[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

                              ----------                              


                         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:]

    [GRAPHIC] [TIFF OMITTED] T8299A.003
    
    [GRAPHIC] [TIFF OMITTED] T8299A.004
    
    [GRAPHIC] [TIFF OMITTED] T8299A.005
    
    [GRAPHIC] [TIFF OMITTED] T8299A.006
    
    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.]
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