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This is all news to me, but The Art of OWI confirms they did indeed watch the short at a local theatre, and there is a Palm Theatre in SLO. I can’t see anything about it online, though. Knowledge gleaned from your time there?
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Well, if it was in a local theatre it was almost definately The Palm as that's the small, independant cinema. The other one is a big chain.
The Palm is a nice little place. I saw Wallace & Gromit and Transamerica there.