[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
HEARING ON SMITHSONIAN INSTITUTION BUSINESS VENTURES
=======================================================================
HEARING
before the
COMMITTEE ON HOUSE ADMINISTRATION
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
HEARING HELD IN WASHINGTON, DC, MAY 25, 2006
__________
Printed for the use of the Committee on House Administration
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COMMITTEE ON HOUSE ADMINISTRATION
VERNON EHLERS, Michigan, Chairman
ROBERT W. NEY, Ohio JUANITA MILLENDER-McDONALD,
JOHN L. MICA, Florida California
CANDICE MILLER, Michigan Ranking Minority Member
JOHN T. DOOLITTLE, California ROBERT A. BRADY, Pennsylvania
THOMAS M. REYNOLDS, New York ZOE LOFGREN, California
Will Plaster, Staff Director
George Shevlin, Minority Staff Director
SMITHSONIAN INSTITUTION BUSINESS VENTURES
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THURSDAY, MAY 25, 2006
House of Representatives,
Committee on House Administration,
Washington, DC.
The committee met, pursuant to call, at 12:25 p.m., in room
1310, Longworth House Office Building, Hon. Vernon J. Ehlers
(chairman of the committee) presiding.
Present: Representatives Ehlers, Ney, Doolittle, Miller,
Millender-McDonald, Brady and Lofgren.
Staff Present: Peter Sloan, Professional Staff; Bryan
Dorsey, Professional Staff; George Hadijski, Director, Office
of Member Services; George Shevlin, Minority Staff Director;
Matt Pinkus, Minority Professional Staff; Charles Howell,
Minority Chief Counsel; and Janelle Hu, Minority Professional
Staff.
The Chairman. Good afternoon. The Committee on House
Administration will come to order. I want to thank everyone for
being here, but particularly those who are planning to offer
testimony. We unfortunately, as frequently happens, have had a
conflict with votes. We had a vote call just as we were about
to begin this session, and that explains the delay in getting
started. We have other votes that are expected to be called
approximately at 2:30 to 3:00, somewhere in that time frame. It
would be wonderful if everyone could be concise and lucid so
that we could finish before then. I wouldn't put any bets on
it, but at least it gives us a goal to shoot for.
Today this committee convenes a very important oversight
hearing on the operations and investments of the Smithsonian
Institution, as well as the role that Smithsonian Business
Ventures serves in furthering the Institution's mission as an
establishment for the increase and diffusion of knowledge.
The goal of our hearing is to allow the Smithsonian to
provide an overview of their current status and bring
transparency to the operations of the business venture. This
will include discussion of the recent creation of a new joint
venture between the Smithsonian Institution and CBS Showtime
Networks called Smithsonian Networks, and the launch of its
first product, Smithsonian On Demand.
The Smithsonian Institution is a treasured part of the
American cultural landscape. Last year alone, 24 million
visitors experienced the objects, artworks, and specimens
housed within its walls, which contains more than 136 million
items. That exceeds the amount of stuff I have in my basement,
although my wife might dispute that.
It is the duty of this committee to ensure that this jewel
of American culture be preserved and that its policies and
procedures serve the public trust, something, incidentally,
which it has done very well for many, many years.
For those students, visitors, and others who are unable to
visit the Institution in person, to view its vast archive
programming created by independent producers has served as an
essential tool in furthering education about the many artifacts
that are part of the Smithsonian. There has been considerable
concern expressed by those in the educational and creative
communities regarding the potential risks involved with
curtailing use of the Smithsonian collections by filmmakers,
rival networks, journalists, and scholars, as proposed in the
Smithsonian On Demand venture, and the committee looks forward
to hearing from our panelists on these issues.
Today's hearing will focus on several areas of concern to
the committee. First, my staff has made strenuous efforts over
the past several weeks to obtain a copy of the contract that
Smithsonian Business Ventures entered into with CBS Showtime.
I would like to thank Secretary Small for providing a copy
of the contract in the past several days; however, large
portions of the contract were redacted in the version that was
submitted, making it difficult to gain a complete picture of
its substance. My understanding is that the Smithsonian cited a
confidentiality clause as the reason for redactions that were
made to the contract before it was submitted. For Republican
institutions such as the Smithsonian, the contents of this
contract are essential in preserving the appropriate level of
transparency that the public expects and deserves.
After you provided the redacted copy of the contract and at
your invitation, my staff has met with your staff to discuss
the content of the redacted portions. This discussion raised
additional concerns, and my staff requested an unredacted copy
of the contract so that this committee may better understand
its contents.
Thank you, Secretary Small, for now making the full text of
this contract available in keeping with your role as a steward
of this institution on behalf of the American public. We will
honor your request to keep it confidential while we review the
agreement.
Our second objective today is to better understand your
management philosophy in the operations of Smithsonian Business
Ventures and to bring clarity and transparency to the process
used by the Smithsonian in entering into this contract with CBS
Showtime. I am very interested to learn more about the genesis
of this partnership, and why a deal of this magnitude was not
thoroughly vetted with the Smithsonian's authorizing and
appropriating committees prior to the venture being ratified by
the Smithsonian's Board of Regents.
Finally, and most importantly, this committee must insist
on behalf of the millions of Americans who not only visit the
Smithsonian each year but who also enjoy programming based on
its contents, that this institution must put the needs of the
public above its own need to explore new sources of revenue
when those income sources limit the public's access to the
Nation's attic. We must take whatever steps are necessary to
ensure that no filmmaker, scholar, or any other individual
whose goal is to use and foster educational awareness of the
Smithsonian is inhibited in making use of the resources
contained within the institution.
To address the growing concerns surrounding the Smithsonian
Business Ventures, and particularly the new joint venture
between the Smithsonian Institution and CBS Showtime Networks,
the committee will call upon several distinguished experts from
the Smithsonian to provide insight into these issues.
To provide additional perspective, the committee is also
pleased to welcome several witnesses from the educational and
creative community to provide their testimony. Our first
witness today is Lawrence M. Small, secretary of the
Smithsonian Institution. Secretary Small, we welcome you and
thank you for being with us today. We look forward to your
overview of Smithsonian operations as they stand today, and
expect you will conceptually address your guiding philosophy
behind Smithsonian Business Ventures and its operations.
Our second panel of witnesses today includes Carl Malamud,
senior fellow and chief technology officer from the Center for
American Progress; Margaret Drain, former executive producer,
vice president of national programming for WGBH in Boston; and
Emily Sheketoff, associate executive director for the American
Library Association. Welcome to our distinguished second of
panel of witnesses as well.
Finally, on our third panel today we have Alice Maroni,
chief financial officer of the Smithsonian Institution, John
Huerta, general counsel of the Smithsonian Institution, and
Gary M. Beer, chief executive officer of the Smithsonian
Business Ventures.
While we will not be requesting or hearing testimony from
them today, I asked them to appear before the committee to
answer member questions. I welcome you all to our third panel,
and I thank each of you for being with us today.
At this time, I would like to recognize the Ranking Member,
Ms. Millender-McDonald from California, for any opening remarks
she may have.
Ms. Millender-McDonald. Thank you, Mr. Chairman. Thank you.
It is good to see you again, Mr. Secretary.
I am pleased that you have called this oversight hearing,
Mr. Chairman, because it provides the Smithsonian with an
opportunity to inform us about where the Smithsonian is today
and where it is going in the future.
The House Appropriations Committee cut the Smithsonian's
budget by $20 million last week, and I would be very interested
in hearing what impact that cut will have on the operations of
this critical institution and to hear from the Secretary as to
what caused these cuts.
The Smithsonian is a public trust which houses the Nation's
cultural and historic treasures. It operates as a trust entity
for the people of the United States, and, as such, has a
special place in the heart of all Americans. The Congress has
allowed it to occupy a place of honor on the National Mall, and
it is a beacon for scientists, scholars, families, and donors.
Therefore, the public trust should never be breached.
I think this hearing will provide a long overdue
opportunity for the American people to meet the person who
heads their national trust and to begin to understand the
complex nature of the institution. With the availability of
public funds being drained away from other national priorities
and reduced revenues, the Smithsonian is inevitably and
negatively affected. I am very appreciative of the Smithsonian,
and I look forward to its continued viability and expansion.
There are many things to be preserved and displayed which
have yet to be fully realized, and the Smithsonian is the place
where that can occur to the benefit of the Nation.
While the budget cut has gotten the Smithsonian's
attention, I want to say that I have not taken a position on
the Smithsonian On Demand contract itself, nor on the laudable
ambitions behind it, which is to increase public awareness
about the Smithsonian's collections and to increase the
Smithsonian's ability to utilize its trust funds.
However, I am deeply concerned as to the lack of
transparency to the process and to this contract. Congress only
received a copy of this contract, a couple of days ago; and we
must examine the contract fully and receive the views of the
public and/or outside experts. I will again make sure that the
confidentiality of this contract is not breached by this
Member.
This hearing, the first in the 109th Congress on this
subject or any other Smithsonian issue, will begin this process
today. I would hope that the issue of the budget cuts would
resolve itself as the appropriations process moves forward in
the Senate and in conference. But that will depend in part on
how responsive the Smithsonian is to us today, Mr. Chairman,
and in the future, to the concerns which have been raised.
I am particularly interested in hearing the institution's
justifications of the increased salaries paid out of the trust
fund moneys to personnel in the Smithsonian Business Ventures,
as well as to the secretary of the Smithsonian and other high
officials of the institution. Some of these may well be
justified, but for comparative purposes, looking at salaries at
Federal agencies funded entirely from Federal funds, this could
have a negative appearance.
Mr. Chairman, frequent oversight provide a way to address
the inevitable differences which arise among visitors, public
users of the Smithsonian collections, the Institution, and the
Congress. It could help avert the impulse to take
counterproductive actions and provides an avenue to redress
grievances. It really falls within the legislative and policy
jurisdictions of our Committee on House Administration, and I
would like our committee to be the court of first resort
whenever possible, Mr. Chairman.
Therefore, I look forward to hearing more about these new
ventures which the Smithsonian has undertaken, its new
financial needs, and how we can help to ensure that it
continues its important function as the Nation's attic.
Thank you very much, Mr. Chairman.
The Chairman. Thank you.
I am now pleased to recognize the gentleman from Ohio, Mr.
Ney, for his statement.
Mr. Ney. Thank you, Mr. Chairman. And thank you for holding
an important hearing. And welcome to the secretary. In the
interest of time, without objection, I will just put my
statement in the record.
The Chairman. Without objection, so ordered.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] T8299A.001
[GRAPHIC] [TIFF OMITTED] T8299A.002
The Chairman. Next we turn to the gentleman from
Pennsylvania, Mr. Brady. He has no opening statement. Thank
you.
At this time, then, we will commence with testimony from
our first witness, Secretary Lawrence Small. Mr. Small.
STATEMENT OF LAWRENCE M. SMALL, SECRETARY, THE SMITHSONIAN
INSTITUTION
Mr. Small. Mr. Chairman, thank you very much for this
opportunity to testify. With 19 museums and galleries, 9
research centers, the National Zoo, and 136 million objects, as
you pointed out, in our collections, the Smithsonian is the
world's largest provider of museum experiences. It connects
Americans to their cultural heritage, and it also acts as an
international leader in scientific research and exploration.
Last year, the Smithsonian attracted more than 24 million
visitors and reached 150 million more people through its
magazines and Web sites.
The Smithsonian is unique in status and structure. It is
not a Federal agency. It is not in the Executive Branch. It is
an independent trust entity, established as such by Congress
160 years ago in 1846. And that was done to ensure that
scholarly research and exploration would be unaffected by
changing political climates. In fact, Congress was satisfied
enough with the public-private nature of the Smithsonian
structure to make the National Gallery of Art, the Kennedy
Center for the Performing Arts, and the Woodrow Wilson
International Center for Scholars legally part of the
Smithsonian when they were established. And they continue as
such today, although, as you know, they receive separate
appropriations from Congress and have independent governance.
The support of the administration, the support of Congress and
the private sector, is crucial for all four institutions, and
we are more than grateful for it.
The Smithsonian relies on Federal funds for roughly 75
percent of its budget. In addition, the Smithsonian has
nonFederal funds, which we refer to as trust funds, which
include contributions from private sector sources and earnings
from Smithsonian Business Ventures, which we call SBV.
The Smithsonian has had museum shops, it has had
restaurants, movie theaters, and a study tour travel business
for decades. Its highly regarded Smithsonian magazine, which I
know all of you are familiar with, is now 35 years old.
Smithsonian Business Ventures was established in 1998, when
the institution's board of regents authorized the creation of a
distinct operating division that would bring together the
Smithsonian's diverse business activities and have them managed
professionally by a team of experienced executives reporting to
a board of directors and the secretary.
In fiscal year 2005, Smithsonian Business Ventures
contributed $30 million to the institution, and from 2000 to
2005 a cumulative total of $155 million. And these are funds
that are used for activities, that are not paid for by taxpayer
dollars. And so while the Smithsonian Business Ventures
contributes less than 4 percent of the total annual budget, it
is really a critical contribution, because the unrestricted
funds that it provides aren't earmarked for special projects as
are most philanthropic gifts, and it fills really vital funding
needs that would otherwise not be met.
SBV's contributions to the Smithsonian accounts for nearly
half of the institution's total unrestricted funds. And these
are dollars that help pay for programs such as the largest
traveling museum exhibition service in the world, the
relationships that the Smithsonian has with 143 affiliate
museums around the United States in 39 States, hundreds of
lectures and trips and seminars every year, and the Annual Folk
Life Festival on the Mall, which attracts more than 1 million
people, and many, many education programs which reach millions
of students and teachers.
Now, the Smithsonian has long sought to do on television
what it was able to do in print so successfully with this
magazine, the Smithsonian magazine. This was established 35
years ago. It reaches millions and millions of people who would
not otherwise have had their lives affected and touched by the
fascinating content of the Smithsonian. And to that end, and
with the full support of the board of regents, the Smithsonian
concluded an agreement in early 2006 with CBS Showtime to
create a new cable TV offering called Smithsonian on Demand.
This is targeted at a market vastly larger than the
Smithsonian's total number of annual visitors.
Smithsonian simply doesn't have the resources, doesn't have
the expertise to do something like this alone. Smithsonian on
Demand will allow the Institution, for the first time and in
its own voice, to connect with millions of people nationwide,
most of whom will visit the Smithsonian rarely, if at all. The
new arrangement involves very minor change to the way the
Smithsonian interacts with its many constituencies' access to
the collections, to the archives, to the libraries, for
research remains completely unchanged. Researchers, teachers,
journalists continue to have full access to the Smithsonian for
news and public affairs and academic and scholarly purposes.
The Smithsonian is totally committed to keeping Congress up to
date and informed as the progress of this exciting and
innovative service takes place. We look forward to discussing
with you this new means of communication that represents a
really major step forward in permitting the Smithsonian to
touch the lives of millions of Americans through the use of
21st century technology. Thank you.
[The statement of Mr. Small follows:]
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The Chairman. Thank you very much for your testimony. And
the telephone reminded me that I neglected to mention the rules
of this committee: No cell phones allowed to be on. So if you
have a cell phone, please turn it off, whether you are a
member, member of the audience, or member of the media. Thank
you.
I appreciate your testimony. Just to kick off the
questions, and I am sure there will be many questions, but what
is the mission of the SBV? I assume you have that in writing in
some fashion or as a part of your documents. And what
strategies are employed to meet the goals of the mission?
Mr. Small. The mission is to represent what I think you
could call the best quality operations for the type of thing
that each one of its businesses does against other people who
do the same sort of thing. So, for example, the mission of the
magazine is to be one of the great general interest magazines
in the United States, and it consistently is viewed as doing
that, and has a terrific reputation and, as I said, is read by
about 7 or 8 million people a month.
The mission of our restaurants and our museum shops is to
be the best restaurants and museum shops in the museum world.
Each one of these businesses is simply designed to be the best
it can possibly be, to provide, first of all, an extension of
the mission of the institution, which has always been since
1846 the increase in diffusion of knowledge. So the magazine is
meant to reach out to millions of people who would otherwise
not be able to come and visit the museums.
The shops and restaurants are an extension of the visitor
experience of the Smithsonian. So in each case, it is to be the
best in class for the type of market that it is to serve, and
obviously to raise funds for the Institution to supplement the
Federal funding that we get.
The Chairman. Now, is this the only means of raising
outside funds that you use?
Mr. Small. No, sir. We also have an endowment which amounts
to a little over $800 million, and it generates about $35
million to $36 million a year for the institution. We also
raise money from the private sector. Over the last 6 years we
have raised $1 billion in private sector philanthropy. So there
are definitely other sources that contribute nonFederal funds
to the Smithsonian.
The Chairman. So in other words, the development in fund-
raising is within your bailiwick.
Mr. Small. Certainly.
The Chairman. But enterprises which are trying to raise
money through selling goods, providing services and so forth,
is that all under SBV, or does the museum operate some of those
as well?
Mr. Small. The vast preponderance of what you might call
commercial-type activity, publication of the magazine, the
restaurants, shops, theaters, all of that is under Smithsonian
Business Ventures. The raising of funds through philanthropy is
not.
The Chairman. And why did you see the need to start the
Smithsonian Business Ventures? This is going back a long ways,
but what do they do that you can't do yourself, just with
internal staff if you had decided to?
Mr. Small. First of all, all of the members of the
Smithsonian Business Ventures staff are, in fact, internal
staff. Smithsonian Business Ventures is just a name to indicate
an operating division of the Smithsonian Institution. It is not
separate from the Smithsonian Institution.
The reason it was formed is that back in 1998, the board of
regents felt that there had to be a more organized professional
approach to dealing with so many museum shops, such a
successful magazine, so many restaurants, all of these diverse
activities. They asked former Senate Majority Leader Howard
Baker, who was a member of the board of regents at the time, to
chair a committee to look at the issue, help find some outside
consultants as to what to do. And the committee went and looked
at other institutions that are large and complex--universities,
hospitals, things of that nature--and they found that where the
most successful model appeared was where these institutions had
pulled together their activities that were in the business
world and had them run by professional business managers. And
so the board of regents in 1998 decided to form Smithsonian
Business Ventures.
The Chairman. And this is a separately chartered
organization, or simply operates within the framework of the
Smithsonian overall?
Mr. Small. The latter. It simply operates within the
framework of the Smithsonian. It is not a separate legal
entity.
The Chairman. And does the executive director then report
to you, or to the board of regents?
Mr. Small. Reports to me.
The Chairman. And through you to the board of regents?
Mr. Small. Absolutely.
The Chairman. So every aspect of their operations is
subject to control by the board of regents?
Mr. Small. That is correct.
The Chairman. And what care is taken to make certain that
the mission of the Smithsonian Business Ventures matches the
mission of the Smithsonian as a whole? Does the motivation of
profit or raising money in some way cause them to divert from
your central mission of providing information, knowledge,
imparting knowledge, and so forth?
Mr. Small. Mission is paramount in the Smithsonian, has
been for 160 years. It is what drives us. Everything done by
Smithsonian Business Ventures is completely under the
governance of the board of regents, and we are no less
interested in mission there than we are in any of our museums.
So anything we do, whether it be the publication of the
magazines, the type of merchandise that we sell, any type of
partnerships that we enter into, all have mission first and
foremost.
The Chairman. I see that my time has expired, and I would
like to abide by the time rules, just as any member has to. So
I am pleased to recognize the Ranking Member.
Ms. Millender-McDonald. Thank you so much. And, again,
thank you for your testimony, Mr. Small.
In looking at this, first of all, my first inclination in
reviewing all of this material that I received was a 30-year
contract given to you, and how often--and maybe, Mr. Chairman,
you might be able to answer this when does Congress review this
contract? How often do we come back to review just where you
are, where you are purporting to go, what are you doing, some
of those business ventures that you have entered into?
Mr. Small. You mean with the committee itself?
Ms. Millender-McDonald. Well, there is a 30-year contract
that I am reading here. And I was just concerned as to how
often is that contract reviewed by either this committee or
other relevant committees? Why was 30 years chosen as the
length of this contract?
Mr. Small. I understand, Congresswoman. First of all, I
think it is a good point to make, because 30 years is an
unusual amount of time.
Ms. Millender-McDonald. It seems to me, also.
Mr. Small. Yes. Relative to the kind of things that we have
done in the past in the Smithsonian. On the other hand, as we
have gotten more and more into the world of learning about
television--because the whole idea of this is to do for the
Smithsonian in the 21st century what the magazine did in the
20th century, communicate with so many people. We have
discovered that building a TV channel, a cable TV channel,
building a film library are all long-term propositions; that
they take at least 7 to 10 years to get established; and that
long-term contracts are not unusual in the television industry.
So as we have learned more and more about this, we have
come to see that it is not something that you can do overnight.
It takes a long time to build up the film library, it takes a
long time to build up the number of users of the network. So
while it is different from what we have done in the past, we
understood that it is not unusual.
Ms. Millender-McDonald. And there is a possibility that it
is not unusual, as you said, given the television industry. But
there is one thing that tends to put you apart from all of
this, and that is that you do get Federal funds, and you get 75
percent of Federal funds. And those funds are really the
people's money.
Given all of that, then it would appear to me that we would
have some sense of accountability, if you will, if nothing
else, as to where you are along this continuum of 30 years to
see whether or not there is something that we need to do to
enhance the budget of the Smithsonian. And so that in and of
itself is a deep concern of mine, that there is a 30-year
contract, irrespective of what you are saying that you have to
do all of these things and it takes time. And I can understand
that. But when there is this proviso that you have said, while
it is not a Federal agency, you do get Federal funds, and those
funds really represent the people's money. And doing that, then
we have to have some accountability ourselves, and so therefore
we should have that accountability as well in your new-found
venture of the Smithsonian Demand on Review.
Mr. Small. Smithsonian on Demand.
Ms. Millender-McDonald. What is the percentage of ownership
the Smithsonian actually has in this Smithsonian network as a
minority partner?
Mr. Small. Ten percent.
Ms. Millender-McDonald. Would such an equity arrangement be
considered unusual?
Mr. Small. I think that it is--since the Smithsonian is not
investing any money in this, we think it is a terrific
arrangement.
Ms. Millender-McDonald. So you think it is a terrific
arrangement, and you do not see this as an unusual percentage?
Mr. Small. No. We think it is a wonderful percentage.
Unusually good; let us put it that way.
Ms. Millender-McDonald. Well, I suppose that is something
that is yet to be determined. But let me go further on this. In
your statement, you have said that given the GAO assessment of
the buildings and the age of the buildings and all of those
factors, that GAO has assessed that there is a critical need
for you to have a total of $2.3 billion that is needed to
maintain all the facilities. And yet in your statement you are
suggesting that you need to come back to the Federal
Government, perhaps the appropriators, to look for in excess of
$100 million beyond that amount.
Why would the appropriators want to do this when they have
seen, as some perceive, an arrogance, and certainly the
inability of your wanting to cooperate with them on questions
and issues that they have raised about this business venture
that you have ventured into? That is one question.
The other question is you have outlined all of your
different ventures and all of that. What sets you apart from
them in terms of where you are today from what they have, where
they have been?
Mr. Small. First of all, I would say that I believe that
Smithsonian on Demand is completely consistent with the other
outreach activities of the Smithsonian in the past, and it is
really a diffusion of knowledge-focused activity. It is focused
on getting the Smithsonian's treasures and stories, objects,
out to the American people in the most effective way possible.
One of the things we are aware of, and I am totally
sensitive to what you are saying, Congresswoman, is that
Congress was surprised by the blowup about Smithsonian Business
Ventures. We were surprised. We were completely shocked by it.
Our board was shocked by it. Because the way this--about
Smithsonian on Demand. Because the way Smithsonian on Demand is
actually structured, it actually represents almost no change,
minimal change to the way the Smithsonian operates, where
people come to the Smithsonian, with professors, with
filmmakers, with all sorts of different constituents.
Because it involved so little change, we did not foresee at
all that there would be any hue and cry and that people would
interpret Smithsonian on Demand the way they seem to have,
which they believe it has some restricted access.
So we apologize for the tremendous hullabaloo that has been
created for Members of Congress because we didn't expect it.
And then when the time came to react to it, since this contract
has a confidentiality clause that is designed to protect the
business information in it that could hurt the venture
competitively if it were made public, just because competitors
would see it, we had to go back to the partner in it and say,
since we are bound by this confidentiality clause and Congress
wants to see the document, can we provide the document to
Congress? And it has taken us this long to be able to get that
permission.
Ms. Millender-McDonald. But, Dr. Small, wouldn't you think
that because this was a venture unlike any other venture--you
know, we had magazines, business offices and all of these
things open up which you outlined--this is something unusual?
It seems that you were putting the Smithsonian on sale, as
Members of Congress have seen it. But you did not have the
sensitivity to come to Congress before this. And then when
Congress heard it, it was in the media. And that is what is
perplexing, confusing, and insensitive to Members of Congress.
Mr. Small. I completely understand what you are saying.
From our point of view, the way we thought it through--and
obviously in the blinding light of hindsight, we would try to
do it differently. The way we thought it through is we, the
Smithsonian, has been doing television programming and working
with filmmakers for years and years and years. Their ability to
access the Smithsonian, the ability to work with the
Smithsonian is hardly changed by this at all. So we did not
think that there was going to be any big uproar, because we saw
it as minimal change.
The reason we didn't come to Congress is we didn't see that
there was anything that involved any significant change in any
big way. And so now that we have seen that it has been turned
into what you might call an issue, where some people believe
that access is restricted, although----
Ms. Millender-McDonald. We really do believe that, yes.
Mr. Small. The fact is, it is not. And the same people can
access the Smithsonian the same way they always have. The
Smithsonian can do just about everything it did before we did
this arrangement. But it has been twisted in some people's
minds into something that is dramatically different than the
way we have operated for 160 years, and it is not.
And so understanding that, I am sorry that it has created
problems for members who have been papered with all sorts of
correspondence. But the fact is we did not estimate it would
blow up, our board did not estimate it would blow up because we
didn't see it as a big change. That it has blown up, obviously
we want to communicate with everybody as best we can to
alleviate their concerns, to explain what is going on. The
issue of confidentiality, we simply had to get our partner to
go along with it, and they have.
Ms. Millender-McDonald. Well, I thank you, Mr. Chairman. I
just want to say this. Smithsonian on Demand, becomes
problematic for Members of Congress. Smithsonian on Demand, I
think that is one of the problems.
The Chairman. The gentlewoman's time has expired. I am
pleased to recognize the gentleman from Ohio, Mr. Ney.
Mr. Ney. Thank you, Mr. Chairman.
And Secretary, as you know, the Congress, appropriate
jurisdiction committees, get an executive summary when it comes
to House Administration, Transportation, and Appropriations. As
I understand probably within that executive summary and from
what you said about not knowing the magnitude of the reaction
on this, and not thinking it would have a huge reaction. But
those executive summaries that come to these committees
sometimes will not have a lot of detailed information in them
is what happens.
Now, I am not saying that by any stretch of the imagination
it was intentional or anything. I know from the past in looking
at these executive summaries, they are executive summaries. Of
course, the Congress is represented on the board of regents.
And I think in this case on this contract, there was an
executive subcommittee, wasn't there?
Mr. Small. The board of regents reviewed this contract in
great depth.
Mr. Ney. And it was an executive subcommittee. So at the
end of the day, probably the issue we can look at is what can
be done to increase communication between the Congress, I
think, and the private end with the SBV.
Mr. Small. I couldn't agree more. There is no question here
that we have to do a better job in working with Congress on
communication.
There was no desire at any point in time in the Smithsonian
to keep this secret from Congress, because all the minutes of
the meetings of the Smithsonian Regents, where this was talked
about in detail, were, in fact, sent to our committees of
jurisdiction.
But we didn't call up the committees of jurisdiction and
say, Look at the minutes of this; pay particular attention to
it. They just were sent up routinely.
And now that we have seen what has happened on this, we
want to work very, very aggressively with all of the committees
that work with us to make sure people are up to date.
Mr. Ney. Because I think the argument that won't hunt
here--as we say, That dog won't hunt. I think that argument
won't hunt here in the Congress that, well, the SBV is a
separate entity, because although the Smithsonian is and should
be unique--I would say that--but the SBV may make a decision
that comes back somehow to get into the realm of public
accessibility which then is the taxpayer dollar.
So, yeah, I think maybe the way to look at this is, what
can be done with communication, when issues in fact will have
some type of effect on--even if they are decided by a different
arm, would have an effect.
Mr. Small. I agree.
Mr. Ney. Thank you.
The Chairman. I am pleased to recognize the gentleman from
Pennsylvania, Mr. Brady.
Mr. Brady. Thank you, Mr. Chairman. I also have a problem
with a 30-year contract. I have a problem with a 30-year
anything. I mean, it is an awfully long time. But you said that
the reason is because it is going to take 7 to 10 years for
them to get ready to offer anything.
Mr. Small. No. No. We expect that by the end of this
calendar year there will be programming. I said it takes 7 to
10 years to really build up the brand within the world of
television, so that it has lots of people who are subscribers
to it and it establishes its presence in the marketplace.
Mr. Brady. So you are giving them a 30-year contract; we
are allowing them on our time to build up their business?
Mr. Small. We and they, because we are part of it. We are
partners.
Mr. Brady. And also I understand if a film maker, a private
film maker would have to offer on demand, they would have to
offer--they have first right of refusal?
Mr. Small. No, that is not true; that is one of the things
that has been a misunderstanding.
We have the ability to do virtually almost everything that
we did in the past. We actually took a look at, over the last 5
years, 350 contracts that we entered into to allow film makers
to work with us; and out of the total, the ones that would even
come up for a look by this particular partnership ends up being
less than 5 percent of the whole amount. So virtually
everything that we did in the past, we would have done
automatically.
And then we have the ability to work with independent film
makers outside of Smithsonian on Demand as well. So this is a
misinterpretation that has gotten into the public arena.
Mr. Brady. But if I am a film maker and I want to make a
film and you don't agree, or the demand people, Showtime, don't
agree, you could stop that from happening?
Mr. Small. If you are a commercial film maker and you have
come to the Smithsonian at any time in the past, the first
place you go is to the museum that you would want to work with.
That museum has always made a decision whether it wants to work
on that project with that film maker. And that has to do with,
is that particular topic a priority for the museum? It has to
do with whether the curators are free to work on it.
So the first thing that the museums have always done is
decide whether they want to do it or not. So the answer to the
question is that if some film maker comes to a Smithsonian
museum and says they want to make a movie, it is up to the
museum first to say, do they want to make the movie, and it
always has been.
Mr. Brady. But now you add to the equation, Showtime, and
now they make a decision.
Mr. Small. No. Then what happens is, let's assume the
museum says, do they want to work on the project with the film
maker. The museum then has the option of saying, this is
something that could be of interest to Smithsonian on Demand,
or it is something that we might want to do independent of it.
And so it could go in either direction; and that will then
depend on the circumstances.
But it doesn't automatically have to go to Showtime, with
Showtime saying--excuse me, with Smithsonian on Demand, with
them making the decision. It is the museum's decision which way
it should go.
Mr. Brady. But isn't Showtime a part of that decision?
Showtime is not a part of any of the decisions?
Mr. Small. No, the arrangement that we have made is that
the Smithsonian will decide what it will do with whom. And it
has the option to do a certain number of things independently
during the year, during any given year, without being involved
with Smithsonian on Demand. And then it expects to do the bulk
of this, because Smithsonian on Demand is going to invest tens
of millions of dollars every year in programming with
independent film makers in this venture, so the Smithsonian
will be doing much more than it has ever done in the past. So
much more is going to get done.
Mr. Brady. My concern is real simple. An independent film
maker wants to produce or have a film put on TV. And you are
telling me that Showtime has no say in that at all? They could
just keep on coming in and doing what they have been doing when
Showtime wasn't in the 30-year?
I am worrying about stifling these people for 30 years, and
maybe Showtime doesn't want the competition. I don't understand
that.
Mr. Small. Let me be very specific. We looked at 300--all
the cases that we have worked on with film makers over the last
5 years, there are 350 cases; what we saw in the 350 cases is
that in all but 17, the use of Smithsonian's objects, curators,
facilities was virtually insignificant. So they automatically
would just do what we did before.
When we got to the 17 cases, we found--we saw that in those
cases, the Smithsonian occupied a significant amount of time in
that particular show. Let's say there was an hour show; it
could be 20 or 30 minutes of the time. In those particular
cases what the museum would then say is, that is significant
enough so that we may ask you, film maker, if you could like to
talk to Smithsonian on Demand about working with them on the
project; or the museum could say, this is something we think we
would like to do with you independently. And we have the
option, under this agreement, to be able to do a number of
those independently.
The vast preponderance of people who have worked with us in
the past will be able to do exactly the same thing they have
always done.
Mr. Brady. But if I don't subscribe to Showtime. I can't
watch it.
Mr. Small. If you don't subscribe to Smithsonian on Demand,
then you would not be able to see its programs. But you don't
have to pay anything to Smithsonian on Demand. Smithsonian on
Demand will be offered through the cable package that you can
sign up.
Mr. Brady. The cable package?
Mr. Small. Not Showtime.
Mr. Brady. That I don't sign up to.
Mr. Small. All you have to do is, it will come
automatically with the cable package. It is not something where
people are going to pay for it specifically. And you don't have
to sign up for Showtime to get it.
Mr. Brady. Okay. Thank you.
Thank you, Mr. Chairman.
The Chairman. The gentleman's time has expired.
The gentlewoman from Michigan.
Mrs. Miller. Thank you, Mr. Chairman.
I apologize. I was late getting to today's hearing.
Secretary Small, I tried to read through your comments here,
but I didn't hear your testimony. You just mentioned that you
would not have--let me follow up on what you just said--to pay
separately for this service--that it would be a part of your
cable package.
Is that in the 30-year contract?
Mr. Small. I believe. Let me just double-check.
Mrs. Miller. You will never have to pay separately for it
for 30 years?
Mr. Beer. The agreement has a number of different
provisions.
The Chairman. I am sorry. You will have to----
Mr. Small. This is Gary Beer, the Chief Executive of
Smithsonian Business Ventures.
The Chairman. You will have to come to the table and
identify yourself.
Mr. Beer. Excuse me. I have never testified at a hearing
before. Could I have the question repeated?
Mr. Small. If the contract specifies----
Ms. Millender-McDonald. Your name, sir?
Mr. Beer. My name is Gary Beer. I am the Chief Executive
Officer of Smithsonian Business Ventures.
Mrs. Miller. Mr. Beer, my question is this. Secretary Small
just testified that there would be no difference in cost to get
Smithsonian on Demand. It would be a part of your normal cable
package, there would be no additional cost, like HBO or
Showtime or any of the pay channels.
Is that for 30 years, people are going to be guaranteed
that there will be no additional cost? Is that part of the
contract?
Mr. Beer. No, it isn't. There is nothing in the contract
that can guarantee what a cable operator or satellite
distributor or a wireless operator or anyone else in the future
may do.
The current offering is conceived as an offering that is
commercial-free and available to all subscribers of digital
cable. And that will, in the end, depend upon what the
customer--and in this case, it is a programming service, and
that programming is made available initially to cable
operators. So what will happen in the future will depend on
what happens in the marketplace and what happens with
individual distributors.
Mrs. Miller. Things change over the years. In 30 years a
lot of things will change. His testimony is contrary to what
you had originally said, Secretary.
Let me ask you, do you--either the Secretary or Mr. Beer--
do you have any background in television or film making, you,
yourself, for instance?
Mr. Small. Yes. No, I don't. Well, I have some in that for
many years I was in the financial services industry, and was a
banker to people in the media business. I was also on the board
of directors of Paramount Communications, which own Paramount
Studios and Simon & Shuster books.
Gary Beer, the Chief Executive of Smithsonian Business
Ventures, was the founding partner, with Robert Redford of
Sundance Industries, which was in the business of film making
and various publications and things of that nature. So he has
extensive experience in it.
Mrs. Miller. And you were involved in negotiating the 30-
year contract, as was Mr. Beer then? Who actually negotiated
the contract?
Mr. Small. Mr. Beer.
Mrs. Miller. One of your comments you said a little bit
earlier, Secretary, was that the Smithsonian had been doing
similar things for years, that you were somewhat surprised by
the brouhaha that has erupted over all of these kinds of
things, and that it is not dramatically different from--what we
are talking about today from what you have been doing for
decades, I suppose.
Could you give me some examples of other 30-year contracts?
For instance, could you give me an example of a contract that
has been around 30 years that is now expiring or close to
expiring, all similar kinds of things what you have done here?
Mr. Small. No, I can't. As I indicated, this is definitely
unusual for us--before when I made my comments--there is no
question about it. Because we have never attempted to build a
presence on digital cable TV before, because it hasn't existed.
What I meant is that we have been--relative to the issue of
access and use of the Smithsonian's collections, we have been
doing film projects with people for years and years and years,
and in no case is there any issue of the venture, this business
partnership, having any right of first refusal. In no case does
this partnership decide what gets done, and in no case do we
require any film maker to go to this. So I was being responsive
to that.
The 30-year contract is definitely something that is more
similar to what is done in the media industry, and we have
never done anything like that before. But we did a lot of
checking to see whether it was reasonable, and the feedback we
got from professionals was ``yes.''
Mrs. Miller. Just because I am not familiar with this--if
it is similar to what is done in the media industry, could you
give me an example of a similar contract in the media industry
that runs for 30 years? Can you enlighten me on that?
Mr. Small. No, I don't know a particular contract. I just
know it does take a long time to build up a cable TV channel. I
mean, we have seen that in the course of our lives, to build a
film library and a lot of subscribers to a service is not
something you can do quickly. And remember, that the partner
here is investing tens of millions of dollars. And so the
likelihood that you could get people to invest tens of millions
of dollars a year and keep spending money on programming
without having them have the confidence that they were going to
enter into something where a film library would build and many
millions of subscribers would be built up is logical.
I mean, I don't think anybody would invest money in a
short-term contract, knowing that it is going to take a long
time to succeed.
Mrs. Miller. Well, everybody doesn't make money, I don't
think in the film industry.
But with that, I see my time has expired. Mr. Chairman,
thank you.
The Chairman. The gentlewoman's time has expired.
Let's pursue some of the things that were just discussed
before. For one thing, you mentioned that the Smithsonian Board
of Regents had reviewed the contract in great depth, but I
understand that only the executive committee was shown the full
text of the contract and that the full board was not; is that
correct?
Mr. Small. What we provided to both the executive committee
and the full board were what I would call fairly detailed
descriptions of the provisions of the contract. But given that
it is, I think, over 110 pages long, there are no contracts in
the Smithsonian that long that the board would go over in
detail. But anything that was an important provision was
attached to our minutes, was presented in the board books to
them.
But, no, we did not have them read the entire contract. I
am not aware of any other contract that the Board of Regents
has ever read in any detail either.
The Chairman. Okay. But the summary you distributed, I am
sure, would be available for us to look at.
Mr. Small. Certainly.
The Chairman. Thank you.
Another issue regarding the questions asked by Mr. Brady
and Mrs. Miller. I understand you make a distinction between
``access'' and ``use,'' that ``access'' will continue as it
has, but the ``use'' is something that would go under the
contract and possibly would require reimbursement.
Is that a fair description?
Mr. Small. As I said, the access is unimpeded. It is the
same access everybody else has ever had. Use simply involves
the situations where commercial--the use is related to
commercial film making, where people come to the Smithsonian to
enter into a commercial film venture, where they want to use
the Smithsonian for a business purpose, for the making of a
film documentary to sell or to put onto broadcast television.
So it only affects those situations.
And as I indicated, the contract has more than enough
flexibility for us to allow ourselves to work with commercial
film makers just as we have in the past.
The Chairman. But if you choose not to work with them as
you have in the past, they would work through Showtime?
Mr. Small. They don't have to. At no time do we say to
anybody: You must deal with Smithsonian on Demand.
We can say, Smithsonian on Demand exists and it plans to
invest tens of millions of dollars with independent film makers
that have not been put into the market before.
So I am sure there will be lots of independent film makers
that will go to Smithsonian on Demand, but if they don't wish
to, they don't have to. And if they wish to consider working
with the museum on a project that the museum wants to do with
them, as I say, we have the flexibility to do a certain number
of programs every year outside of Smithsonian on Demand. And of
course, if the use of the Smithsonian is just completely
incidental and not significant, they can do the project just as
they have in the past, which represents 95 percent of what goes
on with the Smithsonian anyway.
The Chairman. But if they do it within the context of
Smithsonian on Demand, or Showtime, then they must reimburse?
Mr. Small. No, they don't reimburse; there is no
reimbursement. It just means that Smithsonian on Demand would
be putting in the money to pay for the production, and work
with the film maker on how that production would take shape if
they chose to work with Smithsonian on Demand.
The Chairman. But presumably then the money would go to
Smithsonian on Demand.
Mr. Small. The film maker is obviously going to get paid
for doing the film. And so part of the arrangements the film
maker would make if he or she chose to work with Smithsonian on
Demand would be whatever their financial arrangement was.
Once it is produced, the revenues that accrue from having
added that particular film to the library of Smithsonian on
Demand and the programs that would be available ultimately
should produce revenue to go to Smithsonian on Demand.
That is why they are producing the movie, so that they can
actually develop enough programs to put on the channel so that
people have access to them. And then the cable TV operators who
would have this service in their packages would pay Smithsonian
on Demand.
The Chairman. Yes. And what amount of that money goes to
your business ventures and, thence, to you?
Mr. Small. As I indicated before, we have part ownership in
the partnership; and then there is a minimum fee that
Smithsonian on Demand, Showtime networks has to pay--
Smithsonian networks, excuse me, has to pay to the Smithsonian
every year. So there is a minimum fee that has to be paid. And
then there is a percentage of the total revenue, and if that is
higher than the minimum fee, then we would get that percentage.
The Chairman. And I am just trying to get a picture of the
contract.
It is fully open and free for anyone who wants to come in.
You talked about ``access'' versus ``use.'' I want to make sure
that ``use'' is fully open to anyone.
Now, who sets the fee that someone would have to pay as
part of this project?
Mr. Small. The fee that someone--I don't believe I
understand the question.
The Chairman. Well, you have signed a contract with
Showtime?
Mr. Small. Right.
The Chairman. And presumably they have some control over
who is going to be allowed to work with them, participate with
them.
Mr. Small. No. The Smithsonian decides--the independent
film maker is aware that this partnership exists. This
partnership exists to invest money into making films that are
related to the Smithsonian that are like the kinds of articles
that you see in Smithsonian Magazine, the kind of things that
appeal to people who are interested in history, art, culture
and science.
When a film maker comes to Smithsonian and goes to one of
our museums and says, I would like to do a film working with
you about a particular topic, it could be about an art
collection. It could be about an airplane. It could be about an
object of American history.
The first thing the museum has to decide is whether it
wants to work on that project. That has always been the case,
before there was any Smithsonian on Demand; and so that is step
one.
Step two is for the film maker then to decide, is this
something, given that the museum wants to work on it, that I
would like to work on? Is this something that involves
significant use of the Smithsonian artifacts, premises,
curators?
So the museum has to make a judgment, is this significant
or not significant? If it is not significant and it is just a
passing photograph of an object, a sentence or two from a
curator, then the film maker operates the way he or she always
did. If it is significant, such as a large amount of time or a
very important point made in the film, then the film maker has
to decide, do I go work with Smithsonian Business Ventures, or
is the museum willing to do this outside of Smithsonian
Business--not Smithsonian Business Ventures, Smithsonian on
Demand willing to do this outside of that?
And the museums have the option of doing several
productions a year outside of Smithsonian Business Ventures.
The Chairman. And how much is several?
Mr. Small. Six of those. And we--as I said, over the last 5
years, we only had 17 productions that we thought could be
viewed as significant. And we could have done 30 under this
agreement.
The Chairman. And what happens if you receive more than six
requests? Then it is automatically----
Mr. Small. Not receive the request, but what happens if we
wanted to work on more of those; then we would run out of that
option. But you then have the option of the film maker saying,
all right, but I still want to work with you, but let us reduce
the amount of interview time or film time or the importance of
the Smithsonian part of it down to something that is
nonincidental, not significant.
But in no case are they forced to work with anybody.
The Chairman. Well, my time has expired, so I now recognize
the ranking member, Ms. Millender-McDonald.
Ms. Millender-McDonald. Thank you, Mr. Chairman.
And, Mr. Secretary, it seems like you, too, are having some
problems in explaining this. It is quite convoluted, and if you
are having problems, you can imagine what we are having
problems up here with as well.
You spoke about the fact that in addition to your contract
with the Showtime folks, you can do other projects with other
film makers. So you can go outside of Showtime On Demand and do
that, and given that you do that, then whatever profit sharing
that comes about--I mean, there is a profit here. You are
saying that you receive the profit over a certain fee or above
a certain fee.
What are--all of this, what are you talking about?
Mr. Small. What I said was, we are partners with CBS
Showtime and Smithsonian on Demand, the first offering of this
partnership. We own a percentage of that partnership, as I
indicated before. And then we get a percentage of the revenues
paid to us, and with a minimum every year, so that we are
guaranteed a minimum amount of money paid to the Smithsonian
every year. If we--that is, if we are doing films through
Smithsonian on Demand.
If we are working with an independent film maker
independently, how much we would get out of that venture would
have to be negotiated with that independent film maker.
Ms. Millender-McDonald. All right. So this whole percentage
that I initially asked you about, the Smithsonian networks, are
we in the ball park of your going outside of this box of
Showtime, and this is your network that gives you the 10
percent?
Tell me, how does all of this work?
Mr. Small. Smithsonian Networks is simply the name of the
partnership with CBS Showtime, and its first offering to the
public is called Smithsonian on Demand, which is just the same
thing as video on demand.
Ms. Millender-McDonald. So it is one and the same. So
Smithsonian Networks is really one and the same as Smithsonian
on Demand?
Mr. Small. Smithsonian on Demand is the first set of
programs developed by the company, Smithsonian Networks. So the
partnership we have with CBS Showtime is called Smithsonian
Networks. The first project that they are doing is to create a
series of Smithsonian programs on digital cable that is called
Smithsonian on Demand.
Ms. Millender-McDonald. One of my concerns is your profit
sharing in your contract with Showtime.
But the one thing that I want to get back to is that on
this contract, there are so many provisions in this contract,
believe me, Mr. Small, that it is not small at all trying to
get into it. If Showtime, at any time, wants to cut and switch,
I mean, if they want to terminate the contract with you, they
have the ability to do that.
Mr. Small. There are conditions in the contract under which
they can terminate, and there are conditions in the contract
under which we can terminate.
Ms. Millender-McDonald. All right. So that is what I want
to get to because if this program, if your Smithsonian on
Demand is not profitable and is not sustainable, then they
certainly will not want to keep with you, and they are going to
cut and switch. They are going to leave. They will pull out.
But when and how can you pull out of this contract? Do you
have the same clause? Do you have the same time frame that
Showtime has in pulling out of this contract? And what will be
the liability to Smithsonian if that is the case?
Mr. Small. From a liability standpoint, since the
Smithsonian is not investing any money in it, we certainly
wouldn't lose any money. We have--the partnership has to
perform at certain levels during its life, and if it doesn't
perform, if it isn't as successful as these performance levels
call for, which is in the contract provided to you, then the
Smithsonian can say it is not successful and can terminate its
arrangement.
Ms. Millender-McDonald. And these outside groups that you
enter into and work with, in addition to the Showtime, that
would not enter into this contract at all in terms of liability
or any profit sharing or anything like that?
Mr. Small. Totally independent of it. Totally different
from it.
Ms. Millender-McDonald. And so you can, it seems, with--
now, again, I haven't gone through this entire contract because
I just got it the day before yesterday. But it seems that the
provisions that I have seen, that Showtime can get out of the
contract in 2 or 3 years.
And you are saying that you can also?
Mr. Small. There are different criteria in the contract. It
is fairly detailed as to which party can do what. But in our
case, our ability to get out is dependent on the partnership
being successful. If the partnership is successful, then we
don't have the right to terminate the contract. If it is not
successful in meeting the specific targets that it has, then we
do.
Ms. Millender-McDonald. And that is where I have difficulty
here, because if you are not meeting your obligation side of
it, meaning successful, and then, you know, you define what is
success--we will have to define that, and I am sure it is in
the contract.
Mr. Small. It is if the partnership isn't successful; and
that is the reason, if it weren't successful, then we obviously
wouldn't want to continue it. So we have the ability to get out
of it if it doesn't hit a prescribed amount of growth. That is
the important thing.
Ms. Millender-McDonald. And you will not--there will be no
liability on your part if you should want to get out of it if
it is not successful?
Mr. Small. No liability as long as we were to leave it
meeting the terms that we agreed to in the contract.
Ms. Millender-McDonald. But if you do not meet those terms
then there is a certain amount of liability.
Mr. Small. If the partnership did not perform as it was
supposed to and hit these particular target levels, and we
decided to leave the partnership, that would be fine.
If we left it and the partnership did hit those levels,
then we would breach the contract.
Ms. Millender-McDonald. And it is those levels that I need
to know, how are they defined. What are those target levels? It
is in the contract, I hope.
Mr. Small. Absolutely.
Ms. Millender-McDonald. You would not know them offhand
right now?
Mr. Small. They were one of the provisions that we have
asked you to, it is a business-sensitive position, a
competitive one. You have it, and we would be glad to brief you
on it.
Ms. Millender-McDonald. I understand. And we can talk with
you in my office or your office on those provisions.
Mr. Small. Absolutely.
Ms. Millender-McDonald. Mr. Chairman, I know the time is
up, but I will come back again then, all right?
The Chairman. The gentlewoman's time has expired.
Ms. Millender-McDonald. I understand, for the moment.
The Chairman. Mrs. Miller has no further questions.
Mr. Brady.
Mr. Brady. Again, thank you, Mr. Chairman. You said there
is a minimum guarantee. Do we know that figure?
Mr. Small. It starts out at $500,000 a year.
Mr. Brady. $500,000 a year. You have to make $500,000 a
year?
Mr. Small. It has to pay us 500,000.
Mr. Brady. You have to be paid only $500,000 a year?
Mr. Small. That is the minimum.
Mr. Brady. Minimum. I guess you have no idea, but is there
any projection what it may be?
Mr. Small. If you took the minimum over the life of the 30
years and all we got paid was the minimum, it would amount to
$99 million.
Mr. Brady. But you are basing it on only the minimum. You
don't think you are going to make anything more than the
minimum?
I can't believe Showtime's going into a venture like this
to make $500,000 a year.
Mr. Small. That is the minimum that has to be paid to the
Smithsonian, not make----
Mr. Brady. I understand that. But you are using the minimum
over 30 years.
Mr. Small. You asked me about the minimum. I am saying that
that is the minimum amount.
Mr. Brady. That is the only guarantee you have from this
contract?
Mr. Small. That is correct. The minimum is the guarantee.
We obviously believe it will do better.
Mr. Brady. How about PBS? Could they come in and do an
archive, use your archives to put on a show?
Mr. Small. PBS has the same access that they have ever had
to the Smithsonian, and PBS would go through the exact same
procedure that I described before.
They would visit with the museum. The museum first has the
right to say, do we want to work with them on the project? If
the museum says, yes, we do, then they have to determine
whether the use they want to make of the Smithsonian is
significant or not. If it isn't significant, just go ahead and
do the project. That has been the vast preponderance of the
cases we have had in the past.
Mr. Brady. I can't get past that. I can't get past your
telling me that PBS has the same access, although you have a
30-year contract with another cable company, with the cable
company with Direct cable; and you are telling me that they are
not sitting at the table saying, ``No, don't do this with PBS.
We want to do it and make money on it.''
Are they having any say at all, Showtime, in this 30-year
contract, that they can't--could they veto PBS? They can't do
that?
Mr. Small. No. They don't get involved in that. It is the
Smithsonian that decides what projects it wants to do. And the
fact is that the----
Mr. Brady. Does the Smithsonian then have the right to say
who they want to give that project to? They would rather give
it to Showtime or they would rather let PBS do it for nothing?
Mr. Small. The Smithsonian has always decided, does it want
to work on a given project or not. The film maker can say, I
don't want to go to Showtime, and that is fine; they don't have
to go to Showtime.
And the museum could say, ``You don't have to go to
Showtime; we want to do it with you.''
The most important thing, first, is, are they going to do
anything that is going to involve a significant use of
Smithsonian resources. And 95 percent of what we do doesn't. So
all of that is going to stay the same.
Mr. Brady. I don't understand that. You have got a public
broadcasting system that is going to put a show on the air for
nothing. And it is going to be a good show; people are going to
watch it.
And then you have got Showtime coming, who is going to make
a profit and you are going to make a profit from a good show.
And I can't believe that you are going to let PBS have the same
access that you will with Showtime doing it. And if you are
going to make money, and you want to increase your $500,000,
which seems like a very little bit amount of money to me to go
into a 30-year contract, and you are going to tell me that you
are going to have them--they are going to have a level playing
field, the people that don't have digital cable be able to
watch this show will have a level playing field, as opposed to
Showtime thinking they have got a good show coming on you--
something is clicking, whatever, maybe aeronautics, who knows,
space or something might happen.
That is just a problem that I don't----
Mr. Small. What I am saying is that having looked at
everything we have done with PBS and others in the past, the
vast --
Mr. Brady. But that is changing now.
Mr. Small. It is changing. But the fact is that there
aren't people, including PBS, who are coming to the Smithsonian
and saying we want to invest millions of dollars doing programs
with you. It just hasn't happened in any significant way and
there is no reason to believe that it would happen.
What I am saying is that the vast majority of what we have
done in the past continues the same, and that we have the
flexibility to do projects just like that, and an amount of
flexibility that is far greater than anything we ever did in
the past like that.
So I understand that this has been raised as a polemical
topic that people are having difficulty coming to peace with,
but the facts show that almost everything that we have done in
the past we can continue to do and that there is a great deal
of flexibility to work with independent film makers on projects
outside of this venture, although we think that the independent
film makers are going to knock down the door to the venture
because they are going to be spending so much money with
independent film makers.
Mr. Brady. But isn't PBS now considered a competitor?
Mr. Small. PBS is in the mass market of television.
Mr. Brady. I know. But are they considered a competitor?
Mr. Small. Anybody who puts anything on television is a
competitor.
Mr. Brady. Do you want to give them an equal playing field
to go to a competitor that is not going to give you any
revenue, as opposed to going to Showtime that is going to give
you revenue that the people have to pay for. That is my point.
Mr. Small. My point is that we have--there are, in many
cases, instances where we might want to work with somebody
outside of the venture, and we have the flexibility to do that.
Mr. Brady. Thank you, Mr. Chairman.
The Chairman. I would like to follow up on a few of the
points that were just mentioned.
You said several times, a decision will be made, what is
significant and what isn't. At one point I thought you were
saying that Smithsonian on Demand would make that decision.
Another time you said that you would make that decision.
Mr. Small. If I misspoke, then I apologize for misspeaking.
The decision as to what is significant or not significant
is always made by the Smithsonian Institution.
The Chairman. All right.
Then the other item of clarity that I need--or
clarification, rather--is, you mentioned that there would be no
problem if someone wants to work with you, that is fine; if
they decide they want to work through the other entity, that is
fine.
But aren't you limited to six times per year saying, we
want you to work with us?
Mr. Small. That is correct. But that is vastly in excess of
anything that has ever happened in the past. The number of
cases where people come and say, we want to make a film--that
is, where the Smithsonian is a big presence in the film--is
less than 5 percent of the history that we have had over the
last 5 years with 350 cases.
The Chairman. How many projects per year would that be?
Mr. Small. It was 17 total projects for the 5 years, so
let's call it 3\1/2\. So we have right now almost double the
capacity.
The Chairman. All right. I think I have no further
questions. Well, yes, I do. Just two quick ones.
And that is, I am just surprised that limiting access to
collections did not pop into your mind or your staffs' mind as
something that should be reviewed.
Mr. Small. But we are not limiting access. There is no
limitation on access.
The Chairman. I am sorry, limiting use.
It just seems to me that you would recognize this is
something that you should have at least notified the committees
of jurisdiction, this committee and the Appropriations
Committee, and notified us, rather than simply providing a
summary of the board minutes.
And I think there is, it is an axiom of politics, touch
base, always touch base. So that is just a bit of advice.
Would it not be prudent to have the Inspector General of
the Smithsonian reviewing contracts for you before those are
entered into?
Mr. Small. There is certainly nothing wrong with it. I
really don't know of--whether the Inspector General would have
the experience and background and legal capacity to go through
contracts like this. The Inspector General can look at anything
the Inspector General wants to at any time at the Smithsonian.
The Chairman. I recognize that. I am just suggesting that
this might be a good practice to have them review ahead of time
and benefit from their advice.
I have no further questions. But I see Mr. Doolittle has
arrived. Do you have any questions of Mr. Small?
Mr. Doolittle. No, not at this point.
Ms. Millender-McDonald. Mr. Chairman, just a couple more
questions and I will be finished.
The Chairman. Yes. I recognize the gentlewoman from
California.
Ms. Millender-McDonald. Thank you very much.
Mr. Secretary, you have been most patient. Thank you so
much. Just a couple more questions here.
One is, you said that there is no limitation to access of
any kind. And yet I have been told that material on the
Smithsonian Web site has been pulled down because of concerns
that it might conflict with Smithsonian on Demand.
Is there a truth--is this a true assessment of that, or
what?
Mr. Small. We had on our Web site a little window on the
Web site that was called Smithsonian TV.
Ms. Millender-McDonald. What is it, TE?
Mr. Small. TV, as in television. Smithsonian.TV. And it is
a series of film clips about the Smithsonian. The format of it
was the format--the way it looked on the Web site, the list of
things to click on, looked like Video on Demand. If you have
access to video on demand at home, it had a look like that.
We felt that that would be confusing to the public as we
launched--this is all the Smithsonian's own stuff. As we
launched this new service, we didn't want to confuse the
public.
So we have taken that down because we can now, we can put
it all back up on our different Web sites, but we did not want
to confuse the public with just the format. The content is the
same. We can show all the material. We just didn't want to
provide a confusing situation where the public wouldn't
recognize that this was different from Smithsonian on Demand.
Ms. Millender-McDonald. Okay. So there is no limitation on
access?
Mr. Small. No, that is not a problem.
Ms. Millender-McDonald. The other thing, in reading the
Regents' meeting minutes that was provided to us, there is
reference to risks involved in the new venture. One of them is
called ``restrictions on Smithsonian Internet activities.'' Can
you respond to that?
Mr. Small. Actually, I----
Ms. Millender-McDonald. Well, it goes on, and it goes on to
say that because the service will be offered to cable and
broadband Internet subscribers, there will also be restrictions
on the aggregation of general-interest audiovisual programs on
the Smithsonian Web site. So it gets back to this same notion
that I am talking about.
Mr. Small. I think what this simply says is that if the
world of digital cable TV continues to homogenize with the
world of the Internet, then essentially you have the same
applicability as--on the Internet as you would have on cable
TV, because so much of TV now is migrating onto the Internet.
So it just says that the world of the Internet and TV are
coming together.
Ms. Millender-McDonald. And this risk that they are talking
about, involved in this new venture, maybe you would want to
talk to me about that in a separate meeting.
Mr. Small. Certainly.
Ms. Millender-McDonald. The last one that I want to speak
about is your small and disadvantaged businesses, and if you
have--are you still about the business of ensuring that we have
full representation of minorities and women in 69 percent of
your contracts in high positions, focused on your top 200
positions?
Mr. Small. We are completely committed to it but we are not
anywhere near where we ought to be. We all know that.
Ms. Millender-McDonald. I understand that. That is why I
asked my question.
Mr. Small. We know that, and we know where in the
Institution we have to improve. And we are working; that has my
complete commitment.
Ms. Millender-McDonald. Can you, perhaps, a couple of
months down the road, give me a report as to where you are on
it?
Mr. Small. Very delighted to do it.
Ms. Millender-McDonald. Thank you for your time.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Mr. Brady, do you have anything further?
Mr. Doolittle, any questions?
Mr. Doolittle. Well, Mr. Chairman, having just come in,
this may have been asked and answered, but was the question
asked as to why the contract wasn't competitively bid, or how
is it that Showtime got an exclusive?
Mr. Small. That question wasn't asked and so I am happy to
respond to it, Congressman. Thank you.
The Smithsonian Business--none of the funds involved here
in the Smithsonian Business Ventures are Federal funds, so
Smithsonian Business Ventures doesn't follow the specific
Federal guidelines.
On the other hand, how this was done was very similar to
the Federal contracting procedure, in that Smithsonian Business
Ventures first came up with a model of what they thought they
would like to do in digital cable television.
They went out and they talked to about 10 different
entities that are involved in a big way in the business. Out of
that emerged, first, one that said they were quite interested
and were willing to invest in it. We almost had a deal with
them. The others had said, no, they weren't interested in doing
it.
When that deal fell through, then CBS Showtime came up and
said they were interested in doing it and then they worked on
the negotiating process.
So it is similar to the Federal contracting process, but in
business ventures, they just--they don't follow that
specifically and never have.
Mr. Doolittle. Is there any guarantee that the revenue
raised by that contract will go to operations and maintenance?
Mr. Small. It will go--generally speaking, the money that
comes from private-sector activities in the Smithsonian goes
into programming, like the Traveling Exhibition Service, the
work that we do with courses and lectures, the work that we do
all across the country with different museums. We don't make
enough money in those areas to even make a dent in maintenance.
Now, we have raised a lot of private-sector money for
physical facilities--the new Air and Space Museum, $300 million
of private sector money. There is over $100 million of private-
sector money in the American Indian Museum. There is going to
be close to $140 million in the new Patent Office building, the
Donald W. Reynolds Center for American Art and Portraiture.
Mr. Small. But what we found is private sector donors
particularly won't give money for building maintenance where
buildings have been maintained by the government for years. As
to the Smithsonian Business Ventures monies, with a $2.3
billion backlog, there is just not enough to make a dent in the
maintenance.
Mr. Doolittle. Is the new Air and Space Museum in the Udvar
Hazy Center out there at Dulles?
Mr. Small. Yes.
Mr. Doolittle. Well, I first heard this discussed in the
Appropriations Committee at some length. And, you know, I
personally don't have a problem with you trying to, through the
use of creative partnerships with private business, that is not
the problem. I think it was a surprise that this had gone on,
and I think it was a pretty unanimous feeling on both sides of
the aisle that we shouldn't have been surprised.
Mr. Small. We agree.
Mr. Doolittle. Thank you.
The Chairman. Thank you. And I thank you, Mr. Secretary,
for your time and your testimony. We appreciate it.
And I would like to invite our second panel of witnesses to
step forward, Mr. Malamud, Ms. Drain, and Ms. Sheketoff, to
provide their testimony. And we will put up name plates for you
in just a moment.
Thank you very much for being here, and we look forward to
hearing your testimony. As you know, the rules generally
provide you 5 minutes to give your testimony. If your written
testimony is longer than that, we will enter it into the
record, and you could just summarize it.
STATEMENTS OF CARL MALAMUD, SENIOR FELLOW AND CHIEF TECHNOLOGY
OFFICER, CENTER FOR AMERICAN PROGRESS; MARGARET DRAIN, FORMER
EXECUTIVE PRODUCER, VICE PRESIDENT OF NATIONAL PROGRAMMING,
WGBH; AND EMILY SHEKETOFF, ASSOCIATE EXECUTIVE DIRECTOR,
AMERICAN LIBRARY ASSOCIATION
The Chairman. I am pleased to recognize you, Mr. Malamud,
to provide your testimony.
STATEMENT OF CARL MALAMUD
Mr. Malamud. Thank you, Mr. Chairman, Ranking Member
Millender-McDonald, and distinguished members of the committee.
Mr. Chairman, as you so eloquently stated, the Smithsonian
is really a treasured part of our national landscape, it is a
jewel of the American culture. And I am here as a firm
supporter of the Smithsonian, but I am also here as a perplexed
and troubled supporter of the Smithsonian trying to understand
how the recent actions to promote the increase and diffusion of
knowledge among men, and I should add, among women although not
part of the charter.
I think I would like to begin by briefly touching on the
Showtime contract, because I think it illustrates some of the
broader issues at the Smithsonian Institution.
The Showtime contract may have been many years in the
making, but it was a surprise to me and it was evidently a
surprise to filmmakers and many other members of the public,
and this contract has been shrouded in a veil of secrecy that I
just don't understand. There are some pieces that we know and
pieces that we don't know. There is an unspecified revenue
stream, we learned a little bit about that. There is a sole
source procurement; a nondisclosure agreement, and it appears,
at least for a while, pertained to Members of Congress. And the
list of clauses go on and on. But three aspects of this really
struck me. One is a 30-year term.
If you look back 30 years in 1976 and ask what would a 30-
year contract that was signed then look like, 30 years ago
there were 200 computers on the Internet. Ted Turner had just
begun beaming up to the satellite for WTBS. Brian Lamb had not
yet started C-SPAN, he was 3 years away from that. And the
latest hot technology in Japan was a fax machine, and it was
just beginning to occur in the United States. I think if we had
signed a 30-year contract in 1976, it would have turned out to
be a bad contract, and I am afraid that a 30-year contract
today might have the same effect.
The second clause that is troubling is the right of first
refusal. And I understand the Smithsonian is able to grant six
exceptions in which films are made in other places. But one has
to ask whether Ken Burns, for example, should be forced to
apply to the Showtime Smithsonian joint venture instead of
going to PBS to make his films. And one has to look at the six
exceptions that they are granted. Mr. Brady brought up space as
a possible topic. As you know, 2008 is the 50th anniversary of
the U.S. space program. One has to ask, would not it be a good
thing if 10 different networks all featured the Smithsonian and
the U.S. space program? And could the Smithsonian do that if
that kind of an excitement was raised?
The third thing is the noncompete clause, which appears to
be applying to the Web sites of the Smithsonian Institution. As
was discussed earlier Smithsonian.TV was taken off the Web, and
my understanding from phone calls from quite a few staff
members at the Smithsonian is that the Web masters are going to
be placed under fairly severe restrictions on how much video
and audio they can place on their Web sites. Now, I don't know
if this is true or not, but if it is, this will certainly limit
access to Smithsonian archives by the public. And instead of
limiting access, I believe that the Smithsonian should be
taking steps to vastly increase the amount of those resources
available for the public to use over the Internet.
The Smithsonian deal appears to be--the Showtime deal
appears to be part of a pattern of several business deals,
which at least leave me perplexed and asking questions. The
Harper Collins book deal, for example, has led to the delisting
of Smithsonian books as one of the leading historical
publishers. And that is troubling when a reputable historical
association feels that the situation is so bad that they delist
an august publication like Smithsonian books.
I think it all comes down to transparency. And it could be
that the Showtime deal is the right deal, but I think if the
public had been involved more and there had been a process of
public hearings and deliberation and disclosure, it might be a
little easier to live with.
There are four steps that the committee might wish to
consider at this point, and these are simply suggestions. One
possibility is a staff investigation into these contracts, into
the Showtime deal and the Harper Collins, looking at them to
see whether they are, in fact, appropriate for an
instrumentality of the United States, and looking to see
whether or not a termination for convenience of the government
might be in order.
The second step is to look at some of the transparency
provisions of our laws that apply to various agencies. Now, the
Smithsonian is a unique entity, but it is an agency for many
purposes, for purposes of building, for purposes of a variety
of actions. It might be appropriate to consider extending the
definition of agency to include the FOIA, Sunshine, Privacy,
and possibly even the CFO acts.
Two additional steps, and then I will conclude. The third
step is public hearings either by the Congress or potentially a
blue ribbon commission that looks at this question of business
models, looks at the questions of the balance of revenue
generation and public access, and tries to do a deliberate
public process that looks at all the different options
available. These hearings are not an inconvenience. Hearings
are really how we learn what the options are that are
available. And I am convinced that the Smithsonian, had they
held public hearings, might have had other options in front of
them.
And then the last point, and this is, I know, a sensitive
point, but I do believe the Smithsonian is in need of money and
it needs that money in order to fund its operations and its
staff. And I understand that with the recent Appropriations
Committee actions, there were some suggestions of steps that
the Smithsonian might take to regain the full trust of the
Congress. And if, in fact, those steps are taken and the
distinguished Members of Congress feel that the issues of
transparency have been addressed, I think restoring those $20
million would be very important. That is equivalent to about
300 staff positions. And in many cases, the Smithsonian, the
curators and the archivists are, in fact, vastly understaffed.
One might also consider investing some money into putting
more of the archives on line for the public to use without
restriction.
Thank you, Mr. Chairman.
The Chairman. And thank you.
[The statement of Mr. Malamud follows:]
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The Chairman. Next we are pleased to call on Margaret
Drain, former executive producer, vice president of national
programming at WGBH.
STATEMENT OF MARGARET DRAIN
Ms. Drain. Thank you, Mr. Chairman, and members of the
committee. Good afternoon. I am the vice president for national
programming at WGBH, the public television station in Boston,
and I appreciate the opportunity to speak with you.
At WGBH, we produce much of the programming that is seen on
PBS, including the science history NOVA, the history
documentary series American Experience, Drama on Masterpiece
Theater and Mystery, Investigative Reporting on Frontline, and
the ever popular Antiques Road Show. We also produce some of
the best-known children series, including Zoom, Arthur, and
Between the Lions.
Our mission to deliver educational programming that is free
and available to all Americans depends on our ability to gain
access to a wide range of materials. That means documents,
archival material, and artifacts from museums and institutions
throughout the country. For two series in particular, NOVA, the
science series, and American Experience For History, open
access is their life blood. For them, the Smithsonian
collections are critical, and over the years, we have benefited
enormously from such use, from the full spectrum of Smithsonian
museums, 19 in all, and even the zoo.
The Smithsonian's venture with Showtime raises the specter
that our access may now be curtailed. If so, we may not be able
to produce the programs that rely on key materials that are
only available in the Smithsonian collection. I say may not,
because we do not still understand the full terms of the
contract.
It is unclear to us how public television is defined in
this new arrangement. Are we a commercial broadcaster? Are we a
noncommercial broadcaster? Are we scholarly? Are we academic?
What are we? And we do not have a sense of what ``incidental
use'' is. If you are doing a program that has ten stills, five
of which come from the Smithsonian, is that significant use?
And I have to say in aside, the 30-year deal, the length of
the term is, in my mind, unprecedented in this day of an ever
changing television environment. What we do know is that for
those of us producing for PBS, we take seriously our role as
public educators. Access is important not to satisfy the
personal ambitions of a producer, but to address the public
interest.
To help you understand what is at stake, I would like to
offer some examples of existing programs that we would
currently not be able to produce. Some of these may fall into
this 5 percent that the Secretary talked about earlier.
In the area of science, there is Mystery of the First
Americans, a NOVA program which relied on substantial
contributions from the Smithsonian and also on one of its
prominent anthropologists. The Wright Brothers Flying Machine,
another NOVA show, simply could not have been made without the
involvement of the senior curator of aeronautics at the
National Air and Space Museum, a relationship that may be off
limits to us under the Showtime deal.
There are several other shows. An award-winning hour
documentary that was produced for American Experience called
Tupperware, a distinctly American story about innovation and
free enterprise, absolutely would not be possible to make for
PBS given what we now understand to be the terms of the
Showtime deal. And I believe the same is true for Lost in the
Grand Canyon, the story of John Wesley Powell's exploration of
the Colorado River.
But these are projects in the past. Let me tell you what
concerns me is what we have going in the future. We are now
embarking on a five-part series on the history of native
Americans called We Shall Remain. This is an ambitious series
that we hope will be a national broadcast event. We made
contact with the National Museum of American Indians just days
before the Showtime deal was announced. The curators and staff
were enthusiastic about working with us, but uncertainties
swirling around the Showtime deal put a brake on those
discussions about how we could work together. If this is
unresolved, it would be a missed opportunity for all because of
the prominence in stature of the Museum of Native American
Scholarship.
And what happens when NOVA goes ahead with plans for a
special series on the history of aviation? Would they be denied
access to the Smithsonian's Tom Crouch, our Nation's foremost
expert on aviation? Will the full story only be allowed to
appear on Smithsonian on Demand, leaving NOVA's version to be
compromised like a science textbook missing facts? Will the
public not be able to see the story without paying for a cable
channel?
Let us remember the number of viewers who will tune in to
Smithsonian on Demand is a fraction of those who can see these
programs free on public television, thousands as opposed to
millions.
What you should also understand is that PBS programs are
not just television shows. Television is now the first port of
entry. We provide a long tail of material, educational
outreach, Web streaming, teachers' guides, AV use in the
school, video on demand, even iPods.
Once created, our content lives indefinitely in digital
form, continuing to deliver public service value years after
the initial broadcast. Every program we produce has a teacher's
guide. Hundreds of thousands of teachers throughout the country
use it every single year. The exclusivity suggested by the
Showtime deal flies in the face of our educational mission, of
ensuring that original educationally enriched material is
available to teachers, students, and the public on multiple
platforms. If Showtime's goal over 30 years is to own the
material on those platforms, that is even a bigger threat.
As someone who has spent a great deal of time in my
professional life working in the nonprofit world, I am
sympathetic to the financial difficulties the Smithsonian
Institution faces. The stewardship of nonprofit institutions
like WGBH, whose mission is to educate the public or, in the
case of the Smithsonian, ``for the increase and diffusion of
knowledge,'' grows more and more difficult in a time when
Federal dollars are tight and money from commercial interests
is within our grasp.
I am not a purist. I understand that nonprofits must
generate some revenue or we will perish. However, if in the
process we dilute the mission, we do so at our peril. The
public knows and trusts the Smithsonian. It regards it as a
repository of our collective pass. Once lost, that trust built
over 160 years will never be regained. Thank you very much.
The Chairman. And thank you.
[The statement of Ms. Drain follows:]
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The Chairman. Next we turn to Ms. Emily Sheketoff,
associate executive director of American Library Association.
STATEMENT OF EMILY SHEKETOFF
Ms. Sheketoff. Good afternoon, Mr. Chairman. I would like
to thank the committee for inviting me to testify today on
behalf of the American Library Association. I am here to
express our deep concern over the recently announced agreement
between the Smithsonian and Showtime. ALA's concerns are based
on the information about the agreement from news articles
because we, as most members of the public, don't know what is
specifically in this agreement.
The American Library Association is committed to ensuring
access to information for all, and that is why we are so
concerned about this agreement. We understand the financial
constraints faced by the Smithsonian and other cultural trusts.
Solutions must be found, but those solutions do not lie in a
series of exclusive and in this case largely exclusionary
business agreement with the private company.
The Smithsonian, while it has business-like needs and
concerns, is not a business. It is a taxpayer supported through
appropriations of Federal funds and tax benefited status as a
501(C)(3) organization, and it is the guardian of our cultural
heritage. Indeed, the bequest of James Smithson came with a
stipulation which the U.S. Congress accepted: The Smithsonian
Institution was to be an establishment for the increase and
diffusion of knowledge.
Moreover, many of the collections given to the Smithsonian
have been placed in the Institution's hands in trust, to be
maintained and made accessible to the public. This is not,
therefore, simply a matter from where the revenue derives; it
is a matter of public accountability and public confidence.
Maximum feasible transparency in the arrangements for these
collections is an essential component for that trust. It
appears that access to the collections and archives of the
Smithsonian will not be limited, but use will, including the
ability to utilize the professional skills and expertise of the
Institution's curators, scientists, and other staff.
As librarians, we see this agreement with Showtime as
analogous to a library signing an agreement with some publisher
that would allow library patrons to come in and look at the
books and other resources in the library, but not take those
books off the shelves to check them out and not be able to talk
to the librarians for assistance and information.
ALA is also concerned that this contract with Showtime and
other contracts in the works may severely impede the ability of
the Smithsonian Institution to digitize the collections it
houses coherently and systemically either for preservation or
for public access and use. While such an undertaking could
reasonably be taken with private companies, the underlying
materials and the data files created must remain in the
exclusive control of the Institution. We understand that the
Smithsonian's practice has been to retain control, but we would
appreciate assurance that the contract with Showtime or any
future contracts do not violate this fundamental principle.
Last year, the Smithsonian's Business Ventures unit
announced an exclusive publishing partnership with Harper
Collins publishers to create a line of high-quality
Smithsonian-branded reference and adult nonfiction books. It
was announced that Harper Collins would also be the exclusive
distributor of the Smithsonian books backlist. That contract
has not been made public, either, so we do not know how
exclusionary is. We have no evidence that any prospective
author has had to clear his use of materials in the Institution
or discussions with Smithsonian curators or scientists, so we
believe that the Harper Collins agreement is not as
exclusionary as the Showtime arrangement appears to be.
However, the Harper Collins agreement does seem to have laid
the groundwork for this current venture with Showtime. Sole
source contracting is particularly inappropriate for the
Nation's cultural stewards.
The preeminent standing of the Smithsonian in our society
requires that such substantial changes in how Americans can
gain access to its collections and use those collections must
only occur after extensive public discussion and review. We
urge Congress to require that the Smithsonian Ventures null
this contract because it was awarded before there was the
requisite public discussion. And we also ask that other
agreements be examined in public before they are made to
protect the public's access to the Institution's collections,
archives, and, most importantly, the professional staff of the
Smithsonian Institution. Thank you very much.
[The statement of Ms. Sheketoff follows:]
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The Chairman. And thank you all for your testimony. I
recognize myself for 5 minutes for questions.
The first one. The Smithsonian makes the argument, as you
have heard, that the length of the contract is appropriate
given the nature of time required for a TV channel to garner
loyal ardent viewers and thus become self-sustaining. Given
this fact, is this a reasonable approach for the length of this
contract? In other words, what is your viewpoint of that
argument? And I will turn to you, Ms. Drain, as being someone
in the television business who can appropriately answer that.
Ms. Drain. Thank you. I am no lawyer, but I would say it
does take time to launch a channel, especially an on demand
channel. So I think his explanation, the Secretary's
explanation is a reasonable one. I do think a 30-year term is
unprecedented. I have never heard of anything--of a contract
lasting 30 years, particularly in the day and age we are in
right now where everything is changing so rapidly. You know, 5
years ago, we didn't have Web sites. One year ago, we didn't
even know what podcasting was. You know, it is just changing so
quickly. And I think right now one needs flexibility and--more
than anything else, when you negotiate a contract. Our contract
with WGBH for certain shows with PBS lasts 2 years. That gives
us maximum flexibility.
The Chairman. And what is a typical length of time for a
contract with the, let us say, the Washington Nationals and
their TV programming?
Ms. Drain. I don't know the answer to that. I would suspect
maybe 10 years or 5 years.
The Chairman. I am not sure it is even a valid comparison,
but I think it is important to look at other contracts like
that.
The Smithsonian also comments that, because of this new
joint venture, only a fraction of the producers wishing to make
use of the collection for commercial purposes will be denied
access, and that this was a necessary trade-off to reach
millions of individuals who would not otherwise be able to see
the collections.
I would appreciate comments on that from anyone on the
panel.
Ms. Sheketoff. Well, Mr. Chairman, that is a very admirable
idea, to try and reach more and more Americans. And maybe this
is one step. But we have the Internet, we have podcasting, we
have--the Smithsonian had a Smithsonian TV on Demand. So there
are many ways that they can broaden their reach. And we are
hopeful that this contract is not going to restrict any of
those. As my colleague mentioned, there is new technology being
developed every day that will be of tremendous use to the
Smithsonian broadcasting its collection, interesting more and
more people in the artifacts that it has.
And we don't know how restrictive this contract is going to
be to keep those artifacts, those pictures, that video, that
sound off of the Internet and being able to go into people's
homes, letting people use it for their own genealogical
examinations as they pursue other interests that they have. So
we really need to make sure that because they are the public's
trust, because they keep America's Attic, that all the
artifacts in that attic are available to the public so that
they can use them not only for commercial purposes, but for
purposes that we don't understand today that in 5 years we will
want to use, and that other commercial entities in 5 years or
10 years might want to use. This 30-year restriction should be
very troubling to you.
The Chairman. If I may paraphrase your response. It is that
the intent may be admirable, but the devil may be in the
details. Since you haven't seen the details, you are worried
the devil might be there.
Ms. Sheketoff. Very much so, sir.
The Chairman. Thank you. Mr. Malamud, would you like to
respond?
Mr. Malamud. Yes. I think if you are trading off access to
20 million people on a cable system and as a result you are
limiting access to several hundred million Americans on the
Internet and reducing the amount of information placed on the
Net, that is not a good thing. One of the important points is
that filmmaking is changing dramatically. In the old model of
filmmaking, it took $100,000 or $500,000 or $1 million to
produce something, and this old industrial style of filmmaking
sometimes required large investments. On the Internet, there
are people that place their videos on line in places like
YouTube and Google Video, and 10 or 20 million people download
those videos. I think it is important that we look at
filmmaking as something that in the future, every American
might be doing, and one of the first places they are going to
want to look to make those films are the archives of the
Smithsonian. Putting them on line, making the staff available,
I think, is the most important thing they should be looking at.
The Chairman. Are you in some way saying that a contract,
if it is to be done, of this sort should not only be for TV but
also should include the Internet and any possible uses of that?
Mr. Malamud. Absolutely, Mr. Chairman. I believe that that
is where a lot of distribution channels are moving these days.
I have been broadcasting radio on the Internet since 1993, and
I have seen that medium grow by leaps and bounds. And today it
is really amazing how that market for films and documentaries
are changing. More documentaries are being produced today than
ever before.
Ms. Drain. May I just add one thing?
The Chairman. Ms. Drain.
Ms. Drain. The deal seems to also fly in the face of what
is happening right now, where open content are the two key
words. Everybody is under pressure more and more to give our
content away as freely as possible on as many platforms as
possible. Exclusivity is a word of the past. And this is what
the users want. They want access on every platform that is
available to them, and they want access and the ability to use
this material also. So restricting its use once again flying in
the face of where most media companies are going these days.
The Chairman. Thank you very much. My time has expired. I
yield to Ms. Millender-McDonald.
Ms. Millender-McDonald. Thank you, Mr. Chairman. Mr.
Chairman, before I get started with the witnesses here, the
second panel, I would like to ask unanimous consent that I
place in the record a testimony from a Patricia Aufderheide,
professor and director of the Center For Social Media and
Social Communications for American University. And also Linda
Kerber, president of the American Historical Association. May
Brekbeck, professor at the liberal arts and sciences from the
University of Iowa. They had wanted to come but was told that
they could not testify. So, unanimous consent that we place
this in the record.
The Chairman. Without objection, so ordered.
[The information follows:]
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Ms. Millender-McDonald. Thank you, Mr. Chairman.
Mr. Malamud and Ms. Drain, both of you have said in your
testimony that--Mr. Malamud first, you say that the Smithsonian
Webmasters are reportedly being advised that they will be
placed under strict guidelines on how much audio and video they
will be permitted to place on any site, a guideline that may
very well lead to taking a huge amount of content off of the
Smithsonian public Web site. That is what you say in your
testimony.
And Ms. Drain has said that: We are now embarking upon a
five-part series of the history of the Native Americans called
We Shall Remain. We made contact with the Smithsonian just days
before the Showtime deal was announced. And while curators and
staff said that while they would love to work with us, they
were not able to strike the formal relationship that we wanted
because it is a possibility of the restrictions.
Now, you both heard from the Secretary when I raised the
question with him as to whether there would be limits on
access, and he said no, that there was this once, and he went
on to describe what and reasons why, but this material will
still be available.
Since then, I have gotten from my staff a visual of what
used to be at the Smithsonian and what is now being seen on the
Smithsonian Web site, clear indication that some of this
material is being taken off. I will not ask the Secretary to
come forth, but I will be raising this question again with the
Secretary because of what we have just received from staff 5
minutes ago.
I would also like to say to you that when you ask if we can
investigate this 30-year contract, I am not sure whether we can
do that. But what the appropriators have asked now, that GAO
reports what they perceive and define as this contract, and
will be reporting back to the appropriators in 10 days, at
which time we will get that report here in the Committee on
House Administration.
I also will remind you that both the Senate and the
conference will be seeing the same bill where the House
appropriators did restrict or reduce the budget for the
Smithsonian. They, too, are concerned. So you do have another
opportunity to see just where this goes in terms of the
exclusive contract that was partnered into, if you will, by the
Smithsonian. We too were shocked with all of this and were not
privy to this until just recently.
I am also struck by the fact that it is possibly the other
witness who says--yes, it is--Miss Sheketoff, that it was
announced that Harper Collins would also be an exclusive
distributor of the Smithsonian book list.
As a former educator myself--and now my grandchildren use
this Smithsonian Web site--I would be deeply, deeply hurt if
some of this educational material, some of the other things
that you have cited in your testimony be taken from the Web
site. We are creatures of and supporters of this Web site. I
mean, we go to that Web site. We get materials from that Web
site. The Smithsonian has been part of our family. It comes
into our homes and it comes into millions of homes. And I will
say to you, as we have to the Secretary who has sat here--and
that is good that he has to hear your testimony--that we will
be coming back to him. I don't need to raise questions with
you. You have given us a great testimony on your thoughts and
your concerns. And the only thing that I will tell you is that
I will very carefully now get the report from the GAO, talk to
my counterparts on the Senate side, and then observe the
Smithsonian Web sites to see whether or not we can continue to
have this very valuable, or invaluable, material that is
educational to the people of this country. And I thank the
three of you for coming today.
Thank you, Mr. Chairman.
The Chairman. The gentlewoman's time has expired. I
recognize the gentleman from Philadelphia.
Mr. Brady. Thank you, Mr. Chairman.
Mr. Malamud, you said that you didn't appreciate or you
didn't think it was the right way to have this bidded; it would
have been much better for competitive bidding to have taken
place rather than just an exclusive. I mean, I want you to
agree with me because I think that you are, but isn't it on a
noncompetitive bid, it is an exclusive bid to Showtime; and
then you are telling them that you have this bid for 30 years.
And if something were to not go right, they would be locked in
for a 30-year bid. I mean, have never really heard that before.
Mr. Malamud. I work on the Internet, sir, and 30 years is
an unheard time span for us. Even 3 years is farther than we
can predict.
I think if in the long run after extensive public hearings
this was the best option available, the only option, maybe this
would have been easier to stomach. But without those public
hearings, without that deliberative process, without that input
from other people on options--and that includes the staff of
the Smithsonian, many of whom have very good ideas on how to
exploit their resources in a way that balances the public trust
with revenue generation. I think without that public process,
this contract is hard to understand, sir.
Mr. Brady. I appreciate that. And, Ms. Drain, you said
that--you don't have to apologize for not being an attorney,
because that doesn't put you in any bad stead with me, for
sure. But in your experience, Showtime puts a show on, Show on
Demand, and they don't do--well, they do a good job, but there
is more--time goes on, more things to be added to it. It can be
more depth, it could be more detailed. Would they then have an
exclusive right to that show and not let anybody else like a
PBS to expand on it?
Ms. Drain. You mean once the show is made?
Mr. Brady. Yeah.
Ms. Drain. I don't know what the terms of the deal are. So
in these days, what Showtime could conceivably do in the future
is negotiate with PBS to license the show on PBS at some future
date.
Mr. Brady. Would they have an exclusive right to that show
and you would have no way to expand on it? If you saw a better
way.
Ms. Drain. They would have exclusive right to that show.
And I raise the question of whether they have exclusive to the
material in that show to exploit on all these different
platforms.
Mr. Brady. And that would exclude you or PBS and people
without On Demand or without Internet, you know, that that
would exclude you from trying to expand on it?
Ms. Drain. It could. Yes.
Mr. Brady. And one more for Ms. Sheketoff. You said that
you were negotiating with the Smithsonian prior to this
contract being----
Ms. Drain. No. That is me. We were negotiating with the
Museum of Native Americans to strike some kind of an
arrangement, a cooperative arrangement. And then the deal was
announced, and the staff, because of the uncertainties swirling
around the deal decided just put a brake on those discussions
until we could figure out what the terms of the Showtime deal
were, and whether we could partner in some way. And I have to
say that the curators there are really supportive of our
project, and we have nothing but the greatest of admiration for
them. So we are hoping that we can continue our conversations.
We just don't know.
Mr. Brady. So you were kind of denied access and use.
Ms. Drain. Well, we weren't denied access. We were put on
hold. We are in limbo right now. So we haven't really been
denied access or use yet.
Mr. Brady. Well, if you are in limbo, you have no access.
Ms. Drain. Well, we are quite ready for access. The point
of the production is still in the--we are in pre-production
right now, so this is the critical period that we want--this is
when you start hammering out these agreements and arrangements
that you have with all of the partners to produce this Native
American series. We have a lot of our partners in place, and we
are still working with the museum.
Mr. Brady. Thank you. Thank you, Mr. Chairman.
The Chairman. Thank you. And I might observe, since limbo
no longer exists, you may actually be in purgatory. We will
deal with that later.
Next, it is my pleasure to welcome to the committee and to
yield time, 5 minutes to the gentlewoman from California, Ms.
Lofgren.
Ms. Lofgren. Thank you, Mr. Chairman. And my apologies for
being late. I think that Mr. Malamud and others will be happy
to know that the Judiciary Committee did report the neutrality
bill out, and that is where I was all morning.
I have had a chance to read through the testimony even
though I didn't get to listen to it, and I just have a couple
of observations.
First, while the Smithsonian is in a unique legal
structure, America thinks of it as our stuff. You know, it is
America's attic. And so I do think that--and I would guess that
the powers that be at the Smithsonian might agree that it was
probably a mistake not to be more inclusive with the people's
House in terms of sharing the elements of the contract and the
like because there is a great deal of anxiety, obviously, as we
hear from the testimony of what that deal is.
I understand--I have not had a chance to read the contract
yet, and so I am not going to say what the contract says
because I haven't read it. And I understand that it was just
received, the unredacted version yesterday, and it is quite
lengthy.
I do understand the need to bring private resources in to
the Smithsonian. I think that is really a product of our lack
of funding of the Smithsonian. So I hope that as we move
forward--and there will probably be other hearings, I would
assume. I don't know what the chairman and ranking member have
in mind. But even if it is just in the Appropriations
Committee, this should be a reminder of why we need to
appropriate sufficient funds to the Smithsonian so they can do
their maintenance work, so they can maintain their collections,
and so that it can continue to be free to the American people.
One of the things I am so proud of is that when Americans,
or anybody for that matter, come to this wonderful capitol,
they can go into any museum for free, they can appreciate
American culture and history for free, and just enjoy that
richness. And what we want to make sure is that on a
noncommercial basis, which we have had testimony that the
contract preserves that, and I hope it is true, that that can
also continue through emerging technologies, not only
noncommercial TV, but the Internet and on and on.
So I don't have a lot of questions at this point except
that I will, I hope to be able to read the contract myself, and
certainly the GAO analysis of it. And I hope that when we see
all the details, that we will, hopefully, will have an
opportunity to celebrate more than we are today, because I
think hopefully we have the same goal of the sharing of
American culture on a nondiscriminatory and free basis. And I
thank the gentleman for yielding.
The Chairman. And I thank you for the comments.
I want to thank the panel for being here. We thank you for
your testimony. It has been very enlightening. And we will now
recognize the next panel. Thank you for your testimony.
And I am pleased to invite the final panel of witnesses:
Ms. Maroni, Mr. Huerta, and Mr. Beer, to take their places at
the table.
While they are doing so, let me just give everyone some
word on the schedule so that you will know what is happening
here. We are scheduled to have our next round of votes close to
3:00, and there will be a series of four votes which will take
at least 45 minutes. So my goal is to wrap this up before we
have to leave to vote. And in addition to that, there are other
meetings immediately after the votes. So everyone can plan on
that. We will try to finish at 3:00 at the very latest.
STATEMENTS OF ALICE MARONI, CHIEF FINANCIAL OFFICER,
SMITHSONIAN INSTITUTION; GARY BEER, CHIEF EXECUTIVE OFFICE,
SMITHSONIAN BUSINESS VENTURES; AND JOHN HUERTA, GENERAL COUNSEL
SMITHSONIAN INSTITUTION
The Chairman. Now, this panel will be a bit unusual because
usually we have witnesses give testimony. In this case, we have
not asked you for any testimony. You are just present for
questions. And I would like to introduce Alice C. Maroni, Chief
Financial Officer of the Smithsonian Institution, Gary M. Beer,
Chief Executive Officer of Smithsonian Business Ventures, and
John Huerta, General Counsel of the Smithsonian Institution.
And we will first ask questions of Ms. Maroni. And I yield
myself 5 minutes for this.
Have the financial figures upon which the SBV executive
compensation is based been audited? And, if so, what was the
number of revenue items for each line of business that the
auditors tested to ensure revenues were accurately reported?
Ms. Maroni. Mr. Chairman, I think it would be more
appropriate for me to refer that question to the Deputy
Secretary or to the CEO of Smithsonian Business Ventures.
The Chairman. Mr. Beer.
Mr. Beer. Well, the audit of the Smithsonian Institution
includes Smithsonian Business Ventures because we are not a
separate entity. So whatever the revenues are that we deliver
by each of our businesses are provided as part of the general
audit. They are identified from each of the operating entities
as well as all the extraordinary items that may occur in a
given year, and they are part of the auditor's annual finding.
The Chairman. And you are audited annually then.
Mr. Beer. The Institution is audited, and we are part of
their audit.
Ms. Maroni. I thought you were asking a different question.
The Chairman. Another question for you, Ms. Maroni. The
Secretary testified that the SBV has earned $155 million in net
revenue for the Smithsonian since the year 2000. How much of
the $155 million was already being generated by existing retail
and other businesses operated by the Smithsonian before the SBV
was created? And what portion of these revenues constitute new
or increased revenue attributed to SBV's management of these
activities?
Ms. Maroni. Mr. Chairman, we don't have a simple way of
doing that analysis. It is very evident to everyone that, as a
consequence of the creation of SBV, that the Institution
receives considerably more funding in unrestricted net gain
back to the Institution. To be able to parse through what was
previously received, it would not be an apples-to-apples
comparison because of the number of additional businesses that
have been added as well as the expanded services, new museums.
So that analysis does not exist as you have described it.
The Chairman. But if you are audited every year, I assume
that would be available.
Ms. Maroni. I can look at back and look at overall business
activities, and would be happy to provide that to you.
The Chairman. It would be very interesting to see how that
changed during the transition from no SBV to SBV. We would
appreciate it if you would do that.
Questions for Mr. Beer. How many employees does SBV have at
this point? And what is the ratio of SBV employees to
executives? Has this number increased or decreased in relation
to increasing executive compensation?
Mr. Beer. Congressman, I do have that number. I would have
to look for it, and I will in a moment, maybe on the next
question. I can tell you we have about 488 employees, and I can
tell you that we looked at that ratio of senior executives
against the entire employee base and it has not materially
changed in the last three years for which I saw the data this
morning, but I will have to flip through to give you the actual
breakdown.
The Chairman. That is fine. And whatever information you
can't provide immediately today, for any of you, we will keep
the record open for five days for you to respond. We also, by
the way, expect to submit questions in writing to any of the
witnesses today giving you the opportunity to respond in detail
to any of these issues.
Another question, Mr. Beer, is, and I think I know what
your answer is but I am going to ask you to justify it as well.
Does the Smithsonian's mission match the mission of the SBV?
And can the motivation of profit cause those in the SBV to
neglect the Smithsonian's primary objective of increasing the
diffusion of knowledge? What happens there? What is the
interaction? I would appreciate your perception of that.
Mr. Beer. Well, I am very glad to answer that question,
Congressman. I consider the mission of Smithsonian Business
Ventures not apart from the Institution. We are there to serve
that mission. That is why we are here. I took this position to
maximize revenues that could be available to support mission
activities. These are all funds that are earned from various
different business operations or business activities that then
flow to the Institution.
The idea that the Smithsonian Business Ventures may have an
independent mission is one that I don't think any of us would
subscribe to. Our job is to maximize revenue or profitability,
but only if it is an activity that one would commonly believe
was mission appropriate or helped to extend the mission. If you
were to look at some of the material that was provided as from
the early days of the inception of Smithsonian Business
Ventures, I think that you would clearly see that intent in the
various mandates provided by the then-Board of Regents and the
Secretary.
The Chairman. The final question for you, Mr. Beer, is the
incentive payments to SBV management for reaching performance
goals, how do you establish these goals? When did you start
establishing these goals? How do you ensure the goals are
challenging and that they are achieved? Who establishes? Just
give me some general background on that, please.
Mr. Beer. The incentive program for setting goals and as
part of an annual compensation practice was one of the central
tenets that was established by the Regents in 1998. My initial
arrangement provided for both a base salary and an annual
incentive target. Those targets are performance-based. They are
set annually based on a budgeted goal for profitability or net
gain, financial net gain as we call it at the Institution. And
each year, those goals are set as growth goals or improvement
in those.
And the way in which they are set first begins with the
overall compensation to an executive. They are capped so that
our overall compensation philosophy is to be at mid market or
the median of the market for comparable jobs in both the
nonprofit sector and the private sector. And within that, a
target of the total compensation is for incentive pay or
performance if you were to achieve the goal. If you don't
achieve the goal, you don't receive it.
Those targets are basically budgeted targets each year. The
Smithsonian Business Ventures has an advisory board they have
outside directors of industry experts and a compensation
committee. They make recommendations to the Secretary; the
Secretary then makes recommendations to the board of regents
compensation committee, and is approved as part of their
recommendations along with the budget.
The Chairman. Thank you.
I also have some questions for you, Mr. Huerta, but my time
has expired so I turn to the ranking member.
Ms. Millender-McDonald. Thank you so much. Mr. Chairman,
you have heard now from the first panel, our Secretary, and the
second panel, and you know that the 30-year contract has been
and is troublesome to us. However, I think a lot of that could
have been avoided if we had just heard and had this information
up front as opposed to hearing it vis-a-vis the media. Not that
we are that pleased with the 30-year contract, but that is
something that you guys have done. So I am very pleased to have
you before us today.
The one thing I would like to ask each of you, how long
have you been in your respective positions--your Chief
Financial Officer, Ms. Maroni; Mr. Beer, how long have you been
with--I am sure that is short lived--with the SBV? But you may
have been there prior to that. And Mr. Huerta, the General
Counsel. How long have you guys each been there?
Ms. Maroni. Almost 6 years.
Ms. Millender-McDonald. Six years with you. All right. Mr.
Beer.
Mr. Beer. Just 6\1/2\ years.
Ms. Millender-McDonald. 6\1/2\ years. And Mr. Huerta?
Mr. Huerta. It will be 11 years.
Ms. Millender-McDonald. So the venture, the SBV venture
that we have gone into here now, certainly you have seen other
secretaries who have gone into different business ventures
prior to this one. This one is pretty ambitious, it seems. And
that is okay, because everything tends to be more ambitious now
than they were years ago. How do you feel this, though, differs
from the profitability of these other ventures that took place
under other secretaries? Do you think this one would be a--how
does one look at this in terms of measurements as to its
profitability?
Mr. Huerta. Well, I served under Secretary Hayman as well
as Secretary Small. And Secretary Hayman was very frustrated
with the income that was generated from the exiting, we called
them auxiliary activities, but they are essentially the museum
stores, the restaurant concessions, the Imax theater, the
magazine, Smithsonian books, the whole list of things. We were
losing a lot of money, around $8 million a year, on just the
Smithsonian books. When I joined the Smithsonian, the Regents
were extremely concerned about it. They did a number of steps
to try and stem the flow of money. They weren't able to do
that. And that is what led them actually to create this
subcommittee, the regents led by former Senator Baker, that
eventually led to--after a year of study they went to outside
consultants that led to the formation of Smithsonian Business
Ventures initially with an outside consultant, and then they
hired Mr. Beer. So that is the background on this.
This particular agreement is off the----
Ms. Millender-McDonald. More ambitious than these others.
Mr. Huerta. It is more ambitious than anything else. It is
closest to the magazine, although at the time they formed the
magazine 35 years ago, I don't think they dreamed it would ever
be as successful as it has turned out. It has really been a
first-class American product that we are very proud of. And it
is our hope for the Smithsonian digital cable programming, that
it will be just as successful or even more successful in the
future.
Ms. Millender-McDonald. You are really the Smithsonian side
of things.
Ms. Maroni. I haven't served under another Secretary.
Ms. Millender-McDonald. Mr. Beer. This one should reach
levels much higher than the others, of the ventures, business
ventures?
Mr. Beer. I think this is certainly an ambitious
undertaking. I think that it is probably important just to
frame a couple of things about its early initiation and why we
embarked on it. The Smithsonian Magazine has been a very big
success for the Institution, for all the programs that we do,
and in the consumer marketplace for 35 years. The idea that the
Smithsonian needed to have the same type of presence in the
marketplace as the magazine, in television and new media seemed
to me when I got here and seemed to the regents, because new
media and television is listed as one of the things that the
regents hoped that we could do in the future as new business or
a new tack. And we agreed, and we put together a business plan
and attempted to go out and to do that.
I think that if you look at where all of our earnings come
from, the Smithsonian Magazine has sustained itself with over 2
million paid subscribers and has returned over $350 million to
the Institution in its 35-year history. We don't know what this
is going to be, but we do know that it has scale. And that is
why we built the performance benchmarks into it. We knew that
we couldn't risk the Institution's own money or put itself at
risk. And so there are lots of other things that go into that.
But we think this one has scale. It is really very difficult to
say in something that is this new.
Ms. Millender-McDonald. I suppose so. But it sounds so
fabulous, it sounds so ambitious. It just seems to be something
that has been embarked upon that has never been embarked upon
before. So you just tend to think, with all of this, you are
just going to reach different heights. We just don't want to
exclude the public from those Web sites that we have come to
love and to know. And we just want to make sure that when you
do well, that you also remember us who bring you into our
living rooms and our dens every night or every so often to get
the material that you have that is invaluable.
The last thing that I want to say, Mr. Chairman, is that
this perhaps is something you cannot give me now. But I would
like to know just how much funds come in from your endowment,
from individuals, from corporations, foundations, and how much
is membership and how much money is drawn from that. I am sure
those questions you cannot give me today, but if you can get
those to me, Ms. Maroni.
Ms. Maroni. I will submit something that gives you all of
those numbers.
Ms. Millender-McDonald. I would appreciate that.
Thank you, Mr. Chairman.
The Chairman. The gentlewoman's time has expired. The
gentleman from Pennsylvania, any questions?
Mr. Brady. Just real briefly.
We have a 30-year contract with Showtime. How does Showtime
get to be the--how does Showtime get to get that contract? It
wasn't put out to bid. Was it offered to HBO, Starz? Was it
offered to any other cable providers? Anybody.
Mr. Beer. Let me give you the history on it. We, that is
Smithsonian Business Ventures' management with involvement of
our boards and our regents, created a business model for how we
might create a Smithsonian channel. That means that we would
have programming created and a distribution means to do it. We
then went out and looked at who were the potential media
players. We went to ten of the top media companies in the
world. And Starz Encore was one of them, and in fact, out of
that ten, Liberty Media, Starz Encore expressed a serious
interest, and we had a very definitive negotiation in the end
that fell apart.
About 6 months after that, Showtime networks, which had
seen some of the initial work that we had done, came forward
and said that they wanted to look at it closely, and we did,
and as we got through it, it was clear that they wanted to
enter a serious negotiation, which we brought back to the
regions comparing it against the offer that we had had with
Starz Encore and some of the other elements that had been
produced in the course of our conversations and discussions
with the other eight players, and we chose to then begin a
definitive negotiation process with Showtime.
Mr. Brady. But other cable providers did have an
opportunity to, I guess not bid, but to just try to offer.
Mr. Beer. Absolutely, Congressman. We spoke to a variety of
different types of media companies because what we were looking
for were three things, one, someone who could make the
financial commitment, and as the Secretary said, it is tens of
millions of dollars up front and a continuing investment.
Secondly, someone who had the technical capability because the
institution doesn't. And then the third, which really became
the toughest was finding a company that was willing to actually
respect and embrace the nature of the mission and programs and
the activities of the institution because it was so important
to us that these programs and this distribution or this
channel, if you will, would allow us to tell our story. So we
didn't have a lot of bidders, but we certainly went out into
the marketplace.
Mr. Brady. Okay. Thank you. Thank you, Mr. Chairman.
The Chairman. The gentlewoman from California.
Ms. Lofgren. Thank you, Mr. Chairman. I guess one question
I have is what other ventures are being considered for the
content that the Smithsonian has and private for-profit
partners? Can you tell us of anything that is being
contemplated or in the works?
Mr. Beer. Congresswoman, I believe that in the material we
provided to the committee, we actually showed you sort of an
overview of a 10-year, a 5-year look back, and a 5-year look
forward. So basically, a planning document, if you will, that
the regions reviewed called 2010. The two biggest initiatives
that we have had on the books for years are a copublishing
partner that would allow us to extend the presence of our
authors and our content in a variety of trade books, and the
television cable channel.
There aren't any other major initiatives currently on the
books for that type of activity. And I can assure you to the
extent that we have any other ideas we will be here as soon as
we get them. But right now, in getting these integrated in all
of the work that needs to be done, the HarperCollins program is
only a year old and we actually have a hundred titles in the
marketplace being produced.
And I would like to just make one correction. There is
nothing exclusive about our backlist distribution, and there is
nothing exclusive with respect to content written by our
authors in the HarperCollins program. I can understand how
perhaps the other witness may have assumed that, because of
some of the conversation about this. But it is very different.
Ms. Lofgren. So I gather then that prospectively, if you
were considering an exclusive partnership arrangement with a
for-profit partner, you would want to have a more open process
and dialogue with potentially the Congress and the public
before proceeding.
Mr. Beer. My role in the institution is the operations of
the business.
Ms. Lofgren. It is not fair to ask you that.
Mr. Beer. Listening to the dialog so far, it is clear that
this is a very--any media business is a complex business. And I
have made a bunch of notes to myself, just some additional
documents, I think, the staff, would be useful for the staff to
fully understand what was the nature of the enterprise so that
it is a complex, long document, and if you want to really boil
it down to what it is, it is hard to read a contract. So I
think I would clearly welcome whatever involvement with the
staff and the members that the Secretary and the Deputy
Secretary wanted us to have.
Ms. Lofgren. I would just say, I mean, as I said earlier, I
hope to read the contract over the break so that I will be more
knowledgeable than I am currently as to the video deal. But I
would hope that as we move forward, for example, you could do
an exclusive contract with some content to an Internet portal.
I think it would be a mistake to do anything exclusive,
although I would welcome anything that is non exclusive, just
to get our info out. And that is just an opinion I would share
with you. So with that, Mr. Chairman, I yield back.
The Chairman. The gentlelady yields back. And I apologize
to the gentleman from California, Mr. Doolittle, for not
recognizing him in order. I am pleased to recognize him now.
Mr. Doolittle. Thank you, Mr. Chairman. Just a brief
question of Mr. Beer. What is the nature of the communication
between the business unit of the Smithsonian and the
Smithsonian Institution itself? How do you relate in terms of
those two organizations? I know you are a subunit of it, I
guess.
Mr. Beer. Well, I am glad you mentioned the question, Mr.
Doolittle. The Secretary spoke about it before you got here. We
are actually not a separate unit. I was hired by Secretary
Michael Heyman and a subcommittee of the Board of Regents that
served as the selection panel in 1999. I report directly to the
Secretary. All of us at Smithsonian Business Ventures are
employees of the trust. The trust, in my mind, is, the trust
and the SBV are the same. We are part of the central
administration. We have a division. And if you were to look at
the organizational chart of the institution, we are just a
division as other divisions are under the management of the
institution, the Secretary and his staff.
Mr. Doolittle. I was just, I am not trying to beat a dead
horse here. But you know, every year the Smithsonian comes and
meets with the members of the--I mean, they send some
representatives to meet with the members of the--I assume they
do it with the Senate as well, but the House Interior
Appropriations Subcommittee. And it seems like with a 30-year
contract of this nature that that might have been on their
agenda to mention to us, and they did not do so.
Mr. Beer. Again, I don't want to speak for the Secretary
and the Deputy Secretary, but I have sat in enough meetings
over the last few weeks that I think I would share that we
think that the idea that a 30-year agreement really relates to
the nature of the structure of it. It is both an equity joint
venture as well as a licensing term. It is an unusual thing for
the Smithsonian to do. It is not an unusual thing for a
nonprofit and it is not unusual for the WGBHs and other buyers
and sellers of television programming to do. I think that there
are----
Mr. Doolittle. But may I just interrupt and say that since
this hadn't been done before by the Smithsonian, I mean surely
this stood out in your mind as something that was new,
different, important. I mean that is exactly the type of thing,
especially that if you thought it might be at all controversial
that you would want to mention.
Mr. Beer. Congressman, I think that we missed the fact that
it was going to be controversial, but we completely agree with
you.
Mr. Doolittle. Okay.
Ms. Lofgren. Mr. Doolittle, would you yield?
Mr. Doolittle. I will be happy to yield.
Ms. Lofgren. Just for a quick question that I forgot to ask
before I yielded back my time. Congressman Honda, our colleague
from California, mentioned that he has, I guess, been working
with a nonprofit group that is attempting to provide free WIFI
service throughout the mall and in the vicinity of the
Smithsonian Institute, and has run into roadblocks in that
regard. I guess it has now been reevaluated. Do you know
anything about that? Is there anything that would preclude----
Mr. Beer. This agreement would not. But I couldn't speak to
this.
Mr. Huerta. I believe the Deputy Secretary could address
that. I am not knowledgeable about the details of it.
Ms. Burke. If I may, Mr. Chairman. Yes, in fact, I have. I
am Sheila Burke, Deputy Secretary.
The Chairman. Would you identify yourself for the record.
Ms. Burke. I am Sheila Burke, the Deputy Secretary and
chief operating officer of the Institution. We have, in fact,
for a period of time, been in negotiations and have now signed
a contract and intend to, in fact, provide free WIFI access
throughout the Smithsonian Institution and into our garden
areas. This is something, you are absolutely correct,
Congresswoman, that has been of a great deal of interest to a
great many people and we are, in fact, now ready to, in fact,
go forward and provide that service in our institution.
Ms. Lofgren. That is great news. And I would just note that
with that, you can do, I know the San Jose Museum of Art is now
doing podcast tours so that it has really worked out very well.
And this will facilitate that. And I thank you for answering
the question and also for facilitating that. And I thank you,
Mr. Doolittle, for yielding.
The Chairman. Do you have any further questions?
Mr. Doolittle. No further questions.
The Chairman. The gentleman has no further questions. I
want to just pursue this one moment. You said when you say
service will go into the garden areas, are you referring to the
entire mall?
Ms. Burke. I am sorry sir. I didn't hear the question.
The Chairman. When you say it is going into the garden
areas, are you referring to the entire mall or just----
Ms. Burke. No, sir. In fact, I was corrected. Apparently
the contract is in process, not yet signed. It will be within
the Smithsonian confines, so the garden areas surrounding the
Smithsonian Institution, not fully out to the mall, sir.
The Chairman. Is there not a proposal to also provide
service in the entire mall?
Ms. Burke. There have been discussions of that nature about
posting essentially an antennae on our buildings, similar to
apparently an exercise that took place up here, although not on
the Capitol buildings but apparently on building in proximity.
The decision was to try and do something that essentially
allowed it to be internal to our buildings and to the area
surrounding our buildings and to place the antennae on our
buildings for those purposes, but not to do the wider
community. Again, it was a discussion that took place over a
long period of time.
The Chairman. All right. I believe there are some Members
of Congress who want to pursue that with you. But that is not
our jurisdiction.
Ms. Burke. I am happy to, sir.
The Chairman. That is not our purpose right here today. We
have approached the witching hour. I would like to wrap up. But
I see the ranking member has one burning question.
Ms. Millender-McDonald. Just one burning question. Mr.
Beer, you said that you guys are part of the general structure
of the Smithsonian. But do you not have a Board of Directors
that is directly tied in with the SBV? And if so, are they
advisory in nature? How do we make up this board?
Mr. Beer. The board is in fact advisory. We have 11 members
I believe by our bylaws there is a proscribed number of outside
directors to come from various fields of industry akin to those
that we are in. And then there are several internal directors.
Ms. Millender-McDonald. You report to them though, and not
to the----
Mr. Beer. No. They are just advisors. And actually the
bylaws provide that they advise the Secretary of the
Smithsonian and the CEO. And they have a--they are very
engaged. They work very hard. They give us their
recommendations and all their opinions. They have, but they
have no authority other than as advisors.
Ms. Millender-McDonald. Thank you.
The Chairman. We have approached the witching hour. I would
just like to make a few concluding comments. Obviously, the
contract has been a real center of attention and I think there
is considerable nervousness about the 30-year term. As someone
commented to me, the only common document in the United States
that has a 30-year term is a mortgage on a home and when it is
finished, you actually own the home. And so that may not be a
good comparison to what you have proposed here.
Also, you heard the word over and over, ``transparency.''
The Congress is a public institution. We represent the public.
We expect all entities receiving funds from the Congress to
recognize their public obligation to be transparent so there is
clear accounting of the funds that are used and expended, not
just taxpayer money, but all money used by an institution
funded primarily by taxpayers. And I just want to make sure
that is clearly engraved on your minds at this point.
The final point. I would like to thank all the witnesses
for being here. I think this has been very beneficial for all
of us on both sides to hear the testimony, hear the questions
and hear the responses. So I appreciate your assistance. I
would also like to make clear that we will leave the record
open and members having additional questions may, will submit
them in writing, and we would ask for your response within 5
days at that point.
Having said that, a few final formalities. I ask unanimous
consent that members and witnesses have seven legislative days
to submit material into the record and further statements and
materials to be entered into the appropriate place in the
record. Without objection, so ordered. And also, I ask
unanimous consent that staff be authorized to make technical
and conforming changes on all matters considered by the
committee at today's hearing. Without objection, so ordered.
And with that I hereby declare the hearing adjourned.
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[Whereupon, at 3:01 p.m., the committee was adjourned.]