• Lights, Camera, Legislation: An Update on Washington and Exhibition

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    News Reel Blog   


    From payment cards to employment policies to disabilities access, movie theater owners and operators face numerous federal policy issues that affect their bottom line.  Here’s a look at some of the current legislative and regulatory matters impacting exhibitors.

    Durbin Amendment

    This spring, motion picture theater operators and other merchants won a significant victory when bill language threatening to raise fees on debit transactions was dropped from underlying legislation.

    In April, the House Financial Services Committee passed H.R. 10, the Financial CHOICE Act, a bill replacing the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Dodd-Frank contained the Durbin Amendment, a provision capping the fees that card processors charge merchants when a customer uses a debit card to make a purchase.  Prior to the enactment of the Durbin Amendment, debit swipe fees averaged about 44 cents per transaction.  The amendment required the Federal Reserve to set new fee limits.  In its subsequent regulation on this amendment, the Fed proposed to cap fees at 12 cents per transaction, but ultimately voted to cap debit card interchange fees at 21 cents per transaction plus additional charges.  The lower fees went into effect in 2011.

    Section 735 of H.R. 10 eliminated the Durbin Amendment.  This measure was supported by House Financial Services Chairman Jeb Hensarling, a Republican from Texas.  Hensarling viewed the Durbin Amendment as a government “price-fixing scheme” that led banks to do away with customer perks like free checking accounts.  Merchants, by contrast, considered the Durbin Amendment to be a necessary measure that would bring competition to the market.  Prior to the enactment of the Durbin Amendment, merchants had spent years at the mercy of the major card processors, unable to negotiate lower interchange fees due to the heavy monopoly exerted by Visa and MasterCard on the debit routing market.

    Repeal of the Durbin Amendment would have hit theater owners particularly hard, since exhibitors typically process more than one transaction for an individual customer, once at the box office and again at the concessions stand.  For some exhibitors, debit transactions represent nearly 70% of their overall transactions.  Without the Durbin Amendment keeping debit swipe fees low, exhibitors who were able to keep their prices stable since the amendment went into force might have been forced to raise prices in order to address the additional cost of higher fees.

    This legislation pitted the card processors against the merchants, a difficult political position for Republicans, who are typically allied with banks and business alike.  Exhibitors and others in the merchant community mobilized against Section 735, pressing Congress to drop the provision from the Financial CHOICE Act before it came to the House floor, thus preventing a potentially divisive vote that could have derailed the bill from moving forward.  Ultimately, the strong and coordinated effort by movie theaters and other retailers succeeded.  House leadership decided to remove this language before H.R. 10 came to the floor.  In June, the Financial CHOICE Act passed the House largely along party lines by a vote of 233-186 (one Republican, Walter Jones of North Carolina, voted against the bill)—without repealing the Durbin Amendment.  The Senate may not take up this legislation, but merchants sent a firm and unequivocal message to Congress:  The Durbin Amendment is one fight they don’t want to have.

    Overtime

    Litigation surrounding the overtime rule released in May 2016 by the Obama Administration continues.  At the time of this writing, the injunction against the rule remains in effect.

    In May 2016, the Department of Labor released a final rule revising overtime regulations, per an executive order issued by President Barack Obama in 2014.  The rule raised the exempt salary threshold to $47,476, more than double from its current level of $23,660, and included triennial automatic increases.  The rule also allowed employers to count nondiscretionary bonuses, incentives, and commissions as up to 10% of the salary level, so long as employers pay those amounts on a quarterly or more frequent basis.  The rule was scheduled to take effect on December 1, 2016.

    On November 22, 2016, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas issued a temporary injunction against the overtime rule in response to a lawsuit filed against the rule by 21 states.  As a result, the rule did not go into effect on December 1 and remains in abeyance.  In his injunction against the rule, Judge Mazzant reasoned that the Department of Labor did not possess the authority to raise the salary threshold, but could only modify overtime exemptions based on the duties test.

    Initially, the Trump Administration was thought unlikely to appeal this injunction at all.  The Department of Labor decided to appeal the injunction, however, in order to retain its authority to raise the salary threshold.  In June 2017, the Department of Labor filed a brief in appellate court defending its jurisdiction over all aspects of the overtime rule.  The Department’s appeal performed some complicated legal gymnastics:  While the Department wishes the court to uphold its authority over the salary threshold, they do not want the court to address the validity of the salary level set by the Obama Administration.  It is possible that should the appellate court reverse the lower court’s decision and reinstate the rule, the Trump Administration could issue a new rule raising the salary threshold, albeit to a lower level than the one set by the Obama Administration.  Secretary of Labor Andrew Acosta has indicated that he may support an adjusted salary threshold of $33,000.

    Exhibitors should be aware that while the Fair Labor Standards Act exempts employees at movie theaters from overtime, at least 21 states and the District of Columbia do not exempt movie theater employees from earning overtime pay.

    Compensatory Time

    While employers and employees wait to see how the courts adjudicate the overtime rule, the House of Representatives has moved forward on legislation that could potentially change the way overtime pay is structured.

    In May, the House passed a bill giving employers the option to offer their employees paid time off in lieu of receiving overtime pay.  H.R. 1180, the Working Families Flexibility Act would allow employees in the private sector to earn 1.5 hours of compensatory time at their regular rate for every hour of overtime worked.  Employees would be able to earn up to 160 hours of “comp” time.  Employers who offer this option would be required to compensate their employees by January 31 for any unused comp time from the previous year.  Employees must work at least 1,000 hours for the employer in the 12 months prior to receiving this option.  Employees could not be coerced into receiving comp time instead of overtime pay.  Employers could discontinue this program, but only with 30 days’ notice to their employees.

    The legislation was supported by business groups, but opposed by unions and workers’ rights groups.  The bill passed the House 229-197, with six Republicans joining Democrats in voting against the legislation.  The Senate has not yet taken steps to pass this legislation.  A companion bill sponsored by Senator Mike Lee (R-UT) awaits action by the Senate Health, Education, Labor, and Pensions Committee.

    As noted earlier in this article, many states do not exempt movie theater employees from overtime, and so theater owners in those states may be able to institute compensatory time programs, should this legislation pass Congress.  As with any employment practice, exhibitors may want to seek the advice of local counsel.

    ADA Drive-By Lawsuits

    Business groups continue to press Congress to support legislation mitigating the effect of so-called “drive-by” lawsuits.  The past few years have seen dramatic growth in the number of lawsuits alleging violations under Title III of the Americans with Disabilities Act (ADA).  Often, these lawsuits are filed by firms or individuals notorious for their litigious approach and who have created a cottage industry of suing businesses for minor or technical violations of the ADA that could be easily remedied.  In some cases, the lawsuits misapply the ADA standards and allege violations where there are none, causing business owners to spend precious resources responding to a suit that has little to no standing.

    Then there is the egregious practice of demand letters:  Attorneys who send letters to business owners alleging that their client suffered an unstipulated barrier to access.  The letter’s lack of specificity means that the business owner often does not know what ADA violation, if any, must be fixed, resulting in frustration, confusion, and perhaps mostly importantly, no change to the status quo, because the letter does not tell business owners what barriers to remove.  In these demand letters, the attorney promises not to sue, if the business pays their client some amount of money, often thousands of dollars—effectively amounting to extortion, and certainly not yielding any improvements to access.

    H.R. 620, the ADA Education and Reform Act, would preempt these issues by creating a “notice-and-cure” period allowing business owners to remedy alleged ADA violations within a specified timeframe.  Should business owners fail to meet the deadlines of this timeframe—60 days to respond in writing to the complaint and a further 120 days to make substantial progress—then an individual could take further legal action and file suit against the business.  The bill also directs the Department of Justice to provide increased resources toward educating business owners on the rules and standards of the ADA.  This legislation is supported by Democrats and Republicans, who recognize that this legislation would stop abusive practices and ensure that both the letter and the spirit of the ADA are protected.

    This article originally appeared in Boxoffice magazine. 


  • Christopher Nolan Champions Theatrical Experience While Promoting “Dunkirk”

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    News Reel Blog   


    In a recent interview with the Associated Press, Christopher Nolan held firm in his pro-theatrical stance.

    AP: Because you’re such an advocate of the big-screen experience, you’re often asked about concerns about the demise of movie theaters. Is that tiresome?

    Nolan: I will say it’s tiresome. Now it’s streaming. Last film, it was television. Ten years ago, it was video games. Look, video games are great. People love video games. But people also need and love washing machines and they sell a lot of those. It’s just not relevant. We’ve always had TV movies, we’ve always had miniseries, we’ve always had straight-to-video movies. We’re making movies for the theater. And theatrical experience isn’t just about the size of the screen or the technology behind, although that’s a big part of it. It’s about an audience, the shared experience. What cinema gives you, unlike any other medium, is this fascinating and wonderful tension and dialogue between this intensely subjective experience you’re having from the imagery the filmmaker has put up there, and this extraordinarily empathetic sharing of that with audience around you. It’s a remarkable medium for that and that’s what defines it. What’s a movie? The only definition of a movie, really, is it’s shown in a movie theater.

    Read the full interview here. 


  • Windows Talks: Distributors & Exhibitors are Discussing Release Models Together as NATO has Long Suggested

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    Reel Blog   


    By John Fithian, President & CEO, National Association of Theatre Owners

    According to many recent press reports, several leading distributors and exhibitors have engaged in one-on-one discussions about the future of movie release windows models. After those reports were first published, many NATO members contacted the association with their questions and concerns.  Inquiries were also received from friends in the creative community who support the theatrical experience as the best platform for their art form. Given the paramount importance of theatrical exclusivity to the future of cinema, and NATO’s long history of support for that exclusivity, this column offers some thoughts in response to the many inquiries.

     

    Read more


  • IndieWire: Netflix Keeps Buying Great Movies, So It’s a Shame They’re Getting Buried

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    News Reel Blog   


    Here’s an excerpt from IndieWire writer David Ehrlich’s excellent column about the impact of Netflix on independent film:

    Netflix doesn’t help movies find an audience any more than it helps audiences find a movie (not that filmmakers ever have any idea how many people are watching their work on Netflix — the company refuses to share data with its content suppliers, meaning that Leon [Adam Leon, director of Tramps] will have to trawl social media to glean even a vague idea of whether or not Tramps is being seen). The streaming service is a volatile sea of content that likes to measure itself in terms of dimension rather than depth; pull up the homepage, and the first thing you’ll see is text boasting about the sheer number of new shows that have been added to the site in the past week. It’s an all-you-can-eat buffet that stretches further than the eye can see, and most people are likely to lose their appetite before they discover the good stuff.

    In fact, Netflix recently took steps to make it even more difficult for customers to find what they crave or stumble upon new delights, as the company made the myopic decision to replace its somewhat worthless star ratings with a completely worthless “thumbs up / thumbs down” approach. Good luck finding your way around that buffet when all of the food is divided into “good” and “rotten.”

    Read the full article here. 


  • You’re Hired: Confirming the President’s Cabinet

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    News Reel Blog   


    A new Congress has been sworn in, a new president has taken the oath of office, and all eyes in Washington are turning to the confirmation process for Donald J. Trump’s cabinet nominees.  Senate committees are in the midst of holding hearings to fulfill their constitutional duty to advise and consent, but the rules are different this time around.  Because of a procedural change instituted in 2013 by then-Senate Majority Leader Harry Reid, cabinet nominees can be confirmed by a simple majority vote of 51 senators.  Senators cannot threaten a filibuster on the nominees, thus gumming up the process and requiring at least 60 votes in order to proceed with a nomination vote.  With Republicans holding a 52-seat majority, unless some GOP senators defect, most—if not all—of Trump’s nominees will be confirmed to their positions.

    This article explores some of the cabinet nominees and the impact their tenure may have on exhibition.

    Andy Puzder, Department of Labor

    Andy Puzder, the CEO of CKE Restaurants, is Trump’s choice to lead the Labor Department.  Puzder is one of Trump’s most polarizing nominees:  While his supporters claim that his leadership of a major restaurant company is appropriate experience for leading the department, his detractors worry that Puzder won’t act to protect workers and will roll back reforms instituted by the Obama administration.

    Restaurant industry groups welcomed Puzder’s nomination.  The International Franchise Association (Puzder is a board member) hailed him as “an exceptional choice,” and the National Restaurant Association said in a statement that he would “help foster an environment for job creation.”  Worker groups, by contrast, blasted his record.  “The WORST fast-food CEO!” Fight for $15 wrote in its petition asking the Senate to vote against his confirmation.  The Service Employees International Union—the union representing, among other employment sectors, food service workers—called Puzder “dead wrong for America’s working families.”

    Puzder’s restaurant experience could prove a boon to exhibitors.  As a restaurateur, he is deeply familiar with the labor issues facing business establishments employing a primarily part-time workforce.  One area in which Puzder could have immediate impact is eliminating the Obama administration’s rule raising the salary threshold for overtime-exempt employees.  Puzder is a vocal opponent of the rule.  When it was released in May 2016, Puzder predicted in an op-ed that the rule would drive many employers to reclassify their salaried employees as hourly, thereby negatively impacting employee morale.  The overtime rule is currently in litigation:  Business groups and a number of state attorneys general sued the Obama administration for overreach, and in November a district court judge issued a temporary injunction that prevented the rule from going into effect on December 1.  The Obama administration is appealing that decision.  Presumably, if he is confirmed as Labor Secretary, Puzder will withdraw the U.S. government as a defendant from the case.  Puzder is also likely to support Congressional efforts to overturn the rule.

    Puzder is unequivocal about repealing the Affordable Care Act (ACA).  In an industry speech delivered after the presidential election, Puzder said higher insurance premiums and increased labor costs have left people with less discretionary income, causing a “government-mandated restaurant recession.”  Aside from opposing the labor elements of the ACA, Puzder has also argued against the government’s interpretation of onerous menu labeling regulations.  In 2012, Puzder testified before the House Energy and Commerce Subcommittee on Oversight and Investigations on overregulation.  In his testimony, Puzder suggested that legislators and retailers compromise by allowing restaurants and similar establishments to post calorie counts online or adjacent to menu boards, which would give customers the information they seek and reduce the burden on covered entities.

    On minimum wage, Puzder has been less clear in his position.  Puzder has warned that increasing minimum wage to $15 an hour would shut entry-level works out of the workforce, but he has also acknowledged estimates that a minimum wage increase to about $9 would not have as drastic an impact on jobs.  Even if he does eventually declare a position openly supporting a wage increase, Puzder is not likely to find many Republicans in Congress willing to take on this issue.

    Jeff Sessions, Department of Justice

    Trump has nominated Senator Jeff Sessions (R-AL) to be Attorney General.  In this capacity, Sessions will impact many operational issues facing exhibitors, including compliance with the Americans with Disabilities Act and antitrust matters.

    Sessions does not have a strong track record on disabilities issues, although disabilities groups have blasted him for his record on education inclusion.  A coalition of 145 civil rights organizations, including the National Council on Independent Living and the Disability Rights Education and Defense Fund, signed an open letter to the Senate protesting Senator Sessions’ nomination.  In the letter, they included Sessions’ opposition to the ratification of the Convention on the Rights of Persons with Disabilities as a reason to disqualify him as Attorney General.  Democrats have vowed to focus on Sessions’ record on civil rights during his confirmation hearings.

    On antitrust issues, his record is also less clear, although his detractors worry he would be lax on antitrust enforcement.  In 1998, Sessions wrote to Attorney General Janet Reno expressing concerns that U.S. antitrust officials were encouraging foreign countries to take legal action against American companies potentially in violation of antitrust laws.

    Tom Price, Department of Health and Human Services

    Rep. Tom Price (R-GA), nominated as Secretary of Health and Human Services, is a former orthopedic surgeon and served as Chairman of the House Budget Committee in the 114th Congress.  Price can be expected to be an energetic proponent of health care reforms supported by exhibitors.  His nomination is not expected to face significant backlash.

    Price opposed the ACA when it was enacted, and has introduced repeal-and-replace legislation in the past few Congresses.  Price’s health care bill does not include an employer mandate or a provision requiring calorie counts to be displayed on menu boards, the two biggest ACA issues impacting exhibitors.  While in Congress, Price supported legislation reforming aspects of the law.  He voted in favor of legislation reducing the burden of menu labeling and in favor of legislation redefining full-time employment under the ACA as 40 hours per week.  Price was also a cosponsor of legislation defining seasonal employees as employees who work for six months or less.

    Price does not have a robust record on obesity or soda taxes; however, Price has been vocally opposed to raising taxes.  As is typical for many in leadership positions in Congress, Price has received campaign contributions from competing interests:  Both Coca-Cola and the American Medical Association have supported him.

    Steven Mnuchin, Department of Treasury

    Steven Mnuchin, a former investment banker and hedge fund manager, is Trump’s nominee to lead the Department of Treasury.  Aside from Andy Puzder, Mnuchin has the resume most closely linked to exhibition:  In 2006, Mnuchin formed a production company called Dune Entertainment, which in 2013 merged with Brett Ratner and James Packer’s production company to become RatPac-Dune Entertainment.  Mnuchin has partnered with 20th Century Fox and Warner Bros. to finance nearly 200 films, including hits like American Sniper, Avatar, Life of Pi, and The Lego Movie.  His Hollywood connections may come under scrutiny in his confirmation hearing.  Lawmakers may focus on Mnuchin’s relationship with the studio Relativity Media.  Mnuchin was a member of Relativity’s board and also ran the bank that lent tens of millions of dollars to Relativity.  Mnuchin resigned from the Relativity board on May 29, 2015; Relativity declared bankruptcy a couple months later.

    Mnuchin has listed reform of the Dodd-Frank Wall Street Reform and Consumer Protection Act as one of his major priorities, particularly rolling back regulations that hamper bank lending to businesses.  Loans are the “engine of growth to small- and medium-sized businesses,” Mnuchin said in a CNBC interview.  He has not commented on whether he would support Congressional efforts to do away with the Durbin Amendment, which capped debit card swipe fees at 21 cents plus five basis points per transaction.  He has also vowed to lower the corporate tax rate and to enact an income tax cut for the middle class.

    As Treasury Secretary, Mnuchin will have oversight of foreign acquisitions of American companies.  Within the Treasury Department is the Committee on Foreign Investment in the United States, a multi-agency body that investigates acquisitions of U.S. companies by foreign entities; much of CFIUS’ activities in recent years have been devoted to examining acquisitions by Chinese companies.  Mnuchin has not commented on Trump’s China stance, except to say that he wouldn’t necessarily deem China a currency manipulator.