardware units purchased as a result of the rulemaking.  In the third row, hardware units are monetized using the unit costs for captioning and audio description hardware (Section 3.4.1 and 3.4.2).  The hardware acquisition costs calculated in the primary analysis are presented in Section 4.1.2.

Although some manufacturers include installation as part of purchasing the equipment package, some movie theaters may elect to install the equipment using internal staff.  In addition, some movie theaters may need to hire a third party to install captioning and audio description equipment in its auditoriums.  Therefore, this could result in an additional upfront cost after equipment acquisition.  For the purpose of the primary analysis, the cost estimation assumes installation costs are 3 percent of the total equipment acquisition costs for all auditoriums.  The installation costs in the primary analysis are presented in Section 4.1.2.

In addition to the upfront costs associated with hardware and device acquisition and installation, movie theaters will incur ongoing annual costs to maintain and operate captioning and audio description equipment.  The Final RA calculates three types of ongoing annual costs:

• Replacement Costs;

• Training Costs; and

• Maintenance and Administrative Costs.

The Final RA estimates the costs to replace captioning and audio description hardware and devices over the time frame of the analysis.  Because the 15-year time frame for this rule exceeds the expected life of captioning and audio description equipment, the analysis incorporates a replacement schedule whereby this equipment is assumed to require replacement over a span of several years based on its expected useful life.  A portion of the captioning and audio description devices are replaced annually, and hardware is expected to need replacement every nine to eleven years.  The data and assumptions used to calculate the replacement costs are presented in Section 3.6.

In addition to the acquisition, installation, and replacement of equipment, the rule requires staff to be able to provide patrons with captioning and audio description devices and to direct patrons on the devices’ use.  This requirement can most easily be met by expanding the training for those employees who will already be on-site to manage or oversee overall operations or the exhibition of the movies.  In addition, staff already distributes assistive listening devices (devices required under the current ADA 2010 Standards) when requested by patrons and directs such patrons on the use of those devices.  It is reasonable to assume that the same staff members would provide assistance with the captioning and audio description devices as well.  Separate staff with ADA expertise is not required.  Because the operational requirements of this rule apply to all digital auditoriums and not just those purchasing captioning and audio description as a direct result of this rulemaking, the Department’s estimate of training costs includes the training costs for movie theaters already equipped to provide closed movie captioning and audio description.
Figure 2-4 shows how additional training time is monetized using the hourly employment cost for movie theater employees.  The data and assumptions used to estimate training costs are outlined in Section 3.7.

Figure 2-4 : Employee Training Calculation

Any additional maintenance and administrative costs are also included in the analysis.  These costs include other potential costs not explicitly covered by the other cost components already included in the analysis (i.e., acquisition, installation, replacement, and training).  The maintenance and administrative costs include, but are not limited to:

• Periodic ongoing maintenance, system testing, and cleaning of devices – Under heavy use from patrons, movie theaters explain that the maintenance of individual devices is necessary in between uses to ensure that the devices are clean and fully operational upon request.  Depending on the technology, movie theaters may need to periodically replace the batteries in the devices.  This also includes any additional costs associated with troubleshooting, system testing, and software upgrades.

• Other additional administrative costs – These administrative costs include time spent providing and collecting captioning and audio description devices and demonstrating their use, if needed.  This also includes any costs associated with researching available systems to implement in addition to any other administrative costs.

To account for these costs, an annual cost factor is applied as a percentage of the total upfront costs.  The assumptions used to calculate maintenance and administrative costs throughout the analysis are presented in Section 3.8.

This section outlines the Department’s research regarding the costs pertaining to repairs and notice.  As explained below, these costs are expected to be de minimis and are not included in the analysis.

Information provided by manufacturers and other industry sources suggests that repair costs for captioning and audio description equipment will be relatively modest.  Captioning and audio description hardware is typically mounted high on a wall in a movie theater auditorium or otherwise placed in the projection booth.  As a result, it is unlikely to be tampered with or accidently broken by patrons or movie theater staff.  Captioning and audio description devices, on the other hand, are more prone to potential wear and tear by virtue of their use by movie patrons.  Thus, it is expected that captioning devices will require occasional cleaning or minor maintenance by movie theater staff, but these costs are captured by the ongoing maintenance and administrative costs.  Manufacturers also noted that repair of such equipment is rare.  For the most part, if equipment breaks down, the answer is replacement rather than repair.  Such costs are captured by the hardware and device replacement costs (Section 3.6).  Any additional repair costs for captioning and audio description equipment are thus expected to be de minimis.

The rule also requires that when movie theaters publish movie listings at the box office and other ticketing locations, on Web sites and mobile apps, in newspapers, and over the phone to inform patrons of show times, such communications must also indicate which screenings will be captioned or audio-described.  Based on independent research and public comments, the Department expects that the additional cost 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.

As previously discussed in Section 1.4.3, the notice requirement does not require a movie theater to implement a specific form of notice.  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 increase the cost of advertisements.  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. 

The Department acknowledges that movie theaters will likely need to add this information to their existing listings of movie showings and times on a regular basis until such time that all movies are distributed with these features.  Based on research conducted by the Department, we believe that information in the listings related to the availability of closed movie captions and audio description would only need to be updated when a new movie with these features is added to the schedule.  This will vary as some movies stay on the schedule for longer periods of time than other movies.  However, since movie theaters regularly update their listings with respect to the list and times of movies they are showing, the Department believes that the additional amount of time and cost it takes to add information concerning the availability of captioning and audio description remains insignificant.