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

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

United States Department of Justice
Civil Rights Division
Disability Rights Section
1425 New York Avenue, N.W.
Washington, D.C.  20005

NOVEMBER 2016

The U.S. Department of Justice (Department) is issuing this final Regulatory Assessment (Final RA), prepared by HDR, Inc. (HDR), in support of the Department’s final rule entitled, ”Nondiscrimination on the Basis of Disability by Public Accommodations—Movie Theaters; Movie Captioning and Audio Description.” This final rule amends the Department’s regulation implementing title III of the Americans with Disabilities Act (ADA), which prohibits discrimination against persons with disabilities by public accommodations and commercial facilities, including movie theaters. The rule revises 28 CFR 36.303 to specifically address the obligations of public accommodations that own, operate, or lease movie theaters to provide equally effective communication to patrons who are deaf or hard of hearing, or blind or have low vision. The rule requires that movie theater auditoriums provide closed movie captioning and audio description when showing a digital movie distributed with such features unless doing so results in an undue burden or a fundamental alteration. The rule requires movie theaters to have a specified number of captioning devices and audio description devices based on the number of auditoriums in the movie theater that show digital movies. The rule does not impose any specific requirements for movie theater auditoriums that exhibit analog movies exclusively. 

The requirements of this rule apply only to “movie theaters,” which are defined as facilities other than drive-in theaters that are used primarily for the purpose of showing movies to the public for a fee.  The rule requires that movie theater auditoriums that show digital movies comply with the rule’s requirements within 18 months of the rule’s publication in the Federal Register.  If a movie theater converts an auditorium from an analog projection system to a projection system that allows it to show digital movies after the publication date, that auditorium must comply with the rule’s requirements either within six months of that auditorium’s complete installation of a digital projection system or 24 months of the final rule’s publication, whichever is later.

The final rule, consistent with the ADA’s mandate, explicitly addresses equity and fairness considerations.  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.  While many movie theaters do provide captioning and audio description to their patrons, many still do not or they do not consistently provide these auxiliary aids and services, creating a barrier for persons with disabilities to take part in the social and cultural movie-going experience.

This Final RA estimates the potential costs of the final rule in accordance with Executive Order 12866 and in line with the guidelines set forth by the Office of Management and Budget’s (OMB) Circular A-4.  Executive Order 12866 requires Federal agencies to submit “significant regulatory action[s]” to OMB for interagency review.  For the category of significant regulatory actions that are “economically significant,” Executive Order 12866 further requires agencies to submit to OMB an assessment of the planned regulation’s benefits and costs, as well as the benefits and costs of potentially effective and reasonably feasible alternatives.  “Economically significant” regulations are defined by Executive Order 12866 as those actions that have:

• an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.

The Department’s Final RA projects that the total costs, benefits, or transfer payments of this rule will not reach $100 million in any single year, and thus, the rule is not economically significant under Executive Order 12866.

Summary of the Purpose and Need for this Rule
Title III of the ADA (42 U.S.C. 12182) prohibits public accommodations from discriminating against individuals with disabilities. It expressly requires owners, operators, or lessees of public accommodations to take “such steps as 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” unless doing so would result in an undue burden or a fundamental alteration. 42 U.S.C. 12182(b)(2)(A)(iii). The Department’s existing regulation at 28 CFR 36.303(a)–(c), implementing the obligation of covered entities to ensure equally effective communication with individuals with disabilities, specifies that “open and closed captioning” and “audio recordings” are examples of auxiliary aids and services. 

Thus, public accommodations that own, lease, or operate movie theaters have an existing obligation to provide effective communication to persons with disabilities through the use of auxiliary aids and services.  This rule provides greater specificity as to how these effective communication obligations are met when showing digital movies that are produced, distributed, or otherwise made available with captioning and audio description.  As discussed above, the rule explicitly requires public accommodations that own, lease, or operate movie theaters to provide closed movie captioning  and audio description to patrons with hearing and vision disabilities whenever they exhibit digital movies that are distributed with such features, as well as to have available a specific number of fully operational captioning and audio description devices.  

Despite the longstanding obligation of movie theaters to provide effective communication, neither closed movie captioning nor audio description is universally available at movie theaters across the United States.  Based on data provided by the movie exhibition industry the Department estimates that as of mid 2015, approximately 70 percent of all movie theater auditoriums were already equipped to provide closed movie captioning and audio description, However, commenters have made clear that the extent to which these services are consistently available continues to vary significantly depending on a movie theater’s location and ownership.  It is the Department’s view that the availability of closed movie captioning, and to a lesser extent audio description, is largely due to successful litigation brought by State attorneys general or private plaintiffs representing individuals with disabilities.  In light of these circumstances, individuals with hearing and vision disabilities in many cases continue to be unable to enjoy movies with family or friends, participate in conversations about recent movie releases, or otherwise take part in any meaningful way in this important aspect of American culture.  Because the ADA’s effective communication requirements apply to all public accommodations (including movie theaters) and protect the rights of persons with disabilities in every jurisdiction in the United States, this rule makes it clear that all movie theaters must ensure that they meet those requirements by providing closed movie captioning and audio description to all patrons who are deaf or hard of hearing, or blind or have low vision, when showing digital movies produced or distributed with these features unless doing so results in an undue burden or a fundamental alteration.  

Summary of Analysis and Results

Movie theaters with auditoriums that exhibit digital movies have 18 months to comply with the rule from the date of the final rule’s publication in the Federal Register.  The total costs are estimated over a 15-year period, beginning with the year in which the rule becomes effective, which is assumed to be 2016 (the 15-year period ends in 2030). The costs estimated in the primary analysis are those that can be directly attributed to the final rule.

The estimated costs consist of the following:

• Captioning Hardware Acquisition Costs;

• Audio Description Hardware Acquisition Costs;

• Captioning Device Acquisition Costs;

• Audio Description Device Acquisition Costs;

• Installation Costs;

• Replacement Costs;

• Training Costs; and

• Maintenance and Administrative Costs.

Table ES 1 shows the total costs for each cost category over the 15-year period of analysis, discounted at a 7 percent and 3 percent rate.  The total costs of the final rule over 15 years are $88.5 million when discounted by 7 percent, and $113.4 million when discounted by 3 percent.

Because movie theaters vary greatly by number of auditoriums, which significantly impacts overall costs per facility, 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 each venue type and presented in Table ES 3.  The largest cost per year for any single movie theater would occur in the second year due to the acquisition and installation of the necessary equipment by the majority of movie theaters with auditoriums subject to the rulemaking.  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.

Table ES 4 : Annualized Costs by Venue Type in Primary Analysis ($ millions)

*Totals may differ due to rounding

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

1. Introduction

This chapter begins by providing an overview of the structure of this Final RA and explaining how information is organized and presented in subsequent chapters.  The remainder of this chapter describes the purpose and need for this rule and the scope of this Final RA, provides a brief description of the notice of proposed rulemaking that was published in 2014, and includes summaries and responses to public comments received in response to our Initial Regulatory Assessment (Initial RA).

Chapter 2 presents an overview of the methodology for calculating the costs attributed to the final rule and how the methodology is applied for calculating the costs for all movie theaters impacted by this rule.

Chapter 3 describes the available data, estimates, and assumptions that are the basis for inputs used in the cost methodology described in Chapter 2 and that are applied to calculate costs in Chapter 4.

Chapter 4 presents the cost analysis and results.

Chapter 5 discusses the benefits of this rule, which are not quantified in the analysis.

Chapter 6 presents alternatives to the rulemaking that the Department considered.

Chapter 7 presents the impact of this rule on small entities within the movie exhibition industry.

On August 1, 2014, the Department issued the 2014 NPRM proposing to require movie theaters to provide closed movie captioning and audio description at all scheduled showings of a movie that is produced, distributed, or otherwise made available with such features unless to do so would result in an undue burden or a fundamental alteration.⁴ 

In the 2014 NPRM, the Department proposed that movie theaters maintain a certain number of captioning and audio description devices based on movie theater size.  The number of captioning devices required was based on the number of seats in a movie theater, and the number of audio description devices was based on the number of screens (auditoriums)⁵ in a movie theater.  The Department further proposed that movie theaters give notice of the availability of captioning and audio description as well as train staff to operate the equipment and assist patrons in its use.  The 2014 NPRM proposed a six-month compliance date for digital movie screens (auditoriums showing digital movies) and sought public comment on two options for analog movie theaters: Option 1, a four-year compliance date for analog movie screens (auditoriums), or Option 2, a deferral of rulemaking on analog screens (auditoriums) until a later date.

The Department sought comments on the 2014 NPRM and the Initial RA supporting it.

This section discusses public comments on the Initial RA that accompanied the 2014 NPRM, as well as changes made to the estimation of likely costs of this rule in response to those comments.  

The Department received 436 comments during the 2014 NPRM comment period, and many directly addressed the assumptions, data, or methodology used in the Initial RA.  The Department received comments from movie industry representatives, individuals with disabilities, advocacy groups representing individuals with disabilities, State and Federal entities, academic organizations, private companies, and other private individuals.  The preamble to this rule provides the primary forum for substantive responses to these comments.  This section discusses comments only to the extent that they implicated the Initial RA-related estimates, assumptions, or methodologies.  A summary and discussion of comments as they relate to small entities can be found in Section 7.2.

General Comments Regarding the Initial RA’s Cost Estimation

The Department reviewed a number of comments suggesting that the Department underestimated the costs of complying with this rule.  Commenters disagreed with a variety of cost estimates provided in the Initial RA.  As a threshold matter, the Department agrees that in some instances, the estimates provided did not accurately capture a particular cost of compliance.  For example, after reviewing the public comments, the Department determined that the staff training costs estimated in the Initial RA did not adequately capture the costs to comply with the operational requirements of the rule, and the equipment unit costs used in the Initial RA did not represent the most current market price of the available equipment.  As a result, the Department has updated these estimates in response to the public comments received.  However, the Department is confident that other estimates were reasonable and remain supported by the Department’s independent research.  In consideration of all comments, the Department has made adjustments where appropriate.  The comments at issue and related comments are specifically addressed below. 

Comments Regarding the Cost of Captioning and Audio Description Equipment

In the Initial RA, the Department estimated the costs of compliance with the proposed rule by estimating the number of hardware units and device units the average movie theater within each venue type⁶ would need in order to comply with the scoping requirements, which determine the number of captioning devices and audio description devices a movie theater is required to have and maintain.  Because the proposed scoping for captioning devices was based on the number of seats within a movie theater, the Department estimated the average seat count across each venue type.  The Department also estimated the average number of auditoriums across each venue type to estimate the number of audio description devices and hardware units needed.  One commenter noted that the Department’s estimates regarding the number of seats and auditoriums were too low, especially for Single-Auditorium and Miniplex movie theaters.  Because of this underestimation, the commenter believed that small movie theater establishments would be required to purchase many more captioning devices than the Department assumed in its cost analysis.  Based on industry survey information provided by the National Association of Theater Owners (NATO) in its individual comment, the Department has updated the Final RA cost estimation to reflect new data regarding average auditorium counts across venue types.  Data concerning average seat count is no longer relevant because the final rule’s scoping for captioning devices is based on the number of auditoriums, rather than the number of seats, within a movie theater (Section 3.3). 

The Department also received multiple comments concerning the unit costs for the hardware and individual devices as well as the Department’s methodology regarding these estimates.  NATO provided the most recent unit cost data for all captioning and audio description equipment currently available on the market, and the Department has updated its cost estimates in the Final RA to reflect this updated information (Section 3.4). 

In the Initial RA, the Department estimated the upfront costs for the captioning and audio description equipment by averaging the hardware and device unit costs of some equipment available on the market.  One commenter stated that the Department’s methodology concerning the average hardware and device unit costs for captioning and audio description equipment was insufficient because it only averaged the costs of the less expensive equipment.  According to the commenter, many movie theaters purchase the more expensive captioning glasses offered by Sony to satisfy audience demand, and as a result, the Initial RA substantially underestimated the cost of compliance by excluding the cost of Sony’s equipment from the average cost estimates.  A second commenter pointed out that the intent of the RA is to estimate the minimum cost of compliance, indicating that the Department’s methodology and estimate regarding the upfront costs were reasonable. 

Executive Order 12866 requires the Department to estimate the costs that movie theaters will incur as a result of this rulemaking.  Currently, there is more than one manufacturer of the equipment necessary to provide captioning and audio description, and the cost for the equipment varies among the manufacturers.  The Department has not specified the manufacturer from which movie theaters must purchase the equipment, and movie theaters retain the discretion to purchase the equipment of their choice.  As a result, the Department has included the cost for all available equipment, including the Sony equipment, in its estimate of the captioning and audio description equipment unit costs for Miniplex, Multiplex, and Megaplex movie theaters.  The Department has not added the cost of the Sony equipment to its estimate of hardware and device unit costs for Single-Auditorium movie theaters because the Department remains convinced that small movie theater establishments are highly unlikely to purchase the more expensive equipment.  As the Department’s independent research indicates, the less expensive cup holder captioning devices account for the largest percentage of the captioning device market share, and NATO advised the Department that few movie theaters outside of the top movie theater chains actually use Sony’s captioning glasses.  Therefore, while other large movie theater establishments may choose to use Sony’s technology, the Department has excluded this equipment from its estimate of the upfront costs for Single-Auditorium movie theaters (Section 3.4).

Comments Regarding Other Cost Estimates: Staff Training, Notice, Installation, Replacement, and Operation & Maintenance

In addition to the comments addressing the captioning and audio description equipment cost estimates, the Department received a number of comments addressing other cost estimates provided in the Initial RA.  These comments addressed the Department’s estimate of staff training costs, notice costs, acquisition and installation costs, replacement costs, and operation and maintenance costs.  Overall, commenters indicated that the Department either failed to include these costs in its estimates or that the Department’s estimate for these costs was too low.

The Department originally included staff training costs associated with the rule in its estimate of the annual operations and maintenance costs, but the Department sought public comment on the amount of additional time movie theaters would spend training their employees to operate the captioning and audio description devices and to assist patrons in their use.  The Department received a single comment in response to this question.  One movie theater anticipated that movie theaters would spend an additional fifteen minutes on employee training to ensure that their staff was knowledgeable about the equipment and in compliance with the rule’s operational requirements.  In consideration of this comment, the Department has included a separate estimate for the staff training costs associated with the operational requirements of the final rule.  The information provided by the movie theater commenter serves as the basis for the staff training costs estimate (Section 3.7). 

The Department received only a few comments regarding its position that any cost associated with the notice requirement would be de minimis.  One commenter argued that requiring notice in all places where movie times are listed would cost the industry millions of dollars annually because theaters would be required to invest in software upgrades, the purchase of new signage on an ongoing basis, the purchase of digital display sets, and increased advertising space to accommodate more text.  However, this commenter did not provide any information or data to support this position, and the only other commenter on this issue, a movie theater, agreed with the Department’s conclusion that notice costs would be de minimis.  According to this movie theater, the notice costs associated with the rule would be minimal for most exhibitors considering that the industry has largely separated itself from print advertising in favor of online advertising and that adding icons for captioning and audio description would not be very difficult. 

Based on the Department’s independent research and the comments received, the Department maintains its position that the costs associated with the notice requirement are de minimis.  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 currently, including on their Web sites and mobile apps, and the Department’s research indicates that the inclusion of such symbols does not increase the cost of advertisements already placed or require software upgrades as one commenter indicated (Section 2.4.4.2). 

The Department also disagrees with commenters who criticized the Department’s failure to include accurate equipment unit costs and installation costs in the Initial RA.  As the Department indicated in the Initial RA, the unit cost estimates of the available equipment included the cost to install the equipment, and these unit cost estimates were based on the most up-to-date data available to the Department during the development of the Initial RA.  The Department has updated the equipment unit cost estimates, now referred to as “acquisition costs” in the Final RA, to reflect the most recent data concerning the unit costs for all available hardware and devices.  The Final RA also now calculates installation costs as a separate cost based on a movie theater’s upfront costs (Section 3.5). 

A couple of comments addressed the replacement costs estimated in the Initial RA, specifically the replacement costs of the individual devices.  One commenter estimated that the useful life of the captioning devices is about 5 years.  According to NATO, industry data indicates that between 2.5 percent and 15 percent of individual devices must be replaced annually.  The Department has updated the estimate of individual device replacement costs to reflect the industry data provided by NATO.  To incorporate the individual devices’ estimated 4–7-year useful life, the Department estimates that 20 percent of all captioning and audio description devices purchased as a result of this rulemaking will be replaced annually (Section 3.6). 

Several commenters also argued that the Department’s estimate regarding operation and maintenance costs was too low.  According to these commenters, the maintenance costs include costs associated with replacement batteries, periodic system testing, and upgrading software, and because these costs are relative to the cost of the equipment, the Department should consider the high cost of the devices when estimating this cost.  A few comments seemed to express confusion that the operations and maintenance cost estimate in the Initial RA encompassed the costs associated with installation, replacement, and staff training.  The Department has considered these comments and has included separate cost estimates for the costs associated with installation, replacement, and staff training.  However, the Department’s independent research confirms that 3 percent of total equipment acquisition costs represents an accurate estimate of the annual operation and maintenance costs associated with this rule, especially now that installation, replacement, and staff training costs are estimated separately (Section 3.8).  The relevant cost category has been renamed “maintenance and administrative costs” in the Final RA.

Comments Regarding the Benefits Estimate

The Department qualitatively discussed the benefits associated with this rule in the Initial RA.  Without reliable information about the number of individuals who would go to the movies as a result of this rule or the number of captioned and audio-described screenings already shown, the Department determined that the benefits of the rule were difficult to quantify.  Nonetheless, the Department determined that many individuals, both those with and without disabilities, would benefit as a result of the rule, and that such benefits justified any associated costs.  Furthermore, the Department fully expected that the guarantee of access to movies screened at movie theaters for individuals with hearing or vision impairments would spur some level of new demand for movie attendance and, therefore, lead to increased box office receipts.

A majority of commenters addressing the Department’s benefit analysis recognized the difficulty in quantifying the benefits of the rule but agreed with the Department’s conclusions concerning the direct and indirect beneficiaries that this rule would serve.  Many comments focused on the number of individuals with hearing and vision disabilities, arguing that the U.S. Census vastly underestimates the number of individuals who are deaf or hard of hearing, or blind or have low vision.  Commenters also stated that in addition to helping individuals who are deaf or hard of hearing, movie captioning has the potential to increase the access and enjoyment of movies for a wide variety of people, including individuals with cognitive-communication disorders, language-based learning disabilities, aphasia, central auditory processing disorders, or individuals who are learning English or may be working to improve their literacy skills.  Organizations representing individuals with hearing and vision disabilities commented generally that captioning and audio description provide the keys to American culture to the extent that these services help individuals with hearing and vision disabilities to be more familiar with “everyday events,” thus allowing them to be more socially integrated into society.

One commenter, however, criticized the Department’s benefit analysis.  This commenter asserted that the Department failed to justify the rule with relevant, evidence-based research to demonstrate that the proposed rule would advance the intended benefits.  The commenter further recommended that the Department conduct an industry-wide survey of movie theaters and individuals with hearing and vision disabilities to determine the number of individuals currently seeking captioning and audio description and their willingness to pay for such services.

The Department maintains its position that the non-quantifiable benefits of this rule justify the costs of requiring captioning and audio description at movie theaters nationwide.  The Department received a number of comments from individuals with hearing and vision disabilities, as well as advocacy groups, indicating that individuals with disabilities are currently seeking these accessibility services, but that these services are either consistently unavailable or insufficient to meet their needs.  With the information received from such comments and the Department’s independent research, the Department does not believe that conducting a nationwide survey is necessary to confirm that this rulemaking will advance the intended benefits.  As section 1(c) of Executive Order 13563 highlights, agencies would be remiss to overlook the benefits “that are difficult or impossible to quantify, including equity, human dignity, [and] fairness.”  With respect to such benefits, this rulemaking will not only ensure that individuals who are deaf or hard of hearing, or blind or have low vision, are afforded equal access to movie theaters across the country, but it will also ensure that such individuals are afforded the opportunity to participate in the social experiences that accompany a new movie’s release.  As a result, the Department remains convinced that this rulemaking will significantly advance the achievement of the intended benefits, and that such benefits justify the costs associated with this rulemaking.  See Chapter 5 for a more detailed discussion of the benefits of this rulemaking.

This section summarizes significant changes between the final rule and the 2014 NPRM and explains how these changes impact the Final RA.

The Department has decided to defer until a later date the decision whether to engage in rulemaking with respect to movie theater auditoriums that exhibit analog movies exclusively.  The Department’s research indicates that very few analog movie theaters remain, and that the number of such movie theaters has declined rapidly in recent years due, in large part, to the movie industry’s conversion to digital cinema.  The Department believes that it is prudent to delay further rulemaking with regard to analog movie theaters until it is clear whether, for example, there will be any movie theaters in the future that continue to show analog movies exclusively, whether analog movies will continue to be produced, and, if so, whether they will be produced or distributed with captioning and audio description.  As a result of this decision, the primary analysis of the Final RA does not assess the costs to provide captioning and audio description for analog auditoriums. 

The Department has lowered the minimum required scoping for captioning and audio description devices in order to ensure that the scoping requirements sufficiently provide access to individuals with hearing and vision disabilities who need and will use the devices without requiring movie theaters to purchase more equipment than is necessary.  The Department has adopted the minimum captioning device scoping suggested in a joint comment submitted by the deaf and hard of hearing community in conjunction with the movie exhibition industry.  The Final RA uses these scoping requirements to estimate the costs of the final rule, as presented in Section 3.3.3.  Similarly, the Department has adopted the minimum audio description device scoping suggested by the movie exhibition industry.  Section 3.3.4 shows the audio description device scoping requirements that the Department used in the Final RA’s cost estimation.

In the final rule, the Department has identified the specific types of communications that are subject to the notice requirement.  Movie theaters must provide notice of the availability of captioning and audio description on all communications and advertisements listing movie showings and times that are provided at or on any of the following: the box office and other ticketing locations, Web sites, mobile apps, newspapers, and the telephone.  This list is exhaustive.  Despite this change, the Department maintains its position that any costs associated with the notice requirement are de minimis because indicating the availability of captioning and audio description should not increase the cost of advertisements.  (See Section 2.4.4.2 for more detailed discussion regarding why these costs are likely de minimis, which includes a discussion of the existing practice among many movie theaters of using abbreviations to indicate the availability of closed movie captioning, e.g., “CC”, and audio description, e.g., “AD”).  Therefore, the Final RA’s cost estimation with regards to the notice requirement remains unchanged.

Because movie theaters may comply with the requirement to provide captioning at all screenings of a digital movie produced or distributed with such features through the provision of open movie captions, the Department has added a requirement that movie theater staff know how to turn on the open movie captions.  This requirement applies to the extent that a movie theater intends to comply with this rulemaking by providing open movie captioning at all showings or on-demand whenever requested by or for a movie patron with a hearing disability.  Since the Initial RA, the Department has changed its methodology for estimating the training costs associated with this rulemaking, and the Department’s training costs estimate in the Final RA includes the associated costs to train movie theater staff on how to turn on the open movie captions (Section 3.7). 

The major provisions of this rule can be summarized as follows. 

First, the captioning and audio description requirements of this rule apply only to movie theaters with auditoriums that exhibit digital movies.  The Department defers to a later date the decision whether to engage in rulemaking addressing the application of this rule to movie theater auditoriums that exhibit analog movies exclusively. 

Second, within 18 months of the rule’s publication in the Federal Register, movie theaters must ensure that their auditoriums exhibiting digital movies provide captioning and audio description to patrons with hearing and vision disabilities at all showings whenever the movie is produced or distributed with these features.  In no case does the rule require movie theaters to add captions or audio description for movies that are not produced or distributed with these features.  Nor does the rule prohibit movie theaters from showing digital movies that are not produced with captions or audio description or from choosing to show the analog version of a particular movie, even if that movie is also produced in digital format with captions and audio description.  The rule also specifies that movie theaters that convert from analog projection systems to digital cinema projection systems after the rule’s publication in the Federal Register must comply with the requirements of the rule either six months from the date of conversion or 24 months from the publication date, whichever is later.

Third, movie theaters must maintain a minimum number of fully operational captioning devices and provide them to patrons upon request.  This requirement is based on the number of auditoriums at each movie theater that exhibit digital movies and is designed to ensure the availability of a sufficient number of devices for use at peak attendance times by individuals who are deaf or hard of hearing.  An overview of these requirements by venue type is presented in more detail in Table 3-17 in Section 3.3. 

Fourth, movie theaters must maintain a minimum number of fully operational audio description devices and provide them to patrons upon request.  The rule permits movie theaters to use the assistive listening receivers that they are already required to provide to patrons pursuant to sections 219 and 706 of the 2010 ADA Standards for Accessible Design (2010 Standards)⁷ to meet this requirement if those assistive listening receivers have a second channel available to deliver audio description.  An overview of these requirements by venue type is presented in more detail in Table 3-18 in Section 3.3.

Fifth, movie theaters may meet their obligation to provide captioning and audio description to patrons with hearing and vision disabilities through the use of alternative technologies, including open movie captioning, so long as that technology provides communication as effective as that provided to movie patrons without disabilities.

Sixth, movie theaters that exhibit digital movies must provide the public with notice as to the availability of captioning and audio description.  This provision is necessary so that movie patrons who are deaf or hard of hearing, or blind or have low vision, can find out which movies are accessible to them.

Finally, movie theaters that exhibit digital movies must have staff available to operate and respond to problems with all equipment necessary to deliver captioning and audio description and to show patrons how to use the individual devices whenever digital movies with such features are shown.

As with other effective communication obligations under the ADA, movie theaters do not have to comply with these requirements to the extent that they constitute an undue burden or a fundamental alteration.

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.

3. Data Overview

This section presents data on how the current number of auditoriums operating in the United States is distributed across venue types and estimates the number of auditoriums operating into the future for the purposes of the analysis.  It also estimates the number of auditoriums with digital projection systems.  The number of auditoriums by venue type and the projection systems they use provide the foundation of the cost estimation of the final rule.

Section 3.1.1 outlines the sources used for the current estimation of total U.S. auditoriums.  Section 3.1.2 distributes those auditoriums across the different venue types, and Section 3.1.3 explains how the number of auditoriums is projected into the future.  Section 3.1.4 specifies the movie projection system used by the auditoriums in each venue type.

The cost estimation begins with the estimated number of movie theater auditoriums or screens operating in the United States as of July 2015.  Table 3-1 presents a summary of this information.  The data is provided by Deluxe Technicolor Digital Cinema and United Drive-In Theatre Owners Association (UDITOA).

As explained in Section 2.1.4, movie theaters operating in the United States are categorized by venue type.  The final rule’s scoping requirements for captioning and audio description devices vary depending on the size of the venue (i.e., the number of auditoriums exhibiting digital movies within a movie theater complex).  Therefore, the analysis first breaks down the total number of indoor movie theater auditoriums (approximately 39,338 as presented above in Table 3-1) across the various venue types.  The Motion Picture Association of America’s (MPAA) Theatrical Market Statistics – 2009 contains statistics of the 2009 breakdown of movie theater auditoriums in the United States by four venue types:

• Megaplex (16+ auditoriums);

• Multiplex (8–­15 auditoriums);

• Miniplex (2–­7 auditoriums); and

• Single-Auditorium movie theaters.

There has been no update to this distribution since the 2009 MPAA report.¹³  Recently, however, the 2014 MPAA report provided the percentage of U.S. auditoriums across different venue size categories (i.e., eight or more auditoriums and seven or fewer auditoriums).¹⁴  This section shows how the distribution of auditoriums by venue type in 2015 is derived using data from the 2009 and 2014 MPAA reports.

Table 3-2 presents the percentage of auditoriums operated in each venue type, according to the 2009 MPAA report and the 2014 MPAA report.  According to the 2009 report (first column), the number of auditoriums in Megaplex and Multiplex movie theaters (venues with 8 or more auditoriums) accounted for about 75 percent of all auditoriums in the United States in 2009.  In the 2014 MPAA report (second column), approximately 84 percent of all auditoriums are operated in venues with eight or more auditoriums, up from 75 percent in 2009.  The final, rightmost column in Table 3-2 shows the estimated current distribution of auditoriums by venue type, using the data in the 2009 and 2014 MPAA reports. 

The period of analysis in the Final RA spans 15 years.  As a result, the cost estimation requires projecting the estimated number of auditoriums by venue type into the future.  The 2014 MPAA report provides statistics on the growth rate of auditoriums by the venue size categories.  Table 3-4 shows the average annual growth by such movie theaters from 2010 to 2014.  Between 2010 and 2014, the number of auditoriums in venues with eight or more auditoriums (Megaplex and Multiplex movie theaters) grew by an average of 2 percent each year.  The number of auditoriums in venues with seven or fewer auditoriums (Miniplex and Single-Auditorium movie theaters) has steadily declined since 2010, decreasing by an average of nearly 7 percent each year.

Finally, auditoriums are categorized based on the movie projection system utilized (digital vs. analog).  According to the data presented in Section 3.1.1, approximately 98 percent of all indoor auditoriums exhibit digital movies.¹⁶  Most of the large movie theaters are operated by the largest firms in the industry (Regal, AMC, Cinemark, etc.), and these firms have already converted their auditoriums to digital projection systems.  Therefore, the Final RA assumes that all auditoriums operated in Megaplex and Multiplex movie theaters have converted to digital projection systems and are exhibiting digital movies.  All remaining auditoriums exhibiting digital movies are assumed to be distributed proportionally across Miniplex and Single-Auditorium movie theaters.  

As a result, the Final RA assumes that 90 percent of indoor auditoriums operated in Miniplex and Single-Auditorium movie theaters exhibit digital movies.  Table 3-6 shows how this percentage is applied to the number of indoor auditoriums in 2015 (Section 3.1.1) to calculate the number of auditoriums exhibiting digital movies by venue type in 2015.  All indoor auditoriums exhibiting digital movies are subject to the rulemaking, and their costs are estimated in the Final RA.  The potential costs to indoor auditoriums exhibiting analog movies exclusively¹⁷ are analyzed separately in an analysis in Section 6.3 as part of a discussion concerning regulatory alternatives the Department decided not to pursue.

Table 3-6 : Calculation of Number of Indoor Auditoriums Exhibiting Digital Movies

*Totals may differ due to rounding

All new auditoriums opening after the 18-month compliance date are assumed to exhibit digital movies.  The Final RA assumes that new auditoriums will purchase the necessary captioning and audio description equipment in the first year of operation.  Auditoriums that close during the analysis period are assumed to be proportionally distributed among auditoriums that exhibit digital movies and auditoriums that exhibit analog movies.

Figure 3-2 shows how the percentage of auditoriums exhibiting digital movies increases over the period of analysis. In 2016, approximately 98.3 percent of all auditoriums exhibit digital movies.  By 2030, the final year of the analysis, nearly all auditoriums (99.5 percent) are assumed to exhibit digital movies.  This is consistent with the industry trend as very few new movie releases are available in analog film format.

In the Final RA, the baseline is defined as the current number of auditoriums equipped to provide closed movie captioning and audio description.  As explained in Section 2.1.3, any auditoriums that are already equipped to provide closed movie captioning and audio description prior to the rulemaking are not included in the cost estimation.

Until recently, few movie theaters actually provided auxiliary aids and services for movie patrons who are deaf or hard of hearing, or blind or have low vision, despite the increasing availability of movies produced with captions and audio description.  The Department recognizes that this has started to change.  The industry as a whole is seeing an increasing number of movie theaters with auditoriums equipped to provide closed movie captioning and audio description.

However, there is uncertainty regarding the precise number of auditoriums equipped to provide these services. Because this estimate has a significant impact on the cost estimation of the final rule, the Final RA estimates costs against three different baselines.  A Medium Accessibility baseline is used in the primary analysis, and Low Accessibility and High Accessibility baselines are used in sensitivity analyses.  The three baselines are derived from the 2015 Accessibility Survey conducted by NATO.¹⁸ 

Section 3.2.1 provides an overview and presents the results of the 2015 NATO Accessibility Survey.  Section 3.2.2 explains that the results of the survey are not definitive and demonstrates the need for analyzing multiple baselines.  This section also provides an overview of how the Low Accessibility, Medium Accessibility, and High Accessibility baselines are calculated.  Section 3.2.3 shows how the number of auditoriums already equipped to provide closed movie captioning and audio description is distributed across the venue types in the primary analysis.

NATO is a trade association representing firms in the movie exhibition industry.  In 2015, NATO members in the United States operated approximately 32,499 of the 39,338 indoor movie auditoriums nationwide (82.6 percent).  In response to the 2014 NPRM, NATO conducted a survey (2015 survey) of its member companies regarding the number of auditoriums already equipped to provide closed movie captioning and audio description.¹⁹  NATO members responded via email during the spring and summer of 2015, providing information on the total number of auditoriums they operated and the proportion of those auditoriums that were equipped to provide closed movie captioning or audio description.

NATO received survey responses from 116 companies operating 24,739 auditoriums in the United States.  A quick overview of the 2015 survey results is provided in Table 3-7 below.  According to the 2015 survey, 22,836 auditoriums are equipped to provide closed movie captioning and 22,673 auditoriums are equipped to provide audio description.

The 2015 survey is representative of a portion of the total number of auditoriums operating in the United States.  The Final RA uses three possible baselines (Low Accessibility, Medium Accessibility, and High Accessibility) that differ depending on the assumptions concerning the prevalence of auditoriums already equipped to provide closed movie captioning or audio description amongst movie theaters that were not surveyed or that failed to respond to the 2015 survey.  The primary analysis uses the Medium Accessibility baseline while the Low Accessibility and High Accessibility baselines are estimated separately as sensitivity analyses in Sections 4.2.1 and 4.2.2.  The assumptions used to calculate the baselines are outlined in the sections below.

The Low Accessibility baseline is the most conservative of the three baselines developed for the cost estimation.  The Low Accessibility baseline assumes that:

• The auditoriums equipped to provide closed movie captioning or audio description as reported in the 2015 survey are the only indoor auditoriums exhibiting digital movies in the United States that are equipped to provide closed movie captioning or audio description.

The calculation for the Low Accessibility baseline is presented in Table 3-8.  The Low Accessibility baseline is calculated by dividing the number of auditoriums equipped to provide closed movie captioning or audio description, as reported in the 2015 survey (Table 3-7), by the total number of indoor auditoriums operating in the United States (Table 3-1 in Section 3.1.1).

The Medium Accessibility baseline is used in the cost estimation for the primary analysis presented in Section 4.1.  The Medium Accessibility baseline assumes that:

• The percentage of auditoriums equipped to provide closed movie captioning or audio description amongst auditoriums operated by all NATO members is true for all indoor auditoriums exhibiting digital movies in the United States.

As previously discussed in Section 3.2.1, NATO member companies operate approximately 32,499 auditoriums.  The Medium Accessibility baseline assumes that the percentage of auditoriums equipped to provide closed movie captioning or audio description amongst auditoriums operated by NATO members is true for the entire industry.  This differs from the Low Accessibility baseline, which assumes that no auditoriums outside of those included in the 2015 survey are equipped to provide closed movie captioning or audio description.  The Medium Accessibility baseline is calculated by dividing the number of auditoriums equipped to provide closed movie captioning or audio description, as reported in the 2015 survey, by the total number of auditoriums operated by NATO members, as shown in Table 3-9.

The High Accessibility baseline is the least conservative of the three baselines.  The High Accessibility baseline assumes that:

• The percentage of auditoriums equipped to provide closed movie captioning or audio description amongst auditoriums operated by surveyed NATO members is true for all indoor auditoriums exhibiting digital movies in the United States.

As shown in Table 3-7, the NATO members responding to the survey operated 24,739 auditoriums.  The High Accessibility baseline assumes that the percentage of auditoriums equipped to provide closed movie captioning or audio description amongst the total number of auditoriums operated by firms responding to the 2015 survey is true for the entire industry.  The High Accessibility baseline is calculated by dividing the total number of auditoriums equipped to provide closed movie captioning or audio description, as reported in the 2015 survey, by the total number of auditoriums operated by the 2015 survey respondents, as shown in Table 3-10.

The Low Accessibility, Medium Accessibility, and High Accessibility baselines are summarized in Table 3-11.  The primary analysis uses the Medium Accessibility baseline in the calculation of the estimated costs.  In the Medium Accessibility baseline, approximately 70 percent of auditoriums are equipped to provide closed movie captioning and approximately 70 percent are equipped to provide audio description.  The costs of the final rule using the Low Accessibility and High Accessibility baselines are estimated as sensitivity analyses in Sections 4.2.1 and 4.2.2, respectively.

Table 3-12 : Medium Accessibility Baseline by Venue Type–Captioning and Audio Description

The Medium Accessibility baseline percentage by venue type above is then applied to the number of indoor auditoriums exhibiting digital movies in the compliance year, presented in Table 3-9.  Table 3-13 below shows the calculation used to determine the Department’s assumption regarding the number of auditoriums subject to the rulemaking that are and are not equipped to provide closed movie captioning or audio description.  As the table shows, the Department assumes that 9,561 of the auditoriums at Megaplex movie theaters are equipped to provide closed movie captioning, while 3,778 are assumed to not be equipped to provide closed movie captioning.

Table 3-13 : Calculation of Auditoriums That Are Equipped to Provide Captioning by Venue Type

*Percentage of all auditoriums equipped to provide captioning

The same methodology is used to calculate the number of auditoriums subject to the rulemaking that are and are not equipped to provide audio description.

Table 3-14: Calculation of Auditoriums That Are Equipped to Provide Audio Description by Venue Type

*Percentage of all auditoriums equipped to provide audio description

As shown in Section 2.3.1 and Section 2.3.2, the number of indoor digital auditoriums that are and are not equipped to provide closed movie captioning or audio description in the compliance year provides the basis of estimating how many units of equipment will be purchased as a result of the rulemaking.

This section outlines the estimated number of hardware units and individual devices required for each venue type.  As previously explained in Section 2.3, four types of equipment are necessary to provide closed movie captioning and audio description:

• Captioning Hardware

• Audio Description Hardware

• Captioning Devices

• Audio Description Devices

The final rule’s scoping requirements for captioning and audio description devices are based on industry research and recommendations proposed by NATO and multiple disability rights groups.  Because each movie theater will have to purchase the requisite equipment, all scoping is presented on a per venue type basis.

According to industry research, a single unit of captioning hardware is required for each auditorium within a movie theater (Section 2.3). Therefore, the number of captioning hardware units a movie theater would need to purchase varies depending on the number of auditoriums operated in that movie theater.  For purposes of the cost estimation, the average number of auditoriums per venue type is used to calculate the number of hardware units required per movie theater.²⁰  Table 3-15 presents the average number of auditoriums by venue type and estimates the relevant number of captioning hardware units required by the scoping requirements using the one unit per auditorium assumption.

Unlike closed movie captioning hardware, one unit of audio description hardware per auditorium is not necessary to provide audio description.  For some manufacturers, the captioning hardware includes audio description capabilities.  Other manufacturers require a single audio description programming station, which is sufficient to provide audio description in an entire movie theater establishment, regardless of the number of auditoriums.  Information regarding the characteristics of the captioning and audio description equipment from the primary manufacturers is described in further detail in Section 3.4.2.  For purposes of the cost estimation, the Final RA assumes that one unit of audio description hardware is required per movie theater.  Table 3-16 presents the average number of auditoriums by venue type and estimates the relevant number of audio description hardware units required by the scoping requirements using the one unit per movie theater assumption.

In response to the 2014 NPRM, NATO and four advocacy groups representing persons who are deaf and hard of hearing²¹ submitted a joint comment (Joint Comment), which included a variety of specific recommendations regarding closed movie captioning and the Department’s proposed scoping requirements for captioning devices. The Joint Comment suggested that movie theaters maintain a minimum number of captioning devices based on the number of auditoriums displaying digital movies within a movie theater, or by venue type.  The Department has adopted the minimum captioning device scoping suggested in the Joint Comment, and the Final RA uses these scoping requirements for the estimation of costs.  The minimum number of captioning devices required per venue type is presented in Table 3-17 below.

For audio description devices, NATO in its public comments suggested that movie theaters maintain one audio description device for every two auditoriums, with a minimum of two devices per movie theater.  The Department has adopted the scoping requirements for audio description devices as recommended in NATO’s public comments.  Table 3-18 shows the scoping requirements for audio description devices used in the cost estimation of the final rule.  Because the number of audio description devices per movie theater will vary depending on the number of auditoriums displaying digital movies in the movie theater, the scoping below represents the average number of audio description devices required per movie theater, based on the average number of auditoriums by venue type.

This section outlines the unit costs for the hardware and the individual devices necessary to provide closed movie captioning and audio description in auditoriums exhibiting digital movies.  The unit costs from the three main manufacturers of the equipment (Doremi Captiview, USL, and Sony) are taken directly from NATO’s public comments, which are based on its interviews with these companies.²³

In the Initial RA, the Department estimated the hardware and device costs by averaging the retail prices for the systems provided by Doremi Captiview and USL.  The Initial RA also noted that an additional captioning technology was commercially available, Sony’s Entertainment Access Glasses.  Because this was a relatively new and expensive technology, the Department excluded it from the average unit cost estimates in the Initial RA.  However, many commenters on the 2014 NPRM, including NATO, argued that Sony’s technology should be included in the unit cost estimates because the industry uses the technology—most notably, Regal Cinemas, the largest U.S. movie theater chain, uses this technology.

In response to comments, the Department has included Sony’s technology in the average unit cost estimates.  However, it is unlikely that the smallest movie theaters will purchase the Sony technology when less costly alternatives are available.²⁴  Therefore, Sony is now included in the average unit cost estimates in the Final RA but only for Miniplex, Multiplex, and Megaplex movie theaters.  The average unit cost estimate methodology for Single-Auditorium movie theaters remains the same and is calculated by averaging the retail prices of the Doremi Captiview and USL systems.

Section 3.4.1 through Section 3.4.4 outline the unit costs for all equipment necessary to provide closed movie captioning and audio description by manufacturer.  Section 3.4.5 presents the Department’s methodology for determining the average unit cost estimates used in the primary analysis.

The Initial RA estimated the costs of captioning and audio description hardware separately.  However, industry research indicates that if a movie theater is required to provide both closed movie captioning and audio description, it would likely purchase a hardware bundle currently offered by manufacturers. These hardware bundles provide hardware with the capability to provide both closed movie captioning and audio description at a lower cost than when purchasing the hardware separately.  The unit costs for all commercially-available captioning hardware systems are presented in Table 3-19.

Table 3-19 :  Captioning Hardware Unit Costs

Source: NATO, Statement of Position on RIN 1190-AA63, CRT Docket No. 126, Nondiscrimination on the Basis of Disability by Public Accommodations—Movie Theaters; Movie Captioning and Audio Description 23, available at http://www.regulations.gov/contentStreamer?documentId=DOJ-CRT-2014-0004-0401&attachmentNumber=4&disposition=attachment&contentType=pdf (last visited Sept. 12, 2016).

*This figure represents an average of the cost for movie theaters with Doremi servers ($822) and the cost for movie theaters without Doremi servers ($906).

The captioning hardware offered by Sony and USL also includes audio description functionality. Although Doremi Captiview hardware does not include this dual capability, it offers hardware transmitters for captioning and audio description in a bundled set at a discounted price.  Doremi offers the bundled hardware at two different prices depending on whether the movie theater uses Doremi servers for their projection system.  The $864 unit cost displayed in Table 3-19 is an average of the bundled hardware cost for movie theaters with Doremi servers ($822) and the bundled hardware cost for movie theaters without Doremi servers ($906).

As previously mentioned, it is unlikely that Single-Auditorium movie theaters with limited budgets would opt to purchase the Sony Entertainment Access system given the availability of cheaper alternatives.  Although the captioning hardware offered by Sony is less expensive than the other available hardware units, the captioning devices (Sony Entertainment Access Glasses) cost more than the captioning devices offered by other manufacturers (Section 3.4.3).  Therefore, the cost estimation assumes that the average captioning hardware unit cost is $1,118 for Single-Auditorium movie theaters and $912 for all other venue types (Section 3.4.5).

According to industry research, there are no additional audio description hardware costs for movie theaters purchasing USL or Sony’s captioning hardware.  As discussed in Section 3.4.1, these manufacturers’ captioning hardware units also have the capability to transmit audio description to movie patrons.  However, the Doremi Captiview audio description system (Fidelio) requires a programming station in addition to the bundled hardware. Generally, one programming station per movie theater complex is sufficient to provide audio description to patrons throughout the movie theater and costs $615.  The unit costs for all commercially-available audio description hardware systems are presented in Table 3-20.

Table 3-20 :  Additional Cost for Audio Description Hardware

Source: NATO, Statement of Position on RIN 1190-AA63, CRT Docket No. 126, Nondiscrimination on the Basis of Disability by Public Accommodations—Movie Theaters; Movie Captioning and Audio Description 23, available at http://www.regulations.gov/contentStreamer?documentId=DOJ-CRT-2014-0004-0401&attachmentNumber=4&disposition=attachment&contentType=pdf (last visited Sept. 12, 2016).

The unit costs in the table have been averaged to develop an estimate of the average audio description hardware unit cost per movie theater based on all available technology.  Because there are no additional audio description hardware costs if a movie theater purchases the USL or Sony system, the average audio description hardware unit cost for Single-Auditorium movie theaters is $308, and it is $205 for all other venue types.

The unit costs for captioning devices are presented in Table 3-21. The price of the captioning devices varies depending on the manufacturer and the device type.  Some manufacturers offer units that fit into movie theater seat cup holders, and others offer glasses worn by the patron.  Because USL offers both devices, the captioning device unit cost for USL is an average of the two devices offered: a cup holder device ($443) and the captioning glasses ($514).  For the Sony system, each captioning device requires both a receiver ($300) and a pair of glasses ($950) in order for the captions to appear on the glasses.

Table 3-21 : Captioning Device Unit Costs

Source: NATO, Statement of Position on RIN 1190-AA63, CRT Docket No. 126, Nondiscrimination on the Basis of Disability by Public Accommodations—Movie Theaters; Movie Captioning and Audio Description 23, available at http://www.regulations.gov/contentStreamer?documentId=DOJ-CRT-2014-0004-0401&attachmentNumber=4&disposition=attachment&contentType=pdf (last visited Sept. 12, 2016).

Although Sony has less expensive hardware costs, Table 24 demonstrates that the cost of a single Sony captioning device is more than double that of the other manufacturers.  Because the final rule’s captioning device scoping requirements require a Single-Auditorium movie theater to maintain four captioning devices, the difference in price between installing the Sony captioning system and installing another captioning system is significant.  The average captioning device unit cost when excluding Sony’s captioning device is $466 per individual device, and the Department uses this estimate as the average captioning device unit cost for Single-Auditorium movie theaters in the primary analysis.  The primary analysis assumes an average captioning device unit cost of $727 for Megaplex, Multiplex, and Miniplex movie theaters.

The individual devices required for audio description typically consist of a headset or headphones with a receiver that picks up the descriptive audio from a transmitting or programming station. Often, patrons can bring their own headphones that they are comfortable wearing. Under the final rule, however, movie theaters are required to provide headsets capable of receiving audio description for patrons’ use. The unit costs for all commercially-available audio description devices are presented in Table 3-22. The primary analysis assumes that the average unit cost for audio description devices is $95 for Single-Auditorium movie theaters and $163 for all other venue types.

Table 3-22 : Audio Description Device Unit Costs

Source: NATO, Statement of Position on RIN 1190-AA63, CRT Docket No. 126, Nondiscrimination on the Basis of Disability by Public Accommodations—Movie Theaters; Movie Captioning and Audio Description 23, available at http://www.regulations.gov/contentStreamer?documentId=DOJ-CRT-2014-0004-0401&attachmentNumber=4&disposition=attachment&contentType=pdf (last visited Sept. 12, 2016).

As previously mentioned, there are three main manufacturers of the captioning and audio description equipment (Doremi Captiview, USL, Sony).  The Final RA estimates the average unit costs of the hardware and the devices based on the retail prices of all currently-available equipment from the three manufacturers. Sony’s technology is primarily deployed by movie theaters operated by Regal Cinemas, the largest movie theater chain in the United Stated, and Sony’s technology is generally more expensive than that of the other manufacturers.  Therefore, the Final RA assumes that Single-Auditorium movie theaters operating on a limited budget will elect to purchase equipment from one of the less expensive manufacturers, such as USL or Doremi Captiview.  Larger venues (Megaplex, Multiplex and Miniplex movie theaters) are assumed to purchase from all technology providers.  The unit costs for all required equipment discussed in Section 3.4.1 through Section 3.4.4 are summarized by venue type in Table 3-23 below.

Table 3-23 : Summary of Equipment Unit Costs by Venue Type

Public comments and Department research suggest that there are installation costs associated with providing closed movie captioning and audio description in movie theater auditoriums that exhibit digital movies.  Although the Initial RA factored the relevant installation costs into the estimated device costs, the Final RA includes a separate estimation of installation costs.  For purposes of the cost estimation, the Department assumes that installation costs are 3 percent of total equipment acquisition costs.  The installation costs are included as an upfront cost that a movie theater incurs once.  The primary analysis assumes that movie theaters incur installation costs in the same year in which a theater purchases the necessary captioning and audio description equipment.

Given the assumed 15-year term of the final rule, captioning and audio description equipment will require replacement one or more times during this period.  The analysis estimates replacement costs for movie theaters purchasing new equipment as a direct result of the rulemaking.  The replacement costs that movie theaters incur for equipment purchased prior to this rulemaking cannot be directly attributed to this rule and have not been included in the cost estimation in the Final RA. 

As shown in Section 3.1.3, the number of auditoriums operated in Miniplex and Single-Auditorium movie theaters is expected to decline over the period of analysis in contrast to the positive growth rates projected for auditoriums in Megaplex and Multiplex movie theaters.  The replacement cost calculations are adjusted for movie theaters that may close during the analysis period because such movie theaters have no need for replacements.

Section 3.6.1 explains the replacement schedule that is used to estimate the time and extent of hardware replacement over the analysis period.  Section 3.6.2 discusses the assumptions and research regarding the rate of device replacement.

Public comments on the 2014 NPRM, as well as information provided by manufacturers, suggest that captioning and audio description hardware is expected to last about 10 years.  The Final RA uses a “replacement schedule” for captioning and audio description hardware in the cost estimation.  The Final RA assumes that all hardware will be replaced 9-11 years after the initial installment.  Within this replacement schedule, it is likely that more equipment will need replacement near the mid-point of the replacement time frame (as opposed to “earlier” or “later” years).  Thus, the cost estimation employs weighted percentages in the respective rolling replacement schedules for captioning and audio description hardware, as shown in Table 3-24.

Table 3-24 : Captioning and Audio Description Hardware Replacement Schedule

In practice, the replacement schedules for captioning and audio description hardware mean that in any given regulatory year after the ninth year, some proportion of hardware is being replaced.  Hardware replaced in any particular year simply follows a consistent pattern depending on the year in which the equipment was originally purchased.  For instance, for movie theaters purchasing and installing hardware in 2017, 15 percent would be replaced in 2026, 70 percent in 2027, and 15 percent in 2028.  The estimation of the hardware replacements costs in the primary analysis is presented in Section 4.1.3.

Because patrons will handle the captioning and audio description devices on a regular basis, the devices will require replacement more often than the hardware.  According to movie theaters, approximately 2.5 to 15 percent of devices need to be replaced each year due to mishandling, breakage, and patrons’ failure to return the devices.²⁵  Additionally, this estimate does not account for the fact that the individual devices eventually become unusable and need to be replaced over time.  As Department research indicates, individual devices have an average lifespan of four to seven years.

To account for the ongoing costs associated with the replacement of devices prior to the end of their lifespan and the replacement of these devices at the end of their lifespan, the primary analysis assumes that 20 percent of captioning and audio description devices acquired as a result of the rulemaking are replaced annually.  As previously discussed, the replacement costs incurred for devices purchased prior to the rulemaking cannot be directly attributed to this rulemaking.

As a result of the final rule’s requirements, movie theaters may need to develop additional staff training programs and reinforce this training on a regular basis to ensure that staff members know how to turn on the captions, to operate the devices, and are able to assist patrons in the equipment’s use.  According to a movie theater’s public comment on the 2014 NPRM, training employees to distribute and operate captioning and audio description equipment will take approximately 15 minutes.²⁶  To quantify this cost, time spent on training is monetized using the average hourly wage of movie theater employees. 

The analysis assumes that staff training occurs twice a year for all employees at all movie theaters exhibiting digital movies.  Unlike the other costs in the analysis, the training costs also include the costs to movie theaters with auditoriums that were already equipped to provide closed movie captioning or audio description prior to the rulemaking, as all movie theaters with auditoriums exhibiting digital movies will be required to comply with the rule’s operational requirements.  The Department notes that although the operational requirements only require a movie theater to have one employee on location to assist patrons with the captioning and audio description equipment whenever a digital movie with captioning and audio description is shown, the Department has estimated the associated training costs assuming that movie theaters will train all employees.  Without reliable data on the actual number of employees who will be trained as a result of this rulemaking, the Department believes that this is the best approach.

Table 3-26 shows the calculation of the number of employees per movie theater auditorium in the industry.  According to May 2014 Bureau of Labor Statistics (BLS) estimates, there were approximately 131,040 persons employed by the movie industry.  Applying this figure to the total number of auditoriums in the United States (including drive-in movie theaters to account for drive-in movie theater employees included in the 2014 BLS estimate) suggests that there are approximately 3.3 employees per auditorium.

Table 3-26 : Employees Per Movie Auditorium Calculation

*Source: BLS, Occupational Employment Statistics, National Industry-Specific Occupational Employment and Wage Estimates, NAICS 512130 – Motion Picture and Video Exhibition (May 2014), available at http://www.bls.gov/oes/current/naics5_512130.htm (last visited Sept. 12, 2016).

** Source: Data from UDITOA and Deluxe Technicolor provided by NATO (Section 3.1)

The additional time spent on training as a result of this rulemaking is monetized using the average hourly wage rate of movie theater employees and a wage-to-employment cost factor.  This calculation is summarized in Table 3-27 and shows the hourly cost of a movie theater employee assumed for cost estimation purposes.  This hourly cost is used to monetize the time spent on training staff members.

Table 3-27 : Hourly Employment Cost Calculation

*Source: BLS, Occupational Employment Statistics, National Industry-Specific Occupational Employment and Wage Estimates, NAICS 512130 – Motion Picture and Video Exhibition (May 2014), available at http://www.bls.gov/oes/current/naics5_512130.htm (last visited Sept. 12, 2016).
**Source: Press Release, BLS, Employer Costs for Employee Compensation – September 2015 (Dec. 9, 2015), available at http://www.bls.gov/news.release/ecec.nr0.htm (last visited Sept. 12, 2016).

As discussed above, the primary analysis assumes that staff training will take 15 minutes and will be conducted twice a year.  Thus, each employee will spend approximately 0.5 hours a year on training related to the operational requirements of this rule.  The total training costs to the industry as a result of this rulemaking can be calculated by multiplying the number of auditoriums exhibiting digital movies, the average number of movie theater employees per auditorium, the hourly employment cost of movie theater employees, and the hours spent per year on training.  The estimated staff training costs in the primary analysis are presented in Section 4.1.3.  An additional sensitivity analysis with increased staff training frequency is presented in Section 4.2.6.

The cost estimation also quantifies any additional maintenance and administrative costs associated with the rulemaking.  This cost differs from the installation costs outlined in Section 3.5.  It also differs from the equipment replacement and staff training costs outlined in Sections 3.6 and 3.7, respectively.  As explained in Section 2.4.3, the operation and maintenance costs include:

• 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.

The RA uses a value equivalent to 3 percent of the total captioning and audio description equipment acquisition costs incurred by the movie theater to capture the additional costs associated with these items.  These costs are ongoing and occur annually in the analysis.  Sensitivity analyses conducted using a factor of 5 and 10 percent are presented in Section 4.2.7.

The total costs of implementing the movie captioning and audio description rulemaking are calculated and presented in this chapter.  The results in the primary analysis use the analytical framework, data, and assumptions presented in Chapters 2 and 3.  In addition, sensitivity analyses are conducted for several variables in which uncertainty exists.

Section 4.1 presents the cost estimation in the primary analysis.  Within this section, a detailed breakdown of both the upfront costs and the ongoing annual costs is provided.  Additionally, the average ‘per movie theater’ costs over the analysis period are presented by venue type in this section.

Section 4.2 presents the sensitivity analyses for which input variables have been varied where uncertainty exists in the Department’s data.  Some of these variables are discussed in Chapter 3.  The sensitivity analyses conducted in this section include cost estimations using the Low Accessibility and the High Accessibility baselines, an alternate Medium Accessibility baseline distribution, Single-Auditorium unit costs when including Sony’s equipment, alternate captioning and audio description device replacement rates, increased annual staff training frequency, increased maintenance and administrative costs, and a leveling annual growth rate over the period of analysis.

This section shows the results for the primary analysis using 7-percent and 3-percent discount rates.  First, the total costs of the rule are presented by cost category and by venue type in Section 4.1.1.  Next, a detailed breakdown of the upfront costs (equipment acquisition and installation) is presented in Section 4.1.2.  The ongoing annual costs (replacement, training, and maintenance and administrative costs) are presented in Section 4.1.3.

Total costs in the primary analysis are calculated by venue type and include the cost categories listed below:

• Captioning Hardware Acquisition Costs;

• Audio Description Hardware Acquisition Costs;

• Captioning Device Acquisition Costs;

• Audio Description Device Acquisition Costs;

• Installation Costs;

• Replacement Costs;

• Training Costs; and

• Maintenance and Administrative Costs.

The total costs in the primary analysis are calculated based on the data and assumptions presented in Chapters 2 and 3.  As described in Section 3.2.2, the primary analysis incorporates the Medium Accessibility baseline, which is based on data available in NATO’s 2015 Accessibility Survey.²⁷  Table 4-1 below shows the total costs in the primary analysis by cost category.  The total cost impact of the rulemaking over the 15-year period of analysis is $88.5 million when discounted at 7 percent, and $113.4 million when discounted at 3 percent.

This section breaks down the upfront costs incurred by all movie theaters subject to the rulemaking.  Movie theaters incur the majority of the upfront costs during the first two years of the analysis (Table 4-5) leading up to the 18-month compliance date.  However, the cost estimation also includes the costs incurred by new auditoriums opening after the 18-month compliance date.  As a result, equipment acquisition and installation costs are incurred over the entire 15-year analysis period in the primary analysis.  Table 4-4 shows the total equipment acquisition and installation costs incurred over the 15-year period of analysis by venue type.  Overall, the upfront costs to movie theaters are expected to total $34.2 million when discounted at 7 percent.

Table 4-4 : Total Upfront Costs by Venue Type in Primary Analysis, Discounted at 7 Percent ($ millions)

Table 4-5 shows the upfront costs incurred during the first two years of the analysis.  In the primary analysis, movie theaters with auditoriums subject to the rulemaking must comply with the rule’s requirements by the end of 2017.  As a result, movie theaters with auditoriums currently exhibiting digital movies will purchase and install the necessary equipment in 2016 and 2017.  As described in Section 2.1.2, the analysis assumes that 33 percent of these auditoriums will purchase equipment in 2016 and 67 percent will purchase equipment in 2017.  Overall, the upfront costs are expected to total $25.6 million over the first two years of the analysis, with $8.9 million incurred in 2016 and $16.6 million incurred in 2017 when discounted at 7 percent.

Table 4-5 : First Two Years of Upfront Costs in Primary Analysis, Discounted at 7 Percent ($ millions)

The ongoing annual costs are costs that movie theaters incur in addition to the upfront costs.  The ongoing costs quantified in the cost estimation include equipment replacement, staff training, and maintenance and administrative costs. 

Table 4-6 shows the replacement costs associated with each type of equipment necessary to provide closed movie captioning and audio description.  Replacement costs are expected to be $36.1 million over the 15-year period of analysis when discounted at 7 percent.  As detailed in Section 3.6.2, a portion of the required captioning devices are replaced every year and make up the majority of the equipment replacement costs in the primary analysis ($26.6 million).  Audio description devices are also replaced every year, but because these devices are less expensive on average than the captioning devices (Section 3.4), the associated replacement costs are much lower ($4.2 million).  Captioning hardware has the second highest replacement cost at $5.2 million over the 15-year analysis period, and audio description hardware has the lowest replacement cost at $0.1 million.  As described in Section 3.3.2, generally one unit of audio description hardware is required per movie theater complex in order for a movie theater to provide audio description in all of its auditoriums.  Also, the additional cost for audio description hardware is substantially lower than the cost of captioning hardware (Section 3.4).

The total costs estimated in Section 4.1.1, 4.1.2, and 4.1.3 represent the costs to all movie theater auditoriums exhibiting digital movies.  This section presents the estimated total costs that the average movie theater within each venue type will incur over the 15-year period of analysis.  The cost estimation in this section assumes that the average movie theater will purchase captioning and audio description equipment in 2016 and will maintain operations throughout the period of analysis.  For the purposes of this section, the average movie theater is not a theater already equipped to provide closed movie captioning or audio description before the rule goes into effect.

Table 4-8 presents the undiscounted upfront costs incurred by the average movie theater within each venue type.  The average upfront costs to a Megaplex movie theater that is not already equipped to provide closed movie captioning or audio description are approximately $27,358.  The largest expense associated with this rulemaking for a Megaplex movie theater is purchasing the captioning hardware for each auditorium.  The upfront costs for the average Single-Auditorium movie theater are $3,562, with the largest expense being the acquisition of captioning devices.  The upfront costs for the average Multiplex and Miniplex movie theaters are $18,309 and $9,834, respectively.

Sensitivity analysis is an essential consideration for policy makers in evaluating the rule due to the uncertainty associated with certain key variables used in the cost estimation.  The Department was able to find robust data regarding the costs of purchasing captioning and audio description equipment, the number of auditoriums in the country, and several other critical variables.  However, there are some input variables that carry uncertainty.  No substantive comments with data on these inputs were received in the public comments to the 2014 NPRM. 
The sensitivity analyses estimate the costs of this rulemaking when using the following inputs:

• Low Accessibility and High Accessibility baselines;

• Alternate Medium Accessibility baseline;

• Alternate captioning and audio description device replacement rates;

• Increased staff training frequency;

• Single-Auditorium unit cost estimates including Sony’s technology;

• Increased maintenance and administrative costs; and

• Zero growth after five years.

The primary analysis estimates the costs to movie theaters using the Medium Accessibility baseline.  As described in Section 3.2.2.1, one of the alternative baselines is the Low Accessibility baseline, which is the most conservative option.  This baseline assumes that the auditoriums already equipped to provide closed movie captioning and audio description, as reported in NATO’s 2015 Accessibility Survey, are the only auditoriums with such capabilities in the United States.  Because fewer auditoriums are assumed to be equipped to provide closed movie captioning or audio description in the Low Accessibility baseline, the overall costs are higher than in the primary analysis.

Table 4-10 summarizes the cost impact of using the Low Accessibility baseline in the analysis.  The total costs over the 15-year analysis period increase by 12 percent to $99.5 million when discounted by 7 percent.  Under the Low Accessibility baseline, the analysis assumes that there are fewer auditoriums already equipped to provide closed movie captioning or audio description before the rulemaking.  As a result, the incremental cost impact is higher than in the primary analysis, which uses the Medium Accessibility baseline.  However, even when using the Low Accessibility baseline—the most conservative baseline analyzed—costs still do not exceed $100 million in any given year.  For further detail, the annual costs by cost category for the Low Accessibility baseline are presented in Table 8-2 of Section 8.1 of the Appendices.

The incremental cost impact of the rulemaking is also analyzed using the High Accessibility baseline, previously described in Section 3.2.2.3.  The High Accessibility baseline is the least conservative of the baselines derived from NATO’s 2015 Accessibility Survey.  The costs under the High Accessibility baseline are lower than in the primary analysis because more auditoriums are assumed to be equipped to provide closed movie captioning or audio description before the rule goes into effect.  Thus, fewer movie theaters are purchasing equipment as a result of the rulemaking.  The total costs over the 15-year analysis period under the High Accessibility baseline are $68.8 million when discounted at 7 percent, which is 22 percent lower than the total costs estimated in the primary analysis.  For further detail, the annual costs by cost category for the High Accessibility baseline are presented in Table 8-3 of Section 8.1 of the Appendices.

In addition to the uncertainty regarding the actual number of auditoriums already equipped to provide closed movie captioning or audio description (the baseline), there is also uncertainty regarding the distribution of these auditoriums across the various venue types.  The 2015 NATO Accessibility survey provides information supporting the Department’s estimate of the current number of auditoriums already equipped to provide closed movie captioning or audio description; however, there is no information on whether those auditoriums are primarily in Megaplex, Multiplex, Miniplex, or Single-Auditorium movie theaters. 

The baseline distribution in the primary analysis (discussed in Section 3.2.3) assumes that auditoriums already equipped to provide closed movie captioning or audio description are evenly distributed amongst Megaplex, Multiplex, and Miniplex movie theaters.  No auditorium already equipped to provide such features is assumed to be located in a Single-Auditorium movie theater in the primary analysis.  The alternate distribution under the Medium Accessibility baseline assumes that the largest venues are more likely to have auditoriums already equipped to provide closed movie captioning or audio description than smaller venues.  Industry research suggests that the largest movie exhibitor firms have made efforts to provide closed movie captioning and audio description in their movie theaters.  Additionally, industry research also suggests that the largest movie theater chains are more likely to operate Megaplex and Multiplex venues than are smaller businesses.  Therefore, the Department has developed an alternate distribution of the Medium Accessibility baseline based on this information.   

The distribution of the Medium Accessibility baseline by venue type used in the primary analysis and the alternate distribution used in the sensitivity analysis are summarized in Table 4-12 below.  The alternate Medium Accessibility baseline distribution assumes that a greater number of auditoriums already equipped to provide closed movie captioning or audio description are located in Megaplex movie theaters.  However, this alternate distribution also assumes that fewer auditoriums already equipped to provide these features are located in Multiplex and Miniplex movie theaters.  Because the Medium Accessibility baseline drives the analysis in both estimates, the total number of auditoriums already equipped to provide closed movie captioning or audio description is the same, but the distribution of those auditoriums across the various venue types differs.

The primary analysis assumes that Single-Auditorium movie theaters will not purchase Sony’s technology because there are less expensive alternatives available (Section 3.4.5).  This sensitivity analysis observes the impact to the cost estimation if Sony’s technology is included in the average unit cost estimates for Single-Auditorium movie theaters.  Table 4-14 compares the average unit costs for all equipment types with and without Sony’s technology.  The cost per captioning device increases from $466 to $727 when including Sony’s technology in the average unit cost estimate.

Table 4-14 : Average Unit Costs by Equipment Type, Including and Excluding Sony ($)

The average upfront costs for a Single-Auditorium movie theater are estimated using the scoping requirements, average unit cost estimates, and installation costs.  Table 4-15 below shows an estimate of how the per movie theater upfront costs increase when Sony’s technology is included in the average unit costs.  Overall, the undiscounted upfront costs per Single-Auditorium movie theater increase by 25 percent when including Sony’s technology in the average unit cost estimates.

Table 4-15 : Single-Auditorium Per Movie Theater Upfront Costs, Including and Excluding Sony

The impact of including Sony’s technology in the average unit costs for Single-Auditorium movie theaters on the total costs estimation is summarized in Table 4-16 below. The total costs over the 15-year period of analysis are approximately $1.9 million higher ($90.4 million) when including Sony’s technology in the unit cost estimates for all venue types, an increase of 2 percent compared to the primary analysis ($88.5 million).  

Table 4-16 : Single-Auditorium Unit Cost Sensitivity Analysis, Discounted at 7 percent ($ millions)

As discussed in Section 3.6.2, captioning and audio description devices will likely need to be replaced on a regular basis because they will be under heavy use from patrons.  However, uncertainty exists as to how many devices will need to be replaced each year.  The primary analysis assumes that 20 percent of captioning and audio description devices will need to be replaced annually.  Annual device replacement rates of 15 percent and 25 percent are analyzed as sensitivity analyses in this section.

Table 4-17 summarizes the impact on the total cost estimation if the captioning and audio description device replacement rate is lowered from 20 percent to 15 percent.  Under an annual device replacement rate of 15 percent, the replacement costs decrease by 21 percent over the 15-year period of the analysis, and the total costs decrease to $80.8 million.

According to public comments on the 2014 NPRM, the additional time necessary to train staff as a result of this rulemaking is approximately 15 minutes.  The methodology used to quantify the costs of additional staff training is presented in Section 3.7.  The primary analysis assumes that the training would be conducted biannually over the period of analysis.  This sensitivity analysis observes the impact on the total cost estimation if the training were instead conducted four times per year as presented in Table 4-19 below.  Training costs over the 15-year analysis period increase to $19.9 million, increasing the total costs of the rulemaking to $98.5 million.  This is an increase of 11 percent compared to the primary analysis.

Table 4-19 : Increased Staff Training Sensitivity Analysis, Discounted at 7 Percent ($ millions)

The costs covered by the maintenance and administrative costs in the Final RA are discussed in Section 4.2.7.  Due to the high level of uncertainty surrounding these costs, additional sensitivity analyses are conducted regarding the percentage used to calculate maintenance and administrative costs.  The primary analysis assumes annually recurring maintenance and administrative costs equal to 3 percent of equipment acquisition costs.  The sensitivity analysis shows the impact on the total cost estimation if values of 5 and 10 percent are used.

Table 4-20 shows the total costs if the maintenance and administrative costs are increased to 5 percent, instead of 3 percent in the primary analysis.  The maintenance and administrative costs would increase to $13.7 million over the 15-year analysis period, resulting in a 6 percent increase in the rulemaking’s total costs.

Table 4-20 : Maintenance and Administrative Costs 5 Percent Sensitivity Analysis, Discounted at 7 Percent ($ millions)

Table 4-21 shows the total costs if the maintenance and administrative costs are increased to 10 percent, instead of three percent in the primary analysis.  The maintenance and administrative costs would increase to $27.4 million over the 15-year analysis period, resulting in a 22 percent increase in the rulemaking’s total costs.

Table 4-21 : Maintenance and Administrative Costs 10 Percent Sensitivity Analysis, Discounted at 7 Percent ($ millions)

The projected growth rate of the number of auditoriums within each venue type is discussed in Section 3.1.3.  However, it may not be realistic to assume that the growth rates from the previous five years continue throughout the entire analysis period.  The movie industry has undergone significant changes in recent years as a result of the digital conversion, which has had an impact on the number of auditoriums opening and closing.  This sensitivity analysis assumes that the projected growth rates will continue for the first five years of the analysis, but after year five, the number of auditoriums will remain constant for the remainder of the analysis.

Table 4-22 shows the impact of altering the assumed growth rates.  Overall, the costs decrease because no new auditoriums are opening and purchasing equipment after the fifth year of the analysis.  The total costs over the 15-year period of analysis decrease to $79.9 million, a 10 percent decrease compared to the primary analysis.

Table 4-22 : Zero Growth After Five Years Sensitivity Analysis, Discounted at 7 Percent, ($ millions)

A large number of Americans have vision or hearing disabilities, to varying degrees.  The Department believes that this rule will benefit persons who are deaf or hard of hearing, or blind or have low vision, as well as those with moderate hearing loss who do not currently have consistent access to movie theaters that exhibit movies with closed movie captioning and audio description.  Many individuals with hearing loss have difficulty discriminating among competing sounds in movies and understanding what it is that they hear, even if they can hear those sounds.  Sounds from other patrons can also interfere with the ability of a patron with partial hearing loss to understand all the dialogue in a movie.  Other individuals have difficulty understanding what is being said if the actors speak with accents or have poor enunciation, and those patrons who rely even partly on lip reading will miss some dialogue because they cannot always see the actor’s face.  Individuals with hearing loss who have some level of improved hearing comprehension aided by hearing aids, middle ear implants, and cochlear implants may also experience the same difficulty discriminating among competing sounds in the movie environment.²⁸ 

The individuals who will directly benefit from this rule are those persons with hearing or vision disabilities who, as a result of this rule, would be able to attend movies with closed movie captioning or audio description in movie theaters across the country for the first time or on a more consistent basis.  Individuals who will indirectly benefit from this rule are the family and friends of persons with hearing and vision disabilities that would be able to share the movie-going experience more fully with their friends or loved ones with hearing and vision disabilities.

The benefits of this rule are difficult to quantify for multiple reasons because the Department has not been able to locate robust data on the rate at which persons with disabilities currently attend movies shown in movie theaters.  Moreover, as a result of the increased accommodations required by this rule, it is reasonable to predict that some number of persons with disabilities will likely attend movies for the first time, some number of persons with disabilities will likely attend movies at a rate that is different than they have previously, the number of persons who attend movies as part of a larger group that includes a person with a disability will likely change, and the number of persons with disabilities who would have attended movies anyway but under the rule will have a fuller and more pleasant experience will likely also change.  The Department has no feasible way of projecting those figures.  In addition, the Department does not know how many people with hearing or vision disabilities currently have consistent access to movie theaters that provide closed movie captioning and audio description.  Finally, the Department is not aware of any peer-reviewed academic or professional studies that monetize or quantify the societal benefit of providing closed movie captioning and audio description at movie theaters.

Though we cannot confidently estimate the likely number of people who would directly benefit from this rule, we have reviewed data on the number of people with hearing or vision disabilities in the United States.  The Census Bureau estimates that 3.3 percent of the U.S. population ages 15 and older has difficulty seeing, which translates into a little more than eight million individuals in 2010, and a little more than two million of those had “severe” difficulty seeing.²⁹  At the same time, the Census Bureau estimates that 3.1 percent of the U.S. population ages 15 and older have difficulty hearing, which was a little more than 7.5 million individuals in 2010, and approximately one million of them had “severe” difficulty hearing.  Not all of these people would benefit from this rule.  For example, some people’s hearing or vision disability may not be such that they would need closed movie captioning or audio description.  Some people with hearing or vision disabilities may not use the equipment for a variety of reasons, including finding the equipment uncomfortable to use.  Some people with hearing or vision disabilities may already have consistent access to movie theaters that screen all their movies with closed movie captioning and audio description.  And some movie theaters may not provide closed movie captioning and audio description for all their movies because it would be an undue burden under the ADA to do so.  Meanwhile, some people with hearing or vision disabilities may not attend public screenings of movies even if movie theaters provided closed movie captioning and audio description simply because they do not enjoy going to the movies—just as is the case among persons without disabilities.³⁰

In recent years, a large number of movie theaters have already invested in equipment to provide closed movie captioning and audio description.  As noted earlier in this Final RA, NATO estimates that approximately 70 percent of movie theater auditoriums are already equipped to provide closed movie captioning and audio description.  Therefore, a large number of persons with hearing or vision disabilities may already have access to movies screened with captioning and audio description.  The Department considered using the data on the number of movie theater auditoriums already equipped to provide these features to estimate benefits, but notes that this figure would not necessarily translate into an estimate that about 70 percent of persons who are deaf or hard of hearing, or blind or have low vision, are already benefiting from captioning or audio description.  There are multiple reasons why, even if we accept this estimate of the current availability of captioning and audio description, it does not translate into direct benefits for all those who could benefit.  These reasons include the following: (1) only some auditoriums at some movie theaters may be equipped to provide closed movie captioning and audio description, and those auditoriums may not be showing the movie that the person wants to see; (2) the movie theater may not be showing the desired movie with captions and audio description on a convenient day and time; (3) the movie theater may be located much farther away from where the person with a disability resides than other, less accessible theaters, which may result in a decision not to go to a movie theater at all; or (4) a person may live in a community that has movie theaters with auditoriums equipped to provide closed movie captioning and audio description, but may travel (for vacation, to visit relatives, for work, or other reasons) to a community that does not have theaters with auditoriums equipped to provide such features.

Meanwhile, not only is the estimate of the number of people who might directly benefit from the rule uncertain, but the individual benefits are not uniform because persons who are deaf or hard of hearing, or blind or have low vision, are likely to benefit from this rule in different ways and to varying extents.  The type and extent of benefits can depend on personal circumstances and preferences, as well as proximity to movie theaters that otherwise would not offer captioning or audio description but for this rule.  Some persons with vision and hearing disabilities have effectively been precluded from going to movies at movie theaters because the only theaters available to them do not offer closed movie captioning or audio description, offer open captioning but only at inconvenient times (such as the middle of the day during the week), or offer captioning or audio description for only a few films and not for every screening of those films.  For these persons, the primary benefit will be the ability to see movies when released in movie theaters along with other movie patrons, which they otherwise would not have had the opportunity to do.  They will have the value of that movie-going experience, as well as the opportunity to discuss the film socially at the same time as the rest of the movie-viewing public.  A person with a hearing or vision disability who previously did not have access to a movie theater that provided closed movie captioning or audio description will experience this benefit to an extent that is different than the extent of the benefit experienced by a person with a hearing or vision disability who previously did have access to a movie theater that consistently provided closed movie captioning and audio description.  In addition, a person who cannot follow a movie at all without the assistance of closed movie captioning is likely to experience this benefit to an extent that is different than the extent of the benefit experienced by a person who can follow parts of a movie without the assistance of closed movie captioning.

There is a social value in movie viewing for many people, not just an entertainment value.  As noted above in Section 1.1, movies are a part of our shared cultural experience, and the subject of “water cooler” talk and lunch-time conversations.  The Supreme Court observed over 60 years ago that motion pictures “are a significant medium for the communication of ideas” and “may affect public attitudes and behavior in a variety of ways, ranging from direct espousal of a political or social doctrine to subtle shaping of thought which characterizes all artistic expression.  The importance of motion pictures as an organ of public opinion is not lessened by the fact that they are designed to entertain as well as to inform.”³¹  When individuals who are deaf or hard of hearing, or blind or have low vision have the opportunity to attend movies that they can actually understand because of captioning or audio description, they are exposed to new ideas and gain knowledge that contributes to the development of their communication and literacy as well as their integration into society.

As previously mentioned, some persons with vision or hearing disabilities may already have access to some movie theaters with captioning or audio description capabilities, but that access may be limited to only some locations, movie theaters, and times.  Some of these people may be patronizing movie theaters now but less often than they otherwise would, and less often than they would like, if captioning or audio description were available consistently across all theaters.  These people may see more movies or save time that they currently must spend monitoring those few accessible movie theaters or showings and perhaps additional time coordinating trips to the movies with family and friends.  If all movie theaters are accessible to those who are deaf or hard of hearing, or blind or have low vision, then some persons will now have greater choice among multiple locations and can make choices based on other criteria such as location, times, and other amenities, just as Americans without these disabilities already do.

In addition to the direct beneficiaries of the rule discussed above, others may be indirect beneficiaries of this rule.  Family and friends of persons with these disabilities who wish to go to the movies together as a shared social experience will now have greater opportunities to do so.  More adults who visit elderly parents with hearing or sight limitations would presumably be able to take their parents on outings and enjoy a movie at a movie theater together, sharing the experience as they may have in the past.  The Department received numerous comments from individuals who are deaf, hard of hearing, blind, or have low vision in response to its 2014 Notice of Proposed Rulemaking on Movie Captioning and Audio Description in Movie Theaters, 79 FR 44976 (Aug. 1, 2014) (2014 NPRM), describing how they were unable to take part in the movie-going experience with their friends and family because of the unavailability of captioning or audio description.  Parents with disabilities also complained that they could not answer their children’s questions about a movie that they saw together because the parents did not understand what had happened in the movie.

There is also a distributional benefit of this rule as some areas are more likely to have movie theaters with auditoriums equipped to provide closed movie captioning and audio description than others.  As noted in the preamble to this rule, it is the Department’s understanding that persons who live in communities served only by smaller, regional movie theater chains are less likely to have access to captioned and audio-described movies than individuals with disabilities who live in California, Arizona, or any of the major cities with movie theaters operated by Regal, Cinemark, or AMC.³²  Thus, it is possible that more urban areas, or certain cities or States, may have greater accessibility than other areas, cities, or States, creating or exacerbating geographical differences in opportunities.

Moreover, while not formally quantified, the Department expects that this guarantee of access for individuals with hearing or vision impairments to movies screened at movie theaters will spur some level of new demand for movie attendance and, therefore, lead to increased box office receipts.  Unfortunately, there is little data on the demand for movie-viewing in places of public accommodation by persons who are deaf or hard of hearing, or blind or have low vision, and as such, preparing estimates of the increase in movie theater attendance is difficult. 

Because the rule sets specific standards for equally effective communication at movie theaters, it should also lead to a decrease or near elimination of confusion regarding what accommodations movie theaters must provide.  The current ADA title III regulation does not contain explicit requirements specifying how movie theaters should meet their effective communication obligations, and this is one of the reasons behind the multiple private lawsuits filed throughout the country.  Setting explicit requirements at the national level will lead to harmonization across the country.

And finally, there are additional benefits of the rule that relate to equity and fairness considerations generally.  See E.O. 13563 § 1(c) (underscoring the importance of agency consideration of benefits “that are difficult or impossible to quantify, including equity, human dignity, [and] fairness”).  The Department expects that the regulation will allow for better integration of persons with disabilities into the American social mainstream.  Indeed, some individuals with disabilities who commented on the 2014 NPRM noted that they had not attended a movie theater in decades—or, for some, during their entire lifetimes—because the lack of auxiliary aids and services makes the movie unintelligible.  Without captioning and audio description at movie theaters, individuals with hearing and vision disabilities commented that they were unable to participate in social outings with family and friends or go on dates at the movies.  Additionally, their inability to attend the movies due to the lack of these auxiliary aids prevented them from meaningfully engaging in the discourse that often surrounds new movie releases.  Other commenters noted that movie theaters’ common practice of “relegating” movie patrons with hearing and vision disabilities to “special showings” of captioned or audio-described movies at off-peak days and times did not constitute the “full and equal access” guaranteed by the ADA.

The Department views the most significant benefits of the rule to be those relating to issues of fairness, equity, and equal access, all of which are extremely difficult to monetize, and the Department has not been able to robustly quantify and place a dollar value on those.  Regardless, the Department believes the non-quantifiable benefits justify the costs of requiring captioning and audio description at movie theaters nationwide. 

6. ALTERNATIVES

The Office of Management and Budget (OMB) states that regulatory analyses should consider alternatives to the rule or regulation being evaluated.³³  Thus, the Department considered alternatives regarding the length of time movie theaters would have to comply with the rulemaking, the number of captioning and audio description devices required at each venue type, and the impact to the cost estimation if the Department had decided not to defer application of the captioning and audio description requirements of this rulemaking to auditoriums exhibiting analog movies exclusively.

In the primary analysis, movie theaters have 18 months to acquire and install the necessary equipment to provide closed movie captioning and audio description in their auditoriums.  The Department also considered other compliance dates, including a six-month and a two-year compliance date.   

In the cost estimation, the compliance date impacts the years in which movie theaters purchase the necessary equipment.  A shorter compliance date results in movie theaters purchasing equipment earlier, whereas a longer compliance date allows theaters more time to purchase the equipment.  Table 6-1 shows the impact of increasing the compliance date to two years instead of 18 months in the primary analysis.  Overall, the total costs decrease by $3.3 million to $85.2 million over the 15-year period of analysis when discounted at 7 percent.  This is a decrease of 4 percent compared to the cost estimation in the primary analysis.

In the 2014 NPRM, the Department proposed scoping requirements for captioning devices based on the number of seats in a movie theater.  The Department further proposed that movie theaters maintain one audio description device per auditorium, with a minimum of two devices per movie theater.  However, in light of the public comments received and proposals made by the movie industry and multiple disability advocacy groups, those scoping requirements have changed in the final rule.

Table 6-3 compares the scoping requirements used in the primary analysis with the previous scoping requirements proposed in the 2014 NPRM and used in the Initial RA.  As the table indicates, the scoping requirements in the final rule (and used in the primary analysis) require fewer captioning and audio description devices.

The Department considered providing movie theaters with analog auditoriums (auditoriums equipped to exhibit analog movies exclusively) four years to comply with the rule’s requirements, as opposed to deferring the decision whether to engage in rulemaking with respect to such auditoriums (Section 1.4.1).  The longer compliance date was initially considered for auditoriums exhibiting analog movies exclusively because a large number of movie theaters were in the midst of transitioning to digital projection systems.  The Department reasoned that additional time might be necessary for some analog movie theaters to decide to convert to digital projection systems and then acquire compatible equipment to provide closed movie captioning and audio description.  In addition, the delayed compliance date would allow small movie theaters that remain analog more time to obtain the necessary resources to purchase the equipment to provide closed movie captioning and audio description. 

This section provides an estimate for the costs of this rule for analog movie theaters if the decision to cover analog auditoriums was not deferred.  The methodology for calculating the costs for auditoriums exhibiting analog movies is identical to that of auditoriums exhibiting digital movies.  However, there are several key assumptions that differ for analog auditoriums.

As directed by the Regulatory Flexibility Act of 1980, as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), and by Executive Order 13272, the Department is required to consider the potential impact of the proposed rule on small entities, including small businesses, small nonprofit organizations, and small governmental jurisdictions.  This process helps agencies to determine whether a rule is likely to impose a significant economic impact on a substantial number of small entities and, in turn, to consider regulatory alternatives to reduce that regulatory burden on those small entities.

This final rule applies to and affects almost all small entities categorized as “Motion Picture Theaters” (defined as all movie theater firms with less than $38.5 million in annual revenue).  The Department’s analysis leads it to conclude that a substantial number of small movie theater firms will experience a significant economic impact as a result of this rule.  The Department therefore presents this Final Regulatory Flexibility Analysis (FRFA).  The Department has used this analysis to examine other ways, if possible, to accomplish the Department’s goals with fewer burdens on small businesses, and the Department has made a number of revisions to the final rule to reduce the cost impact on small firms in the movie exhibition industry.

As noted earlier in this Final RA (see Section 1.1), the Department’s existing regulation implementing the ADA’s title III auxiliary aids provision reiterates the obligation of covered entities to ensure equally effective communication with individuals with disabilities and identifies, among other things, “open and closed captioning,” and “audio recordings” as examples of auxiliary aids and services.  28 CFR 36.303(a)–(c).  Recent technological changes in the movie exhibition industry—including widespread conversion from analog film projection to digital cinema systems—make exhibition of captioned and audio-described movies easier and less costly than before.  In addition, it is the Department’s understanding that, at this time, nearly all first-run motion pictures released by the major domestic movie studios include closed movie captioning (and to a lesser extent, audio description). 

Despite these technological advances, movie theaters do not consistently show movies with captioning or audio description, and the availability of these features varies greatly across the country, with small movie theaters in rural areas being less likely to provide them.  Thus, patrons who are deaf or hard of hearing, or blind or have low vision, are often shut out from the movie-going experience and cannot fully take part in movie-going outings with family and friends, join in social conversations about recent movie releases, or otherwise participate in a meaningful way in an important aspect of American culture. 

The Department believes that regulation is warranted at this time to explicitly require all movie theaters, including those qualifying as small entities, to exhibit movies with closed movie captioning and audio description whenever these theaters exhibit digital movies produced, distributed, or otherwise made available with such features unless to do so would result in an undue burden or a fundamental alteration.  As discussed above, the Department is deferring rulemaking on application of these requirements to movie theater auditoriums that exhibit analog movies exclusively.  The final rule for movie captioning and audio description rests on the existing obligation of all title III-covered facilities, such as movie theaters—regardless of size—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 final rule imposes no independent obligation on movie theaters to provide captioning and audio description if the movie is not already available with these features. 

The Department expects that implementation of the final 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 all movie theaters.

As noted in Section 1.3, the Department received 436 comments during the 2014 NPRM comment period from movie industry representatives, individuals with disabilities, advocacy groups representing individuals with disabilities, State and Federal entities, academic organizations, private companies, and other private individuals.  Section 1.3 of the regulatory analysis includes discussion of the comments that directly addressed the assumptions, data, or methodology used in the Initial RA.  This section summarizes the discussion of comments regarding the effects of the rule on small movie theaters.

Proportion of Movie Theaters Qualifying as Small Entities

The Department received comments indicating that the vast majority of movie theaters qualify as small entities, which is supported by the 2012 Statistics of U.S. Businesses (SUSB) data and detailed in Section 7.3 below. 

Small Movie Theater Revenues and Available Resources to Comply
One commenter reported that at least one segment of the movie exhibition industry, art house cinemas, generally receive less than 50 percent of their revenue from ticket sales.  Another commenter asked the Department to consider that almost half of movie theater gross receipts are paid directly to movie studios.  Given these percentages and the fact that the movie exhibition industry as a whole averages a two percent profit margin, with small and independent theater owners often operating at an even smaller or negative profit margin, commenters asked the Department to reconsider its interpretation of cost values relative to annual revenue because these figures do not directly represent funds that are available to comply with this rule.

The Department does not have access to publicly available data that provides a consistent, independent source of movie theater profit by revenue category.  As discussed in Section 7.3  below, available data includes firm receipt size from the 2012 SUSB.³⁶  The Department believes that this dataset is the most relevant, publicly available data on annual revenue figures for the movie exhibition industry and is the best source to assess the resources available to movie theaters to comply with the rule.

Alternatives to Reduce Burdens on Small Movie Theaters
Commenters made various suggestions concerning alternatives to reduce the regulatory burden for small movie theaters.  These suggestions pertained to the following areas: (1) the scoping for devices; (2) the compliance date; (3) the deferral of movie theaters exhibiting movies in analog format; and (4) the deferral of a subset of small movie theaters.  The Department is aware of potential limitations to compliance for small movie theaters and has taken measures to lessen the impact on those firms.  As explained in Section 1.4 and Section 7.6, the Department has decided to defer the decision whether to engage in rulemaking with respect to movie theater auditoriums that exhibit analog movies exclusively, to reduce the scoping requirements for both captioning and audio description devices, and to increase the time movie theaters have to comply with the rule’s captioning and audio description scoping requirements (now 18 months).  These revisions are expected to reduce the cost impact to small firms in the movie exhibition industry.

Response to Comments from the Small Business Administration Office of Advocacy (SBA)
This section specifically addresses comments of the SBA Office of Advocacy in response to the proposed rule.  Most of the concerns expressed by SBA were also expressed by other commenters.

SBA’s comments on the 2014 NPRM focused on the following five issues: lowering the scoping for captioning and audio description devices; deferral of coverage of analog theaters; providing a longer compliance date for the requirements of the rule; the breadth of the definition of “movie theater”; and the application of the undue burden defense for small business movie theaters.  After consideration of these comments and related comments from other commenters, the Department has made a number of changes in the final rule.

First, the Department has significantly lowered the scoping requirements for captioning and audio description devices in response to comments from SBA and other commenters that the Department should not have used seat count as a means of determining the number of devices that would actually be needed to meet demand from people with hearing and vision disabilities.  The revised scoping bases the required number of devices on the number of auditoriums showing digital movies rather than the number of seats. 

Second, the Department has decided to defer the decision whether to apply the specific requirements of this rule to movie theater auditoriums that show analog movies exclusively.  As discussed in the section-by-section analysis, the number of movie theaters that only show analog movies is rapidly declining, and it is unclear whether these theaters will be economically viable in the future, or whether analog movies will even be available for commercial showings.  

Third, the Department has extended the compliance date for all movie theaters subject to this rulemaking.  Movie theaters now have 18 months to comply with the rule’s scoping requirements, and additional time is afforded to movie theaters that convert auditoriums from an analog projection system to a digital projection system after the compliance date of the rule.  After considering the comments on the 2014 NPRM, the Department has concluded that 18 months allows movie theaters sufficient time to order and install the necessary equipment while accounting for potential manufacturer backlogs or the need to raise the necessary funds to purchase the equipment.

Fourth, SBA specifically asked whether the definition of “movie theater” was intended to encompass small movie theaters that occasionally show digital movies using a Blu-ray projector, pop-ups and film festivals, or limited arrangement showings held at alternative venues. The Department believes that in most instances, the requirements of the rule will not apply in these circumstances.  As the definition indicates, a “movie theater,” for purposes of this rulemaking, means “a facility * * * that contains one or more auditoriums that are used primarily for the purpose of showing movies to the public for a fee.”  § 36.303(g)(1)(vii).  Thus, an auditorium generally used for other purposes that temporarily shows movies during a film festival, even if a fee is charged, would not fall within this definition.  By contrast, a movie theater that primarily shows digital movies to the public for a fee remains covered by the requirements of paragraph (g) even if it allows its auditoriums to be used for an annual film festival.  Theaters with analog auditoriums that are not otherwise covered by the specific requirements of § 36.303(g) and temporarily bring in portable Blu-ray or other types of digital projectors to show digital movies are also not likely to fall within the requirements of paragraph (g)  because the compliance date provision assumes conversion of the theater to a digital projection system.  In addition, it is the Department’s understanding that Blu-ray projection systems are not capable of delivering closed movie captions to patrons at their seat; these systems only have the capacity to show captions on the screen, something not required by this rule.

The Department notes that film festivals, pop-up movie theaters, and other alternative venues for showing movies still qualify as places of entertainment and are considered public accommodations under the ADA.  Thus, they continue to be subject to the longstanding general ADA requirement to provide effective communication under § 36.303, unless doing so would be a fundamental alteration of the program or service or would constitute an undue burden.  In addition, if a festival or limited showing programmer schedules the screening of a movie that is already distributed with closed movie captions and audio description using a movie theater auditorium that is subject to the requirements in paragraph (g) as discussed above, then the effective communication obligation would require the festival to ensure that the accessible features are available at all scheduled screenings of a movie distributed with such features. 

Finally, SBA asked that the Department provide additional guidance for small businesses regarding the availability of the undue burden limitation.  Under the ADA, a public accommodation is relieved of its obligation to provide a particular auxiliary aid (but not all auxiliary aids) if to do so would result in an undue burden or a fundamental alteration.  As stated earlier in the preamble, and in existing technical assistance materials, the Department’s title III regulation specifically defines undue burden as “significant difficulty or expense” and, emphasizing the flexible and individualized nature of any such determination, lists five factors that must be considered when determining whether an action would constitute an undue burden.  See 28 CFR 36.104; see also U.S. Department of Justice, ADA Title III Technical Assistance Manual Covering Public Accommodations and Commercial Facilities III-4.3600 (1993), available at http://www.ada.gov/taman3.html.  These factors include: (1) the nature and cost of the action; (2) the overall financial resources of the site or sites involved in the action; the number of persons employed at the site; the effect on expenses and resources; legitimate safety requirements that are necessary for safe operation, including crime prevention measures; or the impact otherwise of the action upon the operation of the site; (3) the geographic separateness, and the administrative or fiscal relationship of the site or sites in question, to any parent corporation or entity; (4) if applicable, the overall financial resources of any parent corporation or entity; the overall size of the parent corporation or entity with respect to the number of its employees; and the number, type, and location of its facilities; and (5) if applicable, the type of operation or operations of any parent corporation or entity, including the composition, structure, and functions of the workforce of the parent corporation or entity.  Id.  This limitation entails a fact-specific examination of the cost of a specific action and the specific circumstances of a particular public accommodation.  This limitation is also designed to ensure that the needs of small businesses, as well as large businesses, are addressed and protected.

The Department intends to publish technical assistance that will address the requirements of the final rule and the limitations on the obligations under paragraph (g) prior to the time the rule takes effect.  In addition, the Department’s wide-ranging outreach, education, and technical assistance program continues to be available to assist businesses to understand their obligations under the ADA.  Additional information about the ADA’s requirements, including the requirement to provide effective communication and the limitations on that obligation, is also available on the Department’s ADA Web site at www.ada.gov. 

The Regulatory Flexibility Act defines a “small entity” as a small business (as defined by the SBA Size Standards) or a small organization such as a nonprofit that is “independently owned and operated” and is “not dominant in its field.”  See 5 U.S.C. 601(3), (4).  For Motion Picture Theaters (Except Drive-Ins) (NAICS Code 512131), the SBA Size Standards categorize any firm with less than $38.5 million in annual revenue as a small business.³⁷  As a result, small entities constitute the vast majority of firms in the movie exhibition industry.  The latest data providing detailed breakouts of annual revenue by industry comes from the 2012 Statistics of U.S. Businesses (SUSB). ³⁸  This dataset provides information regarding the number of firms,³⁹ establishments,⁴⁰ and estimated annual receipts⁴¹ (annual revenue) for each of the 17 revenue size categories in the movie exhibition industry.  According to this data, 12 of the 17 revenue size categories contain firms with estimated annual receipts of less than the $38.5 million SBA size standard for a small business in this industry.  Because these firms are considered small businesses by the SBA size standards, they are also considered small entities for purposes of this FRFA.  An additional category of firms with annual receipts between $35.0 million and $40.0 million contains firms that may or may not have annual revenue below the $38.5 million threshold.  For the purposes of this analysis, however, all firms in this category are assumed to have revenues lower than the $38.5 million size standard and are therefore considered to be small entities. 

The 2012 SUSB data on the movie exhibition industry includes both digital and analog movie theaters, but excludes drive-in movie theaters.  The number and percentage of firms and establishments by revenue category is presented in Table 7-1.  According to the 2012 SUSB, 1,876 movie theater firms operated 4,540 movie theater establishments.  Approximately 1,833 of those firms (98 percent) are categorized as a small business according to the SBA size standard ($38.5 million) and therefore small entities for purposes of this FRFA.  The 1,833 firms categorized as small entities operated approximately 2,381 movie theater establishments (52 percent of the total).

Annual revenue data from the U.S. SUSB program is used, together with information regarding likely per-theater upfront and ongoing annual costs (Section 4.1.4), to estimate the impact of this rulemaking on small entities relative to their resources.  As described in Section 2.1.4, movie theater complexes vary greatly by the number of auditoriums that they contain, and the per-theater cost varies according to the number of auditoriums within a theater exhibiting digital movies.  Therefore, the 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 FRFA uses the estimated number of movie theaters by venue type to determine the cost impact per firm.  Table 7-3 presents estimates of the percentage of movie theaters by venue type, calculated from the 2015 distribution of auditoriums by venue type (Table 3-3) and the average number of auditoriums per venue type.⁴²  The table indicates that approximately 40 percent of movie theater establishments are Multiplex theaters, and 43 percent are either Miniplex (22 percent) or Single-Auditorium theaters (21 percent), with the remaining 17 percent being Megaplex theaters.

The final rule imposes no new recordkeeping or reporting requirements.  However, the final rule does require that movie theaters disclose to the public information concerning the availability of captioning and audio description for movies shown in their auditoriums.  Specifically, § 36.303(g)(8) of the final rule requires movie theaters to inform the public of the availability of captioning and audio description on all notices of movie showings and times at the box office and other ticketing locations, on Web sites and mobile apps, in newspapers, and over the telephone.  This requirement applies to any movie theater showing digital movies with captioning and audio description on or after the effective date of this rule.  Notices of movie showings and times posted by third parties not subject to or under the control of a covered movie theater are not subject to this requirement.

As discussed throughout this Final RA, movie theaters, including small entities, may incur costs as a result of complying with the final rule.  These costs are detailed in Section 7.4 above but do not include the costs associated with the notice requirement.  As discussed in Section 2.4.4.2, the Department expects that the additional cost and burden 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.  Therefore, the Department anticipates that the costs and burdens associated with this requirement will also be de minimis for small entities.    

Additionally, the Department does not expect that movie theater personnel will need to acquire additional professional skills to comply with this requirement.  A specific form of notice is not required.  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 require additional technical knowledge.  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.

More detailed information on the estimated burden and costs associated with the final rule’s notice requirement is provided in the Department’s 60-day Paperwork Reduction Act Notice published in the Federal Register on June 10, 2016.  81 FR 37643.  The Department published a second notice in the Federal Register on August 30, 2016.  81 FR 59657.  The 30-day comment period for the second notice closed on September 29, 2016. 

The Department is aware of potential limitations to compliance for small entities—specifically, small movie theater firms with less than $38.5 million in annual revenue—and has taken measures to lessen the impact on those entities.  In addition to soliciting comments regarding methods to reduce the regulatory impact on small movie theaters, the Department also participated in a roundtable sponsored by the Office of Advocacy of the SBA at which organizations representing small movie theaters as well as individual owners expressed their views.  As a result of the information provided, the Department considered a variety of alternatives in the final rule.  The different alternatives considered and their relevance to small movie theaters are summarized below.  See Chapter 6 for further information and detail regarding the alternatives that the Department considered.

Changes to the Compliance Date
In the final rule, movie theaters have 18 months to acquire and install the necessary equipment to provide closed movie captioning and audio description in their auditoriums exhibiting digital movies.  The Department also considered other compliance windows, including a six-month and a two-year compliance window.  Some commenters suggested that the Department defer the requirements of this rule for small movie theaters with annual revenue less than $500,000 because these movie theaters might have financial difficulty complying with the requirements.

The Department ultimately decided that an 18-month compliance date was the most appropriate choice for all movie theaters exhibiting digital movies and is only deferring application of the rule’s requirements for movie theater auditoriums that exhibit analog movies exclusively.  The Department’s decision regarding the 18-month compliance date in the final rule is based on the Department’s independent research and the information provided in comments during the 2014 NPRM comment period.  Based on this information, the Department determined that six months may be an insufficient amount of time for movie theaters to comply with the requirements of this rulemaking, especially small movie theaters.  However, the Department believes that an 18-month compliance date gives small movie theaters, especially those struggling financially as a result of the unrelated costs of digital conversion, a sufficient amount of time to plan and budget accordingly.  Although some commenters suggested a deferral for a category of smaller movie theaters, the Department found that to be unnecessary because movie theaters do not have to comply with requirements of the final rule to the extent that complying would constitute an undue burden or a fundamental alteration. 

Changes to the Scoping Requirements
In the 2014 NPRM, the Department proposed scoping requirements for captioning devices based on the number of seats in a movie theater, which were equivalent to approximately 2 percent of seats.  The Department further proposed that movie theaters maintain one audio description device per auditorium, with a minimum of two devices per movie theater.  However, in light of the public comments received and proposals made by the movie exhibition industry and multiple disability advocacy groups, those scoping requirements have been reduced in the final rule.  Because movie theaters are rarely at 100 percent occupancy, the Department determined that the number of seats within a movie theater is an inappropriate proxy for determining the number of captioning devices required.  One commenter noted that the scoping requirements based on seat count could disproportionately impact small movie theaters because many Single-Auditorium movie theaters are historic establishments with many seats but low occupancy rates.  Additionally, usage data indicates that audio description devices are used less frequently than the proposed scoping required.  As a result, the Department adopted lower scoping requirements for both captioning and audio description devices based on the number of auditoriums showing digital movies within a movie theater.  The reduced scoping in the final rule substantially lowers costs per movie theater and thus reduces burdens on small movie theaters.

Auditoriums Exhibiting Analog Movies Exclusively
The Department considered giving movie theaters with auditoriums equipped to exhibit analog movies exclusively four years to comply with the rule’s requirements, as opposed to deferring the decision whether to engage in rulemaking with respect to such auditoriums (see Section 1.4.1 and Section 6.3).  Based on public comments and analysis of the most current data, the Department ultimately decided to defer analog auditoriums from coverage of this rule.  As previously discussed, the movie industry continues to undergo significant changes in the production and distribution of movies, resulting in the near elimination of first-run movies in analog film format.  Most movie theaters have converted to digital projection systems to the extent that they are financially able to do so, and as a result, small theaters that still have analog projection systems tend to have fewer financial resources than other movie theaters.  The Department rejected the alternative four-year compliance date for analog movie theaters and is deferring the decision whether to apply the rule’s requirements to movie theater auditoriums exhibiting analog movies exclusively.  Because the remaining analog movie theaters likely qualify as small entities, the deferral of rulemaking with respect to analog auditoriums will reduce the burdens on small movie theaters.

Table 8-1 : Annual Costs Over Period of Analysis in Primary Analysis, Discounted at 7 Percent ($ millions)