Smithsonian Institution: Additional Information Should Be	 
Developed and Provided to Filmmakers on the Impact of the	 
Showtime Contract (15-DEC-06, GAO-07-275).			 
                                                                 
In March 2006, the Smithsonian Institution (Smithsonian)	 
announced that it had entered into a 30-year contract with	 
Showtime Networks Inc., (Showtime) to create a digital on-demand 
television channel. Members of Congress and other interested	 
parties, particularly filmmakers, raised issues about the	 
contract's potential effects on public access to and use of the  
Smithsonian's collections, its confidential nature, and the	 
process by which the Smithsonian negotiated it. This report	 
discusses (1) the extent to which the Smithsonian followed its	 
internal contracting guidelines, (2) what the Smithsonian gave up
and received in return under the contract, (3) the Smithsonian's 
implementation of the contract, and (4) the contract's potential 
impact on outside parties. GAO reviewed the contract and	 
pertinent documents, and interviewed Smithsonian and Showtime	 
officials.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-275 					        
    ACCNO:   A64188						        
  TITLE:     Smithsonian Institution: Additional Information Should Be
Developed and Provided to Filmmakers on the Impact of the	 
Showtime Contract						 
     DATE:   12/15/2006 
  SUBJECT:   Contract terms					 
	     Contracts						 
	     Federal procurement policy 			 
	     Financial analysis 				 
	     Museums						 
	     Policy evaluation					 
	     Television 					 
	     Television broadcasting				 

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GAO-07-275

   

     * [1]Results in Brief
     * [2]Background
     * [3]In Negotiating the Contract with Showtime, the Smithsonian G
     * [4]The Smithsonian Traded Semiexclusive Commercial Distribution
     * [5]The Smithsonian Has Been Working to Implement the Contract,
     * [6]The Impact of the Contract on Interested Parties Is Uncertai

          * [7]Direct Impact on Filmmakers during the First 9 Months Was Mi
          * [8]The Smithsonian's Historical Analysis of Filming Contracts I
          * [9]Other Potential Impacts Have Been Raised by Interested Parti

     * [10]Conclusions
     * [11]Recommendations for Executive Action
     * [12]Agency Comments and Our Evaluation
     * [13]Appendix I: Objectives, Scope, and Methodology
     * [14]Appendix II: Smithsonian's Filming Application Review Proces
     * [15]Appendix III: Comments from the Smithsonian Institution
     * [16]Appendix IV: Comments from Showtime Networks Inc.
     * [17]Appendix V: GAO Contact and Staff Acknowledgments

          * [18]GAO Contact
          * [19]Staff Acknowledgments

               * [20]Order by Mail or Phone

Report to the Subcommittee on Interior, Environment, and Related Agencies,
Committee on Appropriations, House of Representatives

United States Government Accountability Office

GAO

December 2006

SMITHSONIAN INSTITUTION

Additional Information Should Be Developed and Provided to Filmmakers on
the Impact of the Showtime Contract

GAO-07-275

Contents

Letter 1

Results in Brief 7
Background 10
In Negotiating the Contract with Showtime, the Smithsonian Generally
Followed Its Internal Guidelines Regarding Competition, Oversight, and
Conflicts of Interest 14
The Smithsonian Traded Semiexclusive Commercial Distribution Rights to
Produce and Distribute Certain Audiovisual Programs Using Smithsonian
Content for 30 Years for National Exposure and a New Revenue Stream 19
The Smithsonian Has Been Working to Implement the Contract, but It Has
Provided Insufficient Information to Interested Parties 22
The Impact of the Contract on Interested Parties Is Uncertain 27
Conclusions 34
Recommendations for Executive Action 35
Agency Comments and Our Evaluation 35
Appendix I Objectives, Scope, and Methodology 37
Appendix II Smithsonian's Filming Application Review Process 39
Appendix III Comments from the Smithsonian Institution 41
Appendix IV Comments from Showtime Networks Inc. 48
Appendix V GAO Contact and Staff Acknowledgments 50

Table

Table 1: Filming Application Decisions from January 1, 2006, through
September 30, 2006 28

Figures

Figure 1: Timeline of Key Negotiation and Oversight Actions 16
Figure 2: Timeline of Key Contract Implementation and Related Events 26
Figure 3: Annual Distribution of 29 Programs from 2000 through 2005 with
More than Incidental Use Based on Smithsonian Filming Contracts 32

Abbreviations

CEO Chief Executive Officer FAR Federal Acquisition Regulation PIO Public
Information Officer SBV Smithsonian Business Ventures

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
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separately.

United States Government Accountability Office

Washington, DC 20548

December 15, 2006

The Honorable Charles H. Taylor Chairman The Honorable Norman D. Dicks
Ranking Minority Member Subcommittee on Interior, Environment, and Related
Agencies Committee on Appropriations House of Representatives

On December 22, 2005, the Smithsonian Institution (Smithsonian) entered
into a 30-year contract with Showtime Networks Inc., (Showtime) to form a
limited liability company that would create new television channels and
related businesses, the first of which is intended to be a digital
on-demand channel called Smithsonian on Demand. The new on-demand channel
will feature, among other things, programs developed using Smithsonian
content, including the Smithsonian's vast archives, collections, and
experts. Smithsonian Networks (the new venture) is a new independent joint
venture between the Smithsonian and Showtime, and it was created to
develop, launch, and operate the new channel.^1 After the public
announcement of the contract in March 2006, filmmakers, historians,
archivists, librarians, and others began raising issues about the
potential effects of the contract on the public's continued access to and
use of the Smithsonian's collections. These interested parties and some in
Congress have also questioned the confidential nature of the contract and
the process by which Smithsonian officials solicited and negotiated the
contract. Smithsonian officials stated that they were surprised by the
reaction to the contract. The Smithsonian believes that keeping contract
provisions confidential is necessary to prevent the disclosure of
proprietary business information. Furthermore, officials believe that the
venture provides an excellent opportunity to harness new digital
technology to further the Smithsonian's mission while generating revenue
to support other activities. The contract illustrates the delicate balance
entrusted to stewards of a public trust--managing collections for the
public good, while at the same time utilizing that resource to creatively
generate revenue to support those stewardship responsibilities.

^1The creation and operation of the new venture is memorialized primarily
in four separate agreements: (1) an agreement between the Smithsonian and
Showtime to create a limited liability company that will, among other
things, create a new digital on-demand television channel called
Smithsonian on Demand; (2) a licensing agreement from the Smithsonian to
the new venture for the use of Smithsonian content and Smithsonian
trademarks; (3) an agreement between the Smithsonian and the new venture
that governs the new venture's access to Smithsonian content; and (4) a
management agreement between Showtime and the new venture for the
management of the new venture. We will refer to these four separate
agreements collectively as the contract for purposes of this report. In
the contract, the legal name of the new venture is SNI/SI Networks L.L.C.

Congress established the Smithsonian in 1846 to administer a large bequest
left to the United States by James Smithson, an English scientist. In
accordance with James Smithson's will, Congress established the
institution in Washington, D.C., "for the increase and diffusion of
knowledge among men." To that end, the act provided for the administration
of the trust by a Board of Regents and a Secretary, who were given broad
discretion to carry out the business of the Smithsonian.^2 The Board of
Regents is composed of 17 members.^3 The board's bylaws provide that it
"shall hold meetings at such times and places as [it] may from time to
time determine," and, as such, the board generally holds three business
meetings annually. In addition, the Board of Regents' Executive
Committee--composed of three Board of Regents members elected by the full
board--can exercise all powers of the Board of Regents when the full board
is not in session.

While the Smithsonian has grown greatly since its founding 160 years ago,
it retains its essential character as a trust establishment of the United
States, and it is often referred to as "the nation's attic." The
Smithsonian is now the world's largest museum and research complex,
consisting of 19 museums and galleries, the National Zoo, and 9 research
facilities. In fiscal year 2005, the Smithsonian had operating revenues of
just under $1 billion, with about 75 percent from federal sources and the
remaining 25 percent from other sources, including revenues from business
activities. The Smithsonian's business activities include Smithsonian and
Air & Space magazines, museum stores, restaurants, IMAX theaters, the
Smithsonian Gift Catalogue, consumer product licensing, e-commerce, and
commercial media enterprises.

^2Act of August 10, 1846, ch. 178, 9 Stat. 102 (1846) (codified at 20
U.S.C. S41). A trust is a property interest held by one entity for the
benefit of another.

^3The board is composed of the Chief Justice of the United States, the
Vice President, three senators appointed by the President of the Senate,
three representatives appointed by the Speaker of the House, and nine
citizens appointed by Joint Resolution of Congress--two from the District
of Columbia and seven from the states.

In 1998, the Board of Regents authorized the Secretary of the Smithsonian
to reorganize the various business activities within the Smithsonian into
a centralized business entity, Smithsonian Business Ventures (SBV). SBV's
mission is to generate revenue from business activities to support the
Smithsonian's mission. SBV is funded by the revenue from its business
activities and does not use federal funds for any of its activities,
including employee salaries. SBV's structure is very similar to that of a
private company, with a chief executive officer, chief financial officer,
and a board of directors. The SBV board of directors acts within the
authority granted to it by the Board of Regents to provide advice and
recommendations to the Board of Regents and Secretary concerning the
operation of SBV. In addition, the chief executive officer must consult
with and seek the recommendations of the SBV board of directors concerning
issues including, but not limited to, industry standard business deals,
joint ventures, licensing, and perceived trade-offs between commercial and
traditional approaches to accomplishing the overall mission of the
Smithsonian. The Smithsonian's Board of Regents exercises its authority
over SBV by reviewing plans for and approving major new initiatives. SBV,
in conjunction with the Smithsonian's Office of General Counsel, were the
primary Smithsonian entities involved with negotiating the contract.

The new venture brings together, in a public-private partnership, the
Smithsonian's wealth of staff resources and collections with Showtime's
production and distribution capabilities and experience. Because the
Smithsonian's contract with Showtime was not a federal procurement
contract, standard federal contracting guidelines that the Smithsonian
generally uses for guidance for contracts involving federal funds, such as
the Federal Acquisition Regulation (FAR), were not used.^4 The Smithsonian
does not have any written guidance regarding how nonprocurement contract
negotiations should be conducted; however, SBV's guidelines state that SBV
should follow commercial business practices in its contracting. While
SBV's guidelines do not define commercial business practices, according to
SBV, the underlying principles include, among other things, fostering
competition, leveraging purchasing power to get the best value, and
operating in a highly ethical manner. In the absence of specific
Smithsonian-wide guidelines or policies, SBV works closely with the Office
of General Counsel and the Office of Contracting to negotiate contracts.

^4The Smithsonian manages two different types of funds--federal funds and
trust funds, which are nonfederal funds arising from donations,
revenue-generating activities, interest on investments, and other sources.
The Smithsonian has elected to follow the FAR provisions for contracts
involving the expenditure of federal funds. For business contracts that
involve neither the expenditure nor receipt of federal funds and for which
the FAR is inapplicable, such as the contract with Showtime, the
Smithsonian has elected to follow commercial business practices.

According to Smithsonian officials, every year hundreds of people request
to film or photograph the Smithsonian's premises, collections, or staff.
In 2001, the Smithsonian created institutionwide guidance to streamline
procedures and standardize fees for processing and approving these filming
and photography requests across the institution. This included a standard
application that filmmakers had to submit to the museum Public Information
Officer (PIO). When reviewing these applications, museum PIOs considered
several factors such as compatibility with Smithsonian's mission and
availability of staff, before deciding whether to approve or decline the
request. While the policies and procedures governing filming requests are
still in effect, they have been supplemented by new procedures developed
since the contract became effective. Audiovisual programs developed with
footage of Smithsonian content are now classified into several categories:
news, public affairs, academic, curriculum-based, scholarly, and
commercial programs.^5

The contract specifies that the Smithsonian cannot engage in activities
that would compete with the new venture, nor can it allow other filmmakers
to use Smithsonian content to produce programs for commercial distribution
that would directly compete. Direct competitors include, but are not
limited to, Public Broadcasting Service (PBS), Arts and Entertainment
(A&E), The History Channel, National Geographic Channel, and The Discovery
Channel. In addition, the contract limits the number of programs that can
be accessed on a single Smithsonian Web page within a Smithsonian Web
site, since the availability of a collection of programs via the Internet
is also considered competition with the new venture. These provisions are
generally referred to as the noncompete clauses. Key exceptions to the
noncompete provisions include (1) nonrecurring news and public affairs
programs; (2) academic, curriculum-based, and scholarly programs; (3)
programs with only incidental use of Smithsonian content;^6 and (4) an
initial annual allotment of six programs that the Smithsonian can produce
with entities other than the new venture, referred to as one-offs. While
the contract contains definitions for the terms academic,
curriculum-based, and scholarly, it does not specifically define
incidental use.

^5Scholarly programs are defined in the contract as programs that are (1)
developed in conjunction with a scholar, academic, or expert who is
employed by the Smithsonian or otherwise formally associated with the
Smithsonian; (2) derived from the scholar's, academic's, or expert's work
in association with the Smithsonian; and (3) developed for educational
purposes and that would, to a reasonable person, appear to be of interest
primarily to scholarly and academic viewers.

Following the inception of the new venture with Showtime in 2006, the
Smithsonian updated the guidelines for processing and approving filming
and photography requests to align them with the noncompete clauses of the
contract. For nonrecurring news and public affairs programs, the process
that was in place before the contract has not changed. Filming
applications are not required for nonrecurring news and public affairs
programs, and decisions regarding acceptance of those requests are still
made at the museum level. For the other types of requests--academic,
curriculum-based, scholarly, and commercial--a filming application is
still required and an additional review step has been added. If the museum
PIO reviews the application and determines that the museum can accommodate
the request, the PIO forwards the application to the Office of Public
Affairs review committee--composed of three PIOs and two museum
representatives--which decides on a case-by-case basis whether or not the
proposed film falls within one of the exceptions to the noncompete
clauses.^7 The review committee approves filming applications that fall
within one of the exceptions and must either deny those that do not or
pursue the film as a one-off. For applications that the committee chooses
not to pursue as a one-off and denies because the request is to use more
than an incidental amount of Smithsonian content, filmmakers have the
option of reducing the amount of Smithsonian content to incidental, or
they may independently contact the new venture to discuss producing the
film. Appendix II contains a flowchart illustrating the Smithsonian's
filming application review process.

Filmmakers and other interested parties have raised issues about the
Smithsonian's process of entering into the contract with Showtime, as well
as the changes in the Smithsonian's filming procedures and other potential
impacts resulting from the contract. In this context, you asked us to (1)
evaluate the extent to which Smithsonian followed its internal guidelines
with respect to competition, oversight, and protecting against conflicts
of interest when negotiating the contract with Showtime; (2) identify what
the Smithsonian gave up and received in return under the contract; (3)
evaluate the Smithsonian's implementation of the contract; and (4)
identify what, if any, impacts the contract has had on outside parties.
This report is nearly identical to the sensitive, but unclassified report
you received on December 15, 2006. However, the original report contains
confidential, business sensitive information identified by the Smithsonian
and Showtime. Therefore, certain details, such as specific dollar amounts,
percentages, and time frames related to the financial value of the
contract, have been generalized or omitted to enable the public release of
this document. In total, eight numbers were generalized and three
sentences were omitted.

^6Smithsonian content includes Smithsonian collections, exhibitions,
archival materials, research materials, publications, audiovisual works,
Web site content, and other works of authorship; Smithsonian personnel;
Smithsonian events; and Smithsonian buildings and grounds.

^7A proposed use is excepted from these rules when it is for an academic,
curriculum-based, scholarly, or news program, or a program that will not
be distributed by a commercial distributor. In these cases, more than
incidental use of Smithsonian content is permitted.

To examine the extent to which the Smithsonian followed its internal
guidelines for competition, oversight, and conflicts of interest, we
obtained and reviewed meeting minutes for the Smithsonian's Board of
Regents and SBV's Board of Directors, as well as Smithsonian guidelines
regarding conflicts of interest and contracting. We also interviewed the
Smithsonian and Showtime officials involved in negotiating the contract.
To determine what the Smithsonian gave up and received in return, we
reviewed the contract and other Smithsonian documents, interviewed
Smithsonian and Showtime officials that were involved in the contract
negotiations, and conducted an independent economic analysis to estimate
the value of the contract. We also attempted to identify contracts of a
similar nature for comparison, but we were not able to find suitable
analogies. To examine how the Smithsonian has implemented the contract and
what, if any, impact it has had on the Smithsonian's operations and
outside parties, we reviewed relevant Smithsonian documents, analyzed
historical and current film request data, and interviewed Smithsonian
staff that have been involved with implementing changes resulting from the
contract. We also reviewed position papers and interviewed a selective
sample of interested parties that could potentially be affected by the
contract. We selected the individuals with whom we spoke from a wide range
of disciplines, including filmmakers, curators, and historians. Appendix I
provides a more detailed description of our scope and methodology. We
conducted our work from June to November 2006 in accordance with generally
accepted government auditing standards.

Results in Brief

In entering into the contract, the Smithsonian generally followed its
internal guidelines regarding competition, oversight, and conflicts of
interest. In adhering with the commercial business practice of fostering
competition, the Smithsonian reached out to 18 major media companies when
it began exploring the idea for a television venture in 2002. The
Smithsonian negotiated for nearly a year with the only company that
expressed interest at that time. When that deal fell through, the
Smithsonian was approached by and had preliminary discussions with a
second interested company that ultimately decided not to pursue the
opportunity because it was concerned that developing a new Smithsonian
channel might undercut its existing channel. Finally, in 2004, a third
company--Showtime--expressed an interest in the idea, and the two entities
engaged in serious negotiations for more than a year to finalize the
contract. According to SBV officials, the Board of Regents oversight for
the Showtime contract was similar to its oversight on other contracts. The
board gave approval for SBV to pursue the venture in 2002. Since that
time, the minutes of the Board of Regents meetings show that the board was
periodically informed of the efforts to find a suitable business partner
and enter into a contract, and these minutes were provided to Congress. In
November 2005, the board approved the contract based on a summary sheet of
the key provisions. During the contract negotiations, SBV's Chief
Executive Officer disclosed a potential conflict of interest regarding his
indirect ownership interest in the Sundance Channel. One of the owners of
the Sundance Channel, through which the SBV Chief Executive Officer had
his interest in the channel, was in negotiations with Showtime and the
other owner of the Sundance Channel to sell his interest. In accordance
with Smithsonian policies, the Smithsonian's Ethics Officer reviewed the
disclosure and concluded that no conflict existed as long as SBV's Chief
Executive Officer was only a silent partner and did not participate in the
Sundance Channel sales negotiations. GAO's Ethics Officer reviewed the
documentation and the Smithsonian's decision and concurred with the
findings.

The Smithsonian granted the new venture a 30-year, semiexclusive right to
produce and commercially distribute certain audiovisual programs using
Smithsonian trademarks and/or content in exchange for national television
exposure and a new revenue stream. The Smithsonian projects that the new
channel will reach more than 31 million households by 2010, and it is
hoping that the increased national television exposure will increase its
brand recognition and have a synergistic effect on other revenues by
increasing memberships, merchandise sales, and concession sales through
increased visitation to the museums. The Smithsonian's new revenue stream
from the contract includes four components: (1) minimum annual payments of
$500,000 for the early years that gradually increase to millions of
dollars per year as the contract progresses (undiscounted and nominal);
(2) a share of revenues to the extent that the share exceeds the minimum
annual payment; (3) an initial 10 percent equity interest in the venture;
and (4) an option to acquire an additional equity interest. The annual
payments will total a minimum of $99 million (undiscounted and nominal)
over the 30-year term of the contract. The Smithsonian estimates that the
cumulative value of the contract after 10 years will be more than $150
million, of which only a small portion will be from the minimum annual
payments. The major contract concession by the Smithsonian is the
noncompete clauses. While most of these provisions are relatively
straightforward, Smithsonian and Showtime officials had different
understandings of a provision on the commercial use of scholarly programs.
The provision states that before scholarly programs can be distributed by
a commercial distributor, they must first be offered to the new venture;
but the language is silent about whether it applies only to
Smithsonian-generated scholarly programs, or if it also applies to
third-party generated scholarly programs. Smithsonian officials stated
that it was their intent and understanding that the provision would not
apply to third-party generated programs, whereas Showtime officials had a
different view. Upon raising this issue during our review, the Smithsonian
and Showtime reached an agreement that the provision does not apply to
third-party generated scholarly programs.

Since the contract became effective in January 2006, the Smithsonian has
been working to put in place policies and procedures necessary to
implement the contract, but the information it has provided about the
contract's impact to interested parties has been insufficient. The
Smithsonian and Showtime waited more than 2 months after the contract
became effective to publicly announce the creation of the new venture. The
Smithsonian did not establish a central committee in the Office of Public
Affairs to review filming requests for compliance with the contract and
make determinations about the incidental use of Smithsonian content until
March 2006, so decisions regarding filming requests received in early 2006
were delayed. The committee has since developed a spreadsheet to track
filming requests, but it does not contain a detailed rationale for
decisions in which a film request is either denied due to more than
incidental use or pursued as a one-off. As a result, it may be difficult
for the Smithsonian to provide useful information to filmmakers about what
constitutes incidental use and ensure accountability with consistent
decision making over the term of the contract. Some of the key
characteristics of effective and efficient government programs are
transparency and clear criteria that are consistently applied. However,
the Smithsonian has not yet developed a mechanism or process to synthesize
its decisions over time into a record of precedents that would provide
filmmakers with additional guidance for their use in developing future
filming requests. The review committee members mentioned that they direct
filmmakers to the Smithsonian's Web site for answers to "Frequently Asked
Questions," but the site provides little information about Smithsonian on
Demand. As a result, filmmakers and other interested parties remain
uncertain about the Smithsonian's criteria for making decisions about
filming requests and about the contract's impact in general. More
recently, in August 2006, the Smithsonian established a separate
Smithsonian on Demand Committee to provide recommendations regarding
content review and approval of programs for the new channel. Since this
newest committee had not reviewed any films as of September 30, 2006, it
is not clear how the review and approval issues will be resolved.

The impact of the contract on interested parties is uncertain because it
only has been in effect since January 1, 2006, and it is still too early
to tell what the long-term impact of the contract will be. While access to
the Smithsonian's collections and staff for research purposes remains
unchanged, the direct impact on filmmakers will depend largely on how many
filming applications the Smithsonian receives annually requesting to use a
substantial amount of Smithsonian content that are not otherwise permitted
by the noncompete clauses. If the number of those requests is small and
the Smithsonian decides to accommodate them within their annual allotment
of one-offs, then any direct impact on filmmakers will be minimal.
However, if the number of those requests is large, then some filmmakers'
requests will be denied. During the first 9 months of the contract, from
January 1, 2006, through September 30, 2006, 2 out of 117 filming requests
were denied due to the contract, and 4 were approved as one-offs. Based on
an historical analysis of filming contracts over a 6-year period from 2000
through 2005, the Smithsonian contends that it will be able to accommodate
the same level of filming activity as it has in the past. However, we
found that this analysis was unreliable for the purpose of estimating the
contract's potential impact because it was based on incomplete data and
oversimplified criteria. For example, in some cases, projected run-time
was not available on the spreadsheet used for the analysis. Moreover, the
criterion used in the analysis was not the same as the criteria being used
in practice by the review committee. In the analysis, the Smithsonian
defined incidental use as 15 percent or less of projected run-time of
Smithsonian content in the film. However, the review committee considers
multiple factors about the proposed use of Smithsonian content in making
the actual decisions about incidental use. Aside from direct potential
impacts on filmmakers, larger concerns have been raised about damage to
the Smithsonian's image and goodwill. Concerns have been raised by
filmmakers, curators, and other interested parties regarding the
appropriateness of the Smithsonian limiting the use of the collections
held in trust for the American public, as well as other potential impacts,
including hampering collaborative partnerships and future donations.

To improve the implementation of the contract and increase the information
available to interested parties, we recommend that the Secretary of the
Smithsonian (1) fully document decisions for filming applications that are
denied because they involve more than incidental use or are approved as
one-offs to establish a record of precedents, which will define over time
what constitutes incidental use and help to ensure consistent decision
making by the review committee, and (2) update the "Frequently Asked
Questions about Filming at the Smithsonian Institution" on the
Smithsonian's Web site to better describe what the contract means for
filmmakers, especially as it relates to incidental use of Smithsonian
content. We requested comments on the draft report from the Smithsonian
and Showtime. The Smithsonian commented in writing that it generally
agrees with our findings and recommendations and will take actions to
implement our recommendations. Showtime also generally agreed with the
report and endorsed the Smithsonian's comments. The Smithsonian's and
Showtime's written comments are in appendixes III and IV, respectively.
The Smithsonian and Showtime also provided joint technical comments, which
we incorporated as appropriate.

Background

The Smithsonian is a unique entity possessing a dual nature, described by
former Chief Justice Taft, the Chancellor of the Board of Regents in 1927,
as a "private institution under the guardianship of the Government."
Initially established by Congress in 1846 to carry out the federal
government's trust responsibilities under the bequest of James Smithson,
the Smithsonian is a privately endowed institution, largely funded by
federal appropriations and governed by a Board of Regents composed of
federal officials and private citizens. In fiscal year 2005, the
Smithsonian had operating revenues of just under $1 billion and about
6,000 employees. Approximately 75 percent of the Smithsonian's operating
revenues were from federal sources--60 percent from direct congressional
appropriations and 15 percent from government grants and contracts--and
the remaining 25 percent was from restricted and unrestricted trust funds.
Restricted trust funds include gifts, grants, and earnings on endowments
from individuals, foundations, organizations, and corporations that
specify the purpose of the funds. Generally, they support a particular
exhibit or program, or are used to manage the collections or support
research projects. Sources of unrestricted trust funds include investment
income, earnings on unrestricted endowments, membership programs, and net
proceeds from business activities. Unrestricted trust funds can be used to
support any Smithsonian activity or need. Revenue generated by the
contract with Showtime will be unrestricted trust fund revenue.

The Smithsonian has about 136.5 million objects in its collections, but
only a small percentage of the objects are on display in the museums at
any given time. The museums recorded about 24 million visits in fiscal
year 2005, which was down significantly from the 33.7 million visits
recorded in fiscal year 2001. In the years since the 9/11 terrorist
attacks, visitation has fluctuated around 20 million to 25 million
annually. While most of the Smithsonian's exhibited collections are in or
around Washington, D.C., Smithsonian content was viewed by 109 million
visitors to its 447 Web sites in fiscal year 2005--12 million more Web
visitors than in 2004. In addition, Smithsonian magazine has a readership
of more than 7 million monthly. Smithsonian officials saw the new channel
as an opportunity to bring more Smithsonian content to a television
viewing audience.

A Smithsonian directive on collections management states that the
Smithsonian will provide reasonable access to its collections and
collections information, consistent with its stewardship
responsibilities.^8 Access, as defined by this directive, is the
opportunity for the general public, scholars, and Smithsonian staff to
utilize the diverse collection resources of the Smithsonian. To carry out
its mission "for the increase and diffusion of knowledge among men," the
directive states that the Smithsonian promotes access to its collections
and associated information through research opportunities, traditional and
electronic exhibitions, educational programs and publications, reference
systems, loan exchange of collections, and electronic information
services. Smithsonian directives allow access fees to be charged and also
allow restrictions to accessing collections and collections information
due to resource limitations, object availability, intellectual property
rights, applicable restrictions, and preservation constraints. The Board
of Regents retains ultimate oversight authority and fiduciary
responsibility for Smithsonian collections.

^8Smithsonian Directive SD-600: Collections Management defines collections
to include objects, natural specimens, artifacts, and other items that are
acquired, preserved, and maintained for public exhibition, education, and
study.

The Smithsonian's statutory charter gives broad discretion in the conduct
of its affairs, including managing the Smithsonian's authority to enter
into contracts. In 1846, Congress authorized the Board of Regents to
conduct the "business of the Institution."^9 The Board of Regents has the
authority to accept funds from private sources, use the interest earned on
the trust fund to further the Smithsonian's purpose, and acquire, display,
restore, loan, sell, or otherwise dispose of items of historical or
artistic interest. These authorities have been delegated to various
individuals within the Smithsonian, including the Deputy Secretary/Chief
Operating Officer of the Smithsonian, SBV's Chief Executive Officer, and
the Office of General Counsel.

The new venture is tasked with creating new programming services, the
first of which is expected to be a digital on-demand television
channel--Smithsonian on Demand. Digital television is a new television
delivery technology that uses digital technology to capture images and
sounds, in contrast to traditional analog television service. Digital
television allows a broadcaster to offer multiple programs (multicasting)
or a single program of high definition television. Images and sound are
captured using digital technology, providing a better picture resolution,
a wider screen, CD-quality sound, and better color rendition. This
technology represents the most significant development in television
technology since the advent of color television in the 1950s. In February
2006, the Digital Television Transition and Public Safety Act of 2005
established a deadline of February 17, 2009, for the complete transition
from analog television to digital television.^10 A full-power television
broadcast license that authorizes analog television service may not be
renewed to authorize such service for a period that extends beyond
February 17, 2009. In February 2005, we reported that about 86 million
households view television via a cable service or have a subscription to a
direct broadcast satellite service, and approximately 21 million
households rely exclusively on free over-the-air broadcasting.^11

9Act of August 10, 1846, ch. 178, S3, 9 Stat. 103 (1846) (codified at 20
U.S.C. S42).

^10Pub. L. No. 109-171, title III, S 3002(b), 120 Stat. 21 (2006).

As of September 2006, the new venture had developed a list of 74 potential
programs for the new channel's initial season. The list included (1) 15
"mission critical" programs selected by the new venture from a list of 30
potential programs proposed by the Smithsonian; (2) 36 programs that the
new venture was working on with individual Smithsonian units and a few
existing programs that contain Smithsonian content that the new venture
proposed acquiring the rights to; and (3) 23 programs to be acquired that
contain no Smithsonian content but feature content with which the
Smithsonian is generally associated, such as arts and culture, history,
and science. On or around June 1 of each calendar year, during the first
29 years of the contract, the Smithsonian will provide the new venture
with 30 or more written program ideas.^12 The new venture is required to
select at least one-half, but no more than 15 of the program ideas to
develop, produce, and exhibit during the next calendar year. The
Smithsonian also generally has the right to review rough and final program
cuts to ensure that the program's content is factually, historically, and
scientifically accurate and in compliance with the other quality control
requirements in the contract, including consistency with the high
standards, quality, and image of the Smithsonian.

While the Smithsonian has not earmarked how the revenue from the new
venture will be spent, it has a number of pressing funding needs. For
example, in April 2005, we reported on the deteriorated condition of
several of the Smithsonian's facilities.^13 At that time, the Smithsonian
estimated that its planned capital and maintenance projects for 2005
through 2013 would cost about $2.3 billion. However, we cautioned that
this estimate could grow because it was largely based on preliminary
assessments. We also noted that the Smithsonian's historical funding
levels, from federal appropriations and trust funds, would be insufficient
to cover the facility projects planned for 2005 through 2013. We
recommended that the Smithsonian establish a process for exploring funding
options with the Administration and the Congress, leading to the
development and implementation of a strategic funding plan to address the
Smithsonian's revitalization, construction, and maintenance needs. The
Smithsonian agreed with our findings and recommendation and informed us
that Smithsonian's Board of Regents has established an ad hoc committee to
identify various ways to raise additional funds for the Smithsonian. The
committee's work is ongoing.

^11GAO, Digital Broadcast Television Transition: Estimated Cost of
Supporting Set-Top Boxes to Help Advance the DTV Transition,
[21]GAO-05-258T (Washington, D.C.: Feb. 17, 2005).

^12Should the Smithsonian submit fewer than 30 program treatments, the new
venture's obligations are reduced proportionately.

^13GAO, Smithsonian Institution: Facilities Management Reorganization Is
Progressing, but Funding Remains a Challenge, [22]GAO-05-369 (Washington,
D.C.: Apr. 25, 2005).

In Negotiating the Contract with Showtime, the Smithsonian Generally Followed
Its Internal Guidelines Regarding Competition, Oversight, and Conflicts of
Interest

In entering into the contract with Showtime, the Smithsonian generally
followed its internal guidelines regarding competition, oversight, and
conflicts of interest. Regarding competition, only SBV's limited written
contracting guidance, which promotes the use of commercial business
practices and consultation with the Office of General Counsel, was
applicable to the solicitation of a strategic business partner in this
case. SBV officials applied a general principle of commercial business
practices--fostering competition--by initially reaching out to multiple
major media companies, and they relied heavily on consultation with the
Office of General Counsel to guide their actions. In addition, the Board
of Regents has broad oversight responsibility for all Smithsonian programs
and activities, including the establishment of any new program or
activity. The Board of Regents exercised this authority over SBV by
periodically reviewing documents related to the contract terms and
approving the final contract terms. SBV's Board of Directors acts under
the authority granted to it by the Board of Regents to provide advice to
the chief executive officer on a variety of issues. Finally, the potential
conflict of interest that arose during the contract negotiations was
disclosed and reviewed in accordance with the Smithsonian's Standards of
Conduct for employees.

In adhering with the commercial business practice of fostering
competition, SBV reached out to 18 major media companies when they began
exploring the idea for a television venture in the spring of 2002. This
initiated a 3-year search process for a strategic business partner and a
final deal (see fig. 1). In August 2002, one company expressed interest in
proceeding beyond initial discussions toward developing a more definitive
structure and offered terms that the Smithsonian found favorable. For the
next 9 months, SBV and the media company negotiated a term sheet and
letter of intent. While SBV and the company were negotiating the final
terms of the agreement, the company's board declined to proceed with the
investment, and the deal fell through. In the final months of 2003 and
early months of 2004, the Smithsonian had conversations with a second
company, which also ended without reaching an agreement because the
company became concerned that developing a new Smithsonian channel may
undercut its existing channel. Soon after this, the Smithsonian was
approached by, and had preliminary discussions with, several companies
that expressed renewed interest. Finally, in August 2004, the Smithsonian
began negotiations with Showtime because its initial investment offer was
the most favorable. The two entities engaged in serious negotiations for
more than a year to finalize the contract; the final terms of which are
comparable with, or in some cases more favorable than, the deal that
Smithsonian had previously negotiated in 2003.

Figure 1: Timeline of Key Negotiation and Oversight Actions

Smithsonian's Board of Regents and SBV's Board of Directors provided
oversight of the activities regarding the television venture in accordance
with their respective bylaws. The Board of Regents' meeting minutes show
that the board was periodically informed of SBV's efforts to find a
strategic business partner. Furthermore, SBV's Board of Directors' meeting
minutes show that it was also engaged in the process (see fig. 1). SBV's
Chief Executive Officer presented a business plan for the proposed venture
to the Board of Regents in June 2002. In May 2003, the Board of Regents
authorized the Secretary to enter into an agreement for the formation and
operation of a television channel with the first company. SBV provided
interim status updates to both its Board of Directors and the Board of
Regents on its efforts to secure another partner for the initiative
between the time that the first deal fell through and when it began
negotiating with Showtime. The SBV Board of Directors forwarded a motion
to the Secretary recommending that SBV finalize agreements with Showtime
on terms as presented by the Chief Executive Officer. In May 2005, the
Board of Regents signaled its agreement and authorized the Executive
Committee to empower the Secretary to enter into definitive agreements
with Showtime to form a joint venture. Six months later, the Board of
Regents' Executive Committee approved the final terms of the agreement.

A potential conflict of interest that surfaced during contract
negotiations was handled according to the Smithsonian's Standards of
Conduct.^14 Prior to working for the Smithsonian, SBV's Chief Executive
Officer helped establish the Sundance Channel, a company in which Showtime
is one of three owners. As part of that endeavor, he received an equity
interest in the Sundance Channel from one of the two non-Showtime owners
and retained that interest when he came to the Smithsonian. During the
Smithsonian's negotiations with Showtime, one of the owners of the
Sundance Channel--through which the SBV Chief Executive Officer had his
interest in the channel--was in negotiations to sell some of his
interests, with Showtime and the other owner of the Sundance Channel being
potential buyers. SBV's Chief Executive Officer disclosed this potential
conflict of interest to the Smithsonian's Ethics Officer. The Ethics
Officer reviewed the disclosure and concluded that the interest did not
represent a conflict under the Smithsonian's Standards of Conduct or a
prohibited financial interest under federal law because SBV's Chief
Executive Officer did not have a general partnership interest in the
Sundance Channel and was not participating in negotiations concerning the
sale of interests in the channel.^15 SBV's Chief Executive Officer
confirmed that he had no role, and did not participate, in the sale
negotiations involving the Sundance Channel. GAO's Ethics Officer reviewed
the documentation and the Smithsonian's decision and concurred with the
findings.

^14Smithsonian Directive SD-103: Smithsonian Institution Standards of
Conduct, dated March 3, 1993, was in effect during the Smithsonian's
contract negotiations with Showtime. A more current version, dated
February 13, 2006, is now in effect.

The Smithsonian Traded Semiexclusive Commercial Distribution Rights to Produce
and Distribute Certain Audiovisual Programs Using Smithsonian Content for 30
Years for National Exposure and a New Revenue Stream

The Smithsonian granted the new venture a 30-year, semiexclusive right to
produce and commercially distribute certain audiovisual programs using
Smithsonian trademarks and/or content in exchange for national television
exposure and a new revenue stream. According to a Smithsonian official,
the goal was to extend the reach of the Smithsonian nationwide by
participating in the development of programming about the Smithsonian's
national collections and its research. The new channel is projected to
reach more than 31 million households by 2010, which the Smithsonian hopes
will increase its brand recognition and have a synergistic effect on other
revenues by increasing memberships, merchandise sales, and concession
sales through increased visitation to the museums. In soliciting a
suitable business partner, the Smithsonian wanted to find a company that
would support the Smithsonian's mission and have the financial and
technical ability to develop new programs and launch a new digital
television channel. Showtime was attracted to the vast amount of
Smithsonian content and the Smithsonian's good reputation and widely
recognized brand name. Both parties characterized the contract as unique
and the year-long negotiations as long and hard fought. Terms of
particular interest have been the contract's length, opportunities for
contract termination, and the public's ability to access and use the
collections, in contrast with the rights the Smithsonian retains over
programming content, the revenue Smithsonian will receive, and the
expectation of increased exposure to the Smithsonian brand.

The 30-year contract term raised many questions with members of Congress
and the public because in relation to other contracts, particularly those
that the Smithsonian has entered into for other business activities, it is
unprecedented. However, according to officials involved in the contract
negotiations, Showtime's joint venture contracts are normally in
perpetuity. Generally--and in this case--this is because starting a new
channel is a high-risk endeavor that requires a significant investment.
Showtime is investing 100 percent of the initial capital in the
partnership and is therefore accepting all of the financial risk of the
new venture. While Showtime agreed to a shorter term than most of its
other media contracts, it has the right, through the new venture, to
terminate the contract at certain intervals with or without cause. The
Smithsonian may not terminate the contract without cause. However, the
Smithsonian negotiated performance benchmarks in the contract that the new
venture must meet. The Smithsonian may terminate the contract if the new
venture fails to (1) launch its first channel by a specific date, (2)
invest a minimum amount of money in programming to be exhibited on the new
channel within an initial phase of the contract, and (3) earn a specific
amount of average gross revenues by a specific date.

^1518 U.S.C. S 208.

Another question raised has been continued access to and use of the
collections by the public. The contract contains no restrictions on public
access to the collections. However, the noncompete clauses generally
prohibit the Smithsonian from entering into agreements or engaging in
activities that would compete with the new venture. Of particular concern
is that PBS is identified as a directly competitive service. Additional
noncompete clauses provide that the Smithsonian must:

           o cease operation of a Smithsonian Web portal called
           Smithsonian.tv, which was an aggregation of programming available
           through the Smithsonian's Web site;^16

           o not allow others to produce programs of The Smithsonian
           Associates' "Campus on the Mall" events; and

           o not provide any other provider of audiovisual programming with
           pan-Institutional, "priority" guided access to Smithsonian content
           similar to that provided to the new venture.

In return, the Smithsonian negotiated a number of exceptions to these
noncompete clauses, which are designed to eliminate or minimize their
impact on the Smithsonian's normal programming activities. For example,
nonrecurring news and public affairs programs; academic and
curriculum-based programs; and in certain cases scholarly programs, were
all deemed not to compete. The Smithsonian was also able to negotiate an
exception that allows it to produce a fixed number of programs annually
with other entities (one-offs). Initially the Smithsonian is allowed six
one-offs annually, but the number is reduced to five when the new channel
is available to at least 25 million households. There are a number of
other detailed parameters regarding the one-off programs.

^16According to Smithsonian officials, this content is being moved
elsewhere on Smithsonian Web sites but in a nonaggregated format, which
does not compete with the look and feel of an on-demand channel.

While most of the noncompete provisions are relatively straightforward, a
provision related to the commercial distribution of scholarly programs was
unclear, and Smithsonian and Showtime officials had different
understandings of this provision. Under section 6.2.4, the distribution of
scholarly materials generally does not constitute competition, with the
following limitation:

[the Smithsonian] will not permit any Scholarly Program to be exhibited or
exploited by a Commercial Distributor unless [the Smithsonian] first
offers such Scholarly Program to the [new venture] for no additional
charge to the [new venture], for exhibition and/or distribution by the
[new venture].

The provision states that before scholarly programs can be distributed by
a commercial distributor, they must first be offered to the venture, but
the language is silent about whether it applies only to
Smithsonian-generated scholarly programs, or if it also applies to
third-party generated scholarly programs. Smithsonian officials stated
that it was their intent and understanding that the provision would not
apply to third party-generated programs. In contrast, Showtime officials
stated that it was their intent to cover the unlikely possibility, however
remote, that a scholarly program would be marketed commercially after it
was distributed for scholarly purposes. According to Showtime's
interpretation, even if the idea for the program was generated by a third
party, the Smithsonian would be required to acquire the commercial
distribution rights to this program and offer them to the new venture at
no cost or not allow the third party to commercially distribute the
program. After we raised this issue during our review, the Smithsonian and
Showtime reached an agreement stating that the Smithsonian is not required
to offer third-party generated scholarly programs to the venture, but it
does stipulate that if such program is commercially distributed, it will
be counted as a one-off.

In exchange for the concessions made by the Smithsonian and the rights
granted to the new venture, the Smithsonian also received a new revenue
stream that consists of four components: (1) minimum annual payments
starting at $500,000 for the early years and growing to millions of
dollars per year as the contract progresses; (2) a share of revenues to
the extent that the share exceeds the minimum annual payment; (3) an
initial 10 percent equity interest in the venture; and (4) an option to
acquire an additional equity interest. The annual payments will total a
minimum of $99 million over the 30-year term of the contract.^17 The net
present value of the minimum required annual payments is $45 million.^18
However, a significant amount of the contract's value is more likely to be
in the revenue sharing and equity interest components. In addition to the
minimum annual payments, the Smithsonian is entitled to a percentage of
gross revenues to the extent it exceeds the minimum annual payment. The
Smithsonian has the right to sell its equity interest to Showtime for cash
for a period after each of the 8th, 10th and 12th anniversaries, subject
to certain restrictions. If the Smithsonian exercised this right in year
10, it estimates that the cumulative value of the contract would be more
than $150 million, assuming that it acquired the additional equity in year
5 and sells its total equity in year 10. Of the total estimate, only a
small portion would be from the minimum annual payments.

The Smithsonian Has Been Working to Implement the Contract, but It Has Provided
Insufficient Information to Interested Parties

Since the contract became effective in January 2006, the Smithsonian has
been working to put in place policies and procedures necessary to
implement the contract, but the information it has provided about the
contract's impact to interested parties has been insufficient. The
contract was signed on Thursday, December 22, 2005, and it became
effective 10 days later on January 1, 2006. The Smithsonian did not have
in place the policies and procedures necessary to implement the contract
when it became effective on January 1, 2006, and it did not publicly
announce the creation of the new venture with Showtime until March 9,
2006. As a result, decisions on some filming requests received in early
2006 were delayed until March 2006 when the Smithsonian established a
central review committee in the Office of Public Affairs to review filming
requests for compliance with the contract and began informing its PIOs
about the changes to the filming application process.

^17All dollar values in this report are undiscounted and not adjusted for
inflation, except when otherwise noted.

^18A 4.55 percent discount rate was used to calculate the present value of
the stream of minimum annual payments the Smithsonian will receive under
the contract. The source for this discount rate is the nominal (not
inflation-adjusted) yield (interest rate) on a U.S. Treasury 30-year bill
at the time the contract was signed. See the table "Treasury Bonds, Notes
and Bills, January 3, 2006," The Wall Street Journal, Jan. 4, 2006, p.
C11.

The news of the contract was first reported in The New York Times and The
Washington Post on March 31, 2006, and April 4, 2006, respectively.^19
These and subsequent newspaper articles expressed a number of concerns by
filmmakers and other interested parties about the contract. In addition,
in late April 2006, the Smithsonian received correspondence from Congress
and a group of more than 200 filmmakers, producers, academics, and others
expressing concerns about the lack of transparency in the Smithsonian's
process and their understanding of certain contract terms. The group noted
that there has been an explosion in the creation of documentary films in
recent years and that limiting the use of Smithsonian resources will have
a chilling effect on creativity, and it argued that the contract violates
the mission and purpose of the Smithsonian. In a separate letter to the
Smithsonian, the American Historical Association expressed concerns
regarding the secretive nature of the contract and the potential violation
of the trust of Americans who have donated materials to which they
believed the public would have free, open, equal, and nondiscriminatory
access in perpetuity.

In response to these concerns and growing criticism of the contract, the
Smithsonian responded with letters and mounted a public affairs
initiative. In April 2006, the Smithsonian issued a "Statement on
Smithsonian on Demand," and on May 4, 2006, it issued a fact sheet on
Smithsonian on Demand. The Smithsonian also posted on its Web site a
revised list of "Frequently Asked Questions about Filming at the
Smithsonian Institution" along with a new filming application form. In
response to congressional concerns, the Smithsonian provided a copy of the
contract to Congress; and the Secretary of the Smithsonian, along with
other Smithsonian staff, appeared before the House Committee on
Administration on May 25, 2006, at a hearing about the contract. However,
the information that has been disseminated has lacked the specificity
necessary to dispel the concerns of interested parties, whether legitimate
or based on misinformation; and it has, in some cases, failed to reassure
them that the impact will be as limited as the Smithsonian has repeatedly
asserted.

To monitor the impact of the contract on filmmakers, the review committee
that was established in March 2006 to review filming applications for
compliance with the Smithsonian's obligations under the contract developed
a spreadsheet to track filming requests. The tracking spreadsheet includes
basic information about each filming application, such as the name of the
film, producer, distributor, date requested, proposed run-time of
Smithsonian content, description of the program, and the review
committee's decision to approve or deny an application. While there is a
place for the committee to record why an application was declined, the
committee does not provide a detailed rationale for decisions in which a
film request is either denied because it involved more than incidental use
or approved as a one-off. Since the contract does not define the term
incidental use, Smithsonian officials said it will be interpreted over
time, in practice, by the precedents that the review committee will set
with its decisions on individual filming applications. The vast majority
of the filming applications involve minimal use of Smithsonian content, so
the rationale used for decisions on these applications is not particularly
useful in defining what constitutes incidental use. Conversely, the
handful of decisions each year in which the review committee determines
that more than incidental use is being requested by a filmmaker will be
useful in clarifying the Smithsonian's interpretation of incidental use.
If the Smithsonian does not document these key decisions in detail, it may
be difficult to provide useful information to filmmakers about what
constitutes incidental use and ensure accountability with consistent
decision making over the term of the contract.

^19The New York Times, "Smithsonian-Showtime TV Deal Raises Concerns," by
Edward Wyatt (Mar. 31, 2006); and The Washington Post, "Smithsonian Deal
With Showtime Restricts Access By Filmmakers," by Jacqueline Trescott
(Apr. 4, 2006).

Some of the key characteristics of effective and efficient government
programs are transparency and clear criteria that are consistently applied
to ensure accountability. Similarly, the Smithsonian should have a process
in place for reviewing filming requests that, to the extent possible, is
transparent to filmmakers and that has clear criteria that are
consistently applied over the term of the contract. However, the
Smithsonian has not yet developed a mechanism or process to synthesize its
decisions over time to provide filmmakers with additional guidance for
their use in developing future filming requests. A review committee member
mentioned that the committee directs filmmakers to the Smithsonian's Web
site for answers to "Frequently Asked Questions," but it provides little
information about Smithsonian on Demand. As a result, filmmakers and other
interested parties remain uncertain about what factors the Smithsonian
will use in its decision-making process regarding filming requests and in
general about the impact of the contract.

In August 2006, the Smithsonian established a separate Smithsonian on
Demand Committee to coordinate the Smithsonian's program concepts for
submission to the venture, coordinate the Smithsonian's review of
programming content, and provide recommendations regarding content review
and other administrative issues related to the contract. As of September
30, 2006, this committee had not had its first meeting to discuss the list
of initial programs proposed by the new venture, so it is too early to
assess how well this process will work. See figure 2 for a timeline
summarizing some of the key events that have occurred during the first 9
months of the contract.

Figure 2: Timeline of Key Contract Implementation and Related Events

In general, the Smithsonian has been working to implement the contract.
The first priority was to get a process in place to resolve filming
requests and now other policies and procedures are being implemented to
deal with actual production issues with the new venture. While the
Smithsonian on Demand Committee had not yet met to discuss the list of
proposed programs as of September 30, 2006, committee members had seen the
list and requested additional information on eight of the programs that
the new venture is considering for possible exhibition on the new channel
that do not involve any Smithsonian content. The provisions of the
contract state that, the Smithsonian can comment on the factual,
historical, and scientific accuracy of a program and whether the program
is consistent with the reputation of the Smithsonian. In response to the
Smithsonian's comments on these topics, the new venture must either (1)
edit the programs based on the Smithsonian's comments or (2) choose not to
exhibit the program. Again, it is too early to know how those discussions
and negotiations will play out regarding these eight programs.

The Impact of the Contract on Interested Parties Is Uncertain

The impact of the contract on interested parties is uncertain because it
only has been in effect since January 1, 2006, and it is still too early
to tell what the long-term impact of the contract will be. Specifically,
we reviewed the impact, or potential impact, of the contract in three
areas: (1) the direct impact on filmmakers during the first 9 months of
the contract; (2) the projected impact on filmmakers based on the
Smithsonian's historical analysis of filming contracts for a 6-year
period, from 2000 through 2005; and (3) other potential impacts raised by
interested parties. During the first 9 months of the contract, from
January 1, 2006, through September 30, 2006, two filming requests were
denied due to the contract and four were approved as one-offs out of a
total of 117 filming requests reviewed by the central review committee.
However, it is too early to assess the total impact of the first year of
the contract until the remaining 3 months of the year are concluded.
Regarding the Smithsonian's historical analysis of filming contracts, we
found the Smithsonian's analysis to be unreliable for the purpose of
estimating the contract's potential impact, primarily due to incomplete
data and oversimplified selection criteria. For example, in some cases,
projected run-time was not available on the spreadsheet used for the
analysis. Moreover, the criterion used in the analysis was not the same as
the criteria being used in practice by the review committee. In the
analysis, the Smithsonian defined incidental use as less than 15 percent
of projected run-time of Smithsonian content in the film. However, the
review committee considers multiple factors about the proposed use of
Smithsonian content in making the actual decisions about incidental use.
Aside from direct potential impacts on filmmakers, larger concerns have
been raised about damage to the Smithsonian's image and goodwill. Concerns
have been raised by filmmakers, curators, and other interested parties
regarding the appropriateness of the Smithsonian limiting the use of the
collections held in trust for the American public, as well as other
potential impacts, including hampering collaborative partnerships and
future donations.

Direct Impact on Filmmakers during the First 9 Months Was Minimal

The direct impact to filmmakers during the first 9 months of the contract
has been minimal because, for the requests it has wanted to pursue, the
Smithsonian has been able to accommodate those involving more than
incidental use of Smithsonian content within its annual allotment of
one-offs. During the first 9 months of the contract, the Smithsonian's
central review committee reviewed 117 filming applications, of which 2
were denied due to the contract and 4 were approved as one-offs. The four
one-offs were approved to air in various years--one in 2006, one in 2007,
and two in 2008. See table 1 for the decisions on remaining applications
through September 30, 2006. It is too early to assess the total impact of
the first year of the contract until the remaining 3 months of the year
are concluded.

Table 1: Filming Application Decisions from January 1, 2006, through
September 30, 2006

                                                                   Percent of 
Action taken on filming application    Number of applications applications 
Accepted                                                   48          41% 
Accepted as a one-off                                       4            3 
Denied for reasons unrelated to the                        34           29 
contract^a                                                                 
Denied due to the contract                                  2            2 
Withdrawn or closed^b                                      26           22 
Pending                                                     3            3 
Total                                                     117         100% 

Source: GAO analysis of Smithsonian data.

aReasons for denials at the museum level unrelated to the contract include
issues regarding availability of collections or staff or appropriateness
of the request.

bApplications may be withdrawn or closed for reasons such as the filmmaker
deciding that they are not going to pursue the film or the Smithsonian not
receiving the required information from the filmmaker.

Some interested parties have raised the issue that having a cap on the
number of one-offs will cause the Smithsonian to be more selective in the
programs it approves. The Smithsonian has denied two requests due to the
contract, even though there was still space available under its one-off
allocation. The contract initially included separate limits for "branded"
and "nonbranded" one-off programs. A branded program is defined by the
contract as a program containing a Smithsonian mark in its title, in its
main credits, or, under certain circumstances, in its end credits. The
contract originally specified that the initial allotment of six one-offs
annually could include no more than three branded and no more than three
nonbranded programs. To obtain more flexibility under the contract, the
Smithsonian recently reached an agreement with Showtime on new contract
language that would eliminate the current requirement that no more than
three one-offs can be nonbranded in any given year. Under this agreement
up to the total annual allotment of one-offs could be nonbranded, but the
number of branded one-offs would still be limited. In addition, during any
time period in which the distribution of the new channel reaches 25
million households, the number of branded one-offs allowed is reduced from
three to two, and the total annual allotment of one-offs is reduced from
six to five. Furthermore, these two branded one-offs can only be exhibited
via a broadcast outlet, which is defined as "free, over-the-air broadcast
television networks and local television stations." The initial business
plan for the new channel projected that it would reach the threshold of 25
million households by 2008. If the Smithsonian's projection for the
distribution of the new channel is realized, the Smithsonian will only be
able to approve three more one-offs for initial airing during 2008.

The Smithsonian's Historical Analysis of Filming Contracts Is Unreliable and It
Should Not Be Used to Estimate the Contract's Potential Impact

On the basis of a historical analysis of filming contracts over a 6-year
period from 2000 through 2005, the Smithsonian contends that it will be
able to accommodate the same level of filming activity as it has in the
past. However, we found the Smithsonian's analysis to be unreliable for
estimating the potential impact of the contract, primarily due to
incomplete data and oversimplified selection criteria. In April 2006, the
Smithsonian conducted an in-depth historical analysis of about 350 filming
contracts from 2000 through 2005 utilizing information provided in a
spreadsheet by the Smithsonian's Office of Contracting, with input from
the Office of General Counsel, to estimate the number of programs that
contained more than incidental use of Smithsonian content. In some cases,
the actual filming contracts were reviewed by Smithsonian staff to confirm
and supplement the information in the spreadsheet. The following criteria
were applied to the 350 filming contracts to identify programs with more
than incidental use of Smithsonian content:

           o news, public affairs, academic, curriculum-based, scholarly, and
           local access programs were excluded from the analysis;

           o programs distributed exclusively on DVD/home video, as a
           streaming video or webcam or by a foreign distributor without a
           domestic partner were excluded from the analysis; and

           o of the remaining programs, those projected to use Smithsonian
           content during more than 15 percent of the program's total
           run-time were identified as using more than incidental use of
           Smithsonian content (i.e., 6 minutes of Smithsonian content in a
           60-minute program would equal a run-time of 10 percent).

Upon completion of this review, the Smithsonian initially determined that
filming contracts for 17 programs involved more than incidental use of
Smithsonian content over the 6-year period. This analysis has been a
cornerstone of the Smithsonian's assertion that its annual allotment of
six one-offs, totaling 36 programs over 6 years, would more than
accommodate future demand from filmmakers who wish to use more than an
incidental amount of Smithsonian content. The Smithsonian later revised
the number of programs on the list from 17 to 23, after asking its museums
in June 2006 to provide any additional programs they thought contained
more than incidental use that were not accounted for in the original
analysis. The individual museums provided six additional contracts that
neither the Smithsonian Office of Contracting or the Office of General
Counsel had record of.

When we attempted to replicate the Smithsonian's analysis, we found
several problems with the analysis, which led us to conclude that it is
not a reliable measure of the contract's potential impacts. Specifically,
we found that the data used in the analysis were incomplete and the
selection criteria were oversimplified. Calculating run-times of
Smithsonian content was an integral part of the analysis, however
run-times were not available for some of the entries in the spreadsheet.
Also, some of the filming contracts could not be located to verify or
supplement the information in the spreadsheet; and when the filming
contracts were available, they did not consistently contain projected
run-times for Smithsonian content. Furthermore, the run-times used in the
analysis were projected run-times based on the filming contracts and not
the actual run-times of Smithsonian content in the final programs.
Examples of the oversimplified selection criteria include the following:

           o The Smithsonian used a projected run-time of 15 percent or less
           of Smithsonian content as its definition for incidental use.
           However, this criterion is not being used in practice by the
           central review committee to make decisions about requests to film
           Smithsonian collections or staff. The central review committee
           told us that it has not defined the percentage of run-time in a
           program that would constitute incidental use, but it is instead
           using a combination of run-time and content to determine what
           constitutes incidental use. To illustrate the sensitivity of the
           analysis, using a run-time threshold of just 13 percent, a
           deviation of 2 percentage points, would add at least nine filming
           contracts to the list of programs that would have been affected by
           the contract.

           o Programs distributed via the Internet were excluded from the
           analysis, but this distribution method may compete with the new
           venture's activities under the contract. Therefore, at least one
           program distributed via the Internet should have been included in
           the analysis.

Through our evaluation of the Smithsonian's analysis, we found at least 6
additional programs that we believe the Smithsonian should have included
on its list of 23, raising the total to at least 29 programs. According to
the Smithsonian, all of the 29 programs were nonbranded programs.^20 To
estimate the potential impact of the contract, the 29 programs can be
analyzed in two different ways--(1) in aggregate against the total number
of one-offs allowed over a 6-year period, which could range from 30 to 36
programs and (2) on an annual basis against the annual allotment of five
or six one-offs. By comparing the Smithsonian's original result of 17
programs to a 6-year allotment of 30 to 36 one-offs, the Smithsonian
asserted that the contract would have no major impact on outside
filmmakers. However, comparing the revised figure of at least 29 programs
to the 30 programs at the lower end of the one-off allotment indicates
that it is much more likely that outside filmmakers may be impacted by the
contract. The annual distribution of the 29 programs exceeded the annual
limit of six one-offs in 1 year, and it exceeded the lower limit of five
one-offs per year in 3 of the 6 years (see fig. 3).

^20A Smithsonian official stated that branded programs generally use the
Smithsonian's name in the title of the program, such as "Smithsonian's
National Zoo" or "Smithsonian Presents...," or in its main credits.

Figure 3: Annual Distribution of 29 Programs from 2000 through 2005 with
More than Incidental Use Based on Smithsonian Filming Contracts

Note: Like the Smithsonian's analysis, our evaluation was limited by the
incomplete data provided in the spreadsheet and cases in which original
contracts could not be located to validate information. In addition, while
the contract stipulates that the one-off programs will be counted in the
year that they are first exhibited or distributed, the Smithsonian's
analysis used the year the filming contract was awarded instead, causing
an inaccurate estimate of the annual distribution.

aThe Smithsonian's analysis included one program for which the contract
was dated December 2003.

bThe Smithsonian's analysis included one program for which the contract
has not been finalized.

Regardless of the problems with the Smithsonian's historical analysis, the
underlying assumption of the analysis that the past demand for filming
will be a good forecast of the future demand, may also be flawed. If the
new channel is successful and there is an increased demand for programs
featuring Smithsonian content, particularly as important historical
milestones occur, the future demand may exceed that of the past. For
example, one of the filmmakers with whom we spoke highlighted that 2008
will mark the 50th anniversary of the National Aeronautics and Space
Administration (NASA), and that there is likely to be a number of requests
to film at the National Air and Space Museum for programs commemorating
the space program.

Other Potential Impacts Have Been Raised by Interested Parties

Aside from direct potential impacts on filmmakers, larger concerns have
been raised about damage to the Smithsonian's image and goodwill. In the
minds of stakeholders, these concerns have been exacerbated by the lack of
information provided by the Smithsonian about the impact of the contract.
Concerns have been raised by filmmakers, curators, and other interested
parties regarding the appropriateness of the Smithsonian limiting the use
of the collections held in trust for the American public for the direct
benefit of a single commercial enterprise, as well as other potential
impacts of the contract. Interested parties have also raised concerns and
pointed to potential impacts of the contract that may not be directly
related to filmmaking, including hampering collaborative partnerships with
other entities, future donations, and future availability of Smithsonian
material via the Internet. Specifically,

           o A PBS member station official with whom we spoke indicated that
           the station regularly works with museums, such as the Smithsonian,
           and other entities to create well-known programming. Consequently
           it was troubling to the official when, in July 2006, a Smithsonian
           official declined the station's request for the Smithsonian to be
           listed as a strategic partner on a definitive historical
           documentary series that it was producing, citing that the contract
           prohibited it from entering into such a partnership with the
           station. Recently, however, the station official indicated that
           the Smithsonian has reopened discussions with the station to
           collaborate on the effort.

           o Individual donors have inquired about the terms of the Showtime
           contract and how these terms might affect the availability of
           their donations for use by filmmakers and the general public.
           While access to the Smithsonian collections has always been
           controlled and subject to individual donor agreements, limits
           pertaining to more than incidental use of Smithsonian content,
           including collections and staff, for the purposes of filming, is a
           new limitation resulting from the contract. Organizations such as
           the American Historical Association have expressed concerns that
           the contract may be a violation of the trust of generations of
           Americans who have donated materials to which they believed the
           public would have free, open, equal, and nondiscriminatory access
           in perpetuity.

           o Some interested parties have raised questions about the loss of
           Smithsonian.tv, which was an aggregation of various Smithsonian
           programs, and the impact the contract may have on future
           digitization of the Smithsonian collections for access by the
           public via the Internet. The Smithsonian has said that the
           programs formerly aggregated on Smithsonian.tv are being moved to
           other pages of the Smithsonian Web site and that the contract will
           not affect its digitization efforts.

Conclusions

The question of whether or not the Smithsonian's contract with Showtime is
in the best interest of the Smithsonian and the American public will only
be answered after the passage of time, as events unfold. Moreover, the
contract is final and is moving forward; as long as Showtime and the new
venture abide by its terms and meet the performance benchmarks, the
Smithsonian cannot terminate the contract. If the new channel does well,
the Smithsonian could reap significant financial benefits through revenue
sharing and the appreciation of its equity interest. If the channel does
poorly, the Smithsonian would not lose any money directly because it did
not invest any initial capital into the partnership; however, its image
and goodwill could be damaged, and opportunities for making alternate use
of Smithsonian content during the contract period may be lost.

The Smithsonian recognizes that its public relations have suffered
throughout the implementation of the contract, as evidenced by the
numerous negative newspaper articles over the past year. While the
Smithsonian provides Board of Regents meeting minutes to Congress, they
are voluminous and lack tables of contents, and thus may not, by
themselves, be the most ideal communication mechanism for alerting
Congress to significant policy decisions made by the Smithsonian.
Moreover, the Smithsonian did not conduct any additional congressional or
public outreach to solicit input or provide information about the
television venture concept prior to the contract becoming effective. As
such, the Smithsonian lost opportunities to address concerns proactively,
and it has instead had to address issues as they arise within the
framework of the contract.

We recognize the difficulty associated with trying to establish a clear
definition of incidental use of Smithsonian content and understand that
the parties to the contract made a conscious decision not to define it in
the contract. In practice, the Smithsonian's decisions on the hundreds of
filming requests it receives each year, over time, will set the precedent
for how the term is defined. However, the Smithsonian does not have a
mechanism or process in place to (1) document those key decisions in
detail, (2) synthesize those decisions over time into a record of
precedents of what constitutes more than incidental use that could be used
as guidelines for filmmakers submitting filming requests, and (3)
communicate those guidelines to the filmmakers that need it. Without such
a process, it may be difficult to provide useful information to filmmakers
about what constitutes incidental use and ensure accountability with
consistent decision making over the 30-year term of the contract.
Consequently, filmmakers and other interested parties may remain uncertain
about what factors the Smithsonian will use in its decision-making process
regarding filming requests.

Recommendations for Executive Action

To improve the implementation of the contract and increase the information
available to interested parties, we recommend that the Secretary of the
Smithsonian take the following two actions:

           o fully document decisions for filming applications that are
           denied because they involve more than incidental use or are
           approved as one-offs to establish a record of precedents, which
           will define over time what constitutes incidental use and help to
           ensure consistent decision making by the review committee;

           o update the "Frequently Asked Questions about Filming at the
           Smithsonian Institution" on the Smithsonian's Web site to better
           describe what the contract means for filmmakers, especially as it
           relates to incidental use of Smithsonian content.

Agency Comments and Our Evaluation

GAO provided a draft of this report to the Smithsonian and Showtime for
review and comment. The Smithsonian commented that it generally agreed
with our findings and recommendations and will take actions to implement
our recommendations. Showtime also generally agreed with the report and
endorsed the Smithsonian's comments. The Smithsonian's and Showtime's
written comments are in appendixes III and IV, respectively. The
Smithsonian and Showtime also provided joint technical comments, which we
incorporated as appropriate.

While the Smithsonian generally agreed with our findings and conclusions
and intend to take actions to implement both recommendations, the
Secretary of the Smithsonian commented on our observations regarding the
Smithsonian's historical analysis of filming contracts. Specifically, the
Smithsonian believes that the historical data support its conclusion that
the contract's potential impact will be minimal and that the actual impact
to date has been minimal as well. In addition, during the May 25, 2006,
House hearing, the Secretary used the Smithsonian's analysis to assert
that under the contract, the Smithsonian had "almost double the capacity"
necessary to accommodate future filming requests involving more than
incidental use of Smithsonian content. We concluded that the Smithsonian's
historical analysis was not sufficiently reliable to support such an
assertion. Notwithstanding any historical analysis, we agree that if the
number of filming requests for more than incidental use of Smithsonian
content averages around five per year, the Smithsonian will be able
accommodate those requests. During the first 9 months of the contact there
were six such requests--two were denied and four were approved as
one-offs. We acknowledge that the direct impact on filmmakers to date has
been minimal. However, because the 30-year contract has been in effect for
less than a year, it is still too early to judge the potential impact that
the contract may have on interested parties in the future.

We are sending copies of this report to interested congressional
committees, as well as the Secretary of the Smithsonian, and Showtime. We
will also make copies available to others upon request. In addition, this
report will be available at no charge on the GAO Web site at
http://www.gao.gov.

If you or your staff have any questions about this report, please contact
me at (202) 512-3841 or [email protected]. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this report
are listed in appendix V.

Robin M. Nazzaro
Director, Natural Resources and Environment

Appendix I: Objectives, Scope, and Methodology

We were asked to (1) evaluate the extent to which the Smithsonian
Institution (Smithsonian) followed its internal guidelines with respect to
competition, oversight, and protecting against conflicts of interest when
negotiating the contract with Showtime Networks Inc., (Showtime); (2)
identify what the Smithsonian gave up and received in return under the
contract; (3) evaluate the Smithsonian's implementation of the contract;
and (4) identify what, if any, impacts the contract has had on outside
parties.

To evaluate the extent to which the Smithsonian followed its internal
guidelines for competition, oversight, and conflicts of interest, we
obtained and reviewed bylaws and meeting minutes for the Smithsonian's
Board of Regents and Smithsonian Business Venture's (SBV) Board of
Directors, documentation related to a potential conflict of interest, and
Smithsonian guidelines regarding contracting and conflicts of interest. We
also interviewed the Smithsonian and Showtime officials involved in
negotiating the contract. To evaluate the extent to which the Smithsonian
followed its guidelines regarding competition, we analyzed information
from the boards' meeting minutes and conducted interviews to understand
the process by which the Smithsonian developed and solicited the on-demand
television concept to potential partners and compared that with SBV's
contracting guidelines. Regarding board oversight, we reviewed meeting
minutes from both boards to determine the frequency and extent of board
involvement in the process. Finally, regarding conflicts of interest, the
GAO Ethics Officer reviewed the Smithsonian's Standards of Conduct in
effect during the time of the negotiations, the SBV's chief executive
officer's disclosure of a potential conflict, and the Smithsonian Ethics
Officer's opinion regarding the potential conflict.

To determine what the Smithsonian gave up and received in return, we
reviewed the contract and other Smithsonian documents such as existing
directives governing access to the Smithsonian collections. We also
interviewed Smithsonian and Showtime officials who were involved in the
contract negotiations to determine each party's interpretation of certain
contract provisions. We also attempted to evaluate the reasonableness of
the contract's term in relation to its economic provisions by comparing
the Showtime contract with those of a similar nature, but were not able to
identify suitable analogies. We were, however, able to obtain information
on typical media contract lengths and provisions through interviews with
media industry experts. Finally, we conducted an economic analysis to
determine the net present value of the minimum annual payments.

To evaluate how the Smithsonian has implemented the contract, we reviewed
relevant Smithsonian documents and interviewed Smithsonian staff that have
been involved with implementing changes resulting from the contract.
Specifically, we obtained and analyzed the Office of Public Affairs review
committee's spreadsheet that is used to track filming requests to
determine the total number of filming applications the Smithsonian
received between January 1, 2006, and September 30, 2006, the number of
applications that were accepted, declined, withdrawn or closed, or
pending, and the reasons for the committee's decisions. We also
interviewed public information officers from the National Museum of
Natural History, the National Museum of American History, and the National
Air and Space Museum, which are the museums that receive the majority of
filming requests, to get their perspectives on how the filming request
process has changed as a result of the contract. In addition, we reviewed
other Smithsonian documents pertaining to actions it has taken in response
to the contract, such as establishing a committee to develop program
ideas, coordinate the Smithsonian's review of programming content, and
provide recommendations regarding content review and other administrative
issues related to the contract.

To identify what, if any, impact the contract has had on the Smithsonian's
operations and outside parties, we reviewed the methodology and results of
the Smithsonian's analysis of filming contracts from 2000 through 2005 to
determine the reliability of the analysis. We discovered several problems
with the Smithsonian's analysis that led us to determine that the analysis
was unreliable, and we discuss those limitations in this report. We also
interviewed Smithsonian staff that have been involved with implementing
changes resulting from the contract and reviewed statements from
individuals and organizations that have spoken out about the contract.
Finally, we interviewed a selective sample of interested parties that
could potentially be affected by the contract. We selected the individuals
with whom we spoke from a wide range of disciplines, including filmmakers,
curators, and historians.

We conducted our work from June to November 2006 in accordance with
generally accepted government auditing standards.

Appendix II: Smithsonian's Filming Application Review Process

Note: The shaded area represents new review procedures put in place as a
result of the contract.

aIn the case of scholarly programs, questions 1 and 2 above must be
answered "yes" for the program to be approved.

Appendix III: Comments from the Smithsonian Institution

Appendix IV: Comments from Showtime Networks Inc.

Appendix V: GAO Contact and Staff Acknowledgements

			  GAO Contact

           Robin M. Nazzaro, (202) 512-3841, [email protected]
			  
			  Staff Acknowledgments

           In addition to the individual named above, Jeffery D. Malcolm,
           Assistant Director; Jean Cook; Michele Fejfar; Richard P. Johnson;
           Jamie J. Meuwissen; and Anne Stevens made key contributions to
           this report. Also contributing to the report were John Finedore,
           Carol Kolarik, Alison O'Neill, Jena Y. Sinkfield, and William
           Woods.
			  
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(360783)

[29]transparent illustrator graphic

www.gao.gov/cgi-bin/getrpt?GAO-07-275.

To view the full product, including the scope
and methodology, click on the link above.

For more information, contact Robin M. Nazzaro at (202) 512-3841 or
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Highlights of GAO-07-275, a report to the Subcommittee on Interior,
Environment, and Related Agencies, Committee on Appropriations, House of
Representatives

December 2006

SMITHSONIAN INSTITUTION

Additional Information Should Be Developed and Provided to Filmmakers on
the Impact of the Showtime Contract

In March 2006, the Smithsonian Institution (Smithsonian) announced that it
had entered into a 30-year contract with Showtime Networks Inc.,
(Showtime) to create a digital on-demand television channel. Members of
Congress and other interested parties, particularly filmmakers, raised
issues about the contract's potential effects on public access to and use
of the Smithsonian's collections, its confidential nature, and the process
by which the Smithsonian negotiated it. This report discusses (1) the
extent to which the Smithsonian followed its internal contracting
guidelines, (2) what the Smithsonian gave up and received in return under
the contract, (3) the Smithsonian's implementation of the contract, and
(4) the contract's potential impact on outside parties. GAO reviewed the
contract and pertinent documents, and interviewed Smithsonian and Showtime
officials.

[30]What GAO Recommends

GAO recommends that the Smithsonian better document its key decisions
regarding filming applications and that it update the "Frequently Asked
Questions about Filming at the Smithsonian Institution" on its Web site to
better describe what the contract means for filmmakers.

The Smithsonian generally agreed with GAO's findings and recommendations.

The Smithsonian followed its internal contracting guidelines regarding
competition, oversight, and conflicts of interest. When it began exploring
a television venture in 2002, it approached 18 major media companies and
negotiated with two before reaching a deal with Showtime. The process was
overseen by Smithsonian Business Ventures' (SBV) Board of Directors and
the Smithsonian's Board of Regents, who approved the contract in November
2005. When SBV's Chief Executive Officer disclosed a potential conflict of
interest, the Smithsonian's Ethics Officer reviewed the disclosure in
accordance with Smithsonian policies and concluded that no conflict
existed. GAO's Ethics Officer concurred with the Smithsonian's decision.

The Smithsonian granted the new venture a 30-year, semiexclusive right to
produce and commercially distribute audiovisual programs using Smithsonian
trademarks and/or content in exchange for national television exposure and
new revenue. The Smithsonian projects that the new channel will reach more
than 31 million households by 2010 and will have a total value of over
$150 million after 10 years. The Smithsonian's major concession is a
noncompete clause that generally prohibits it from engaging in activities
that would compete with the new venture. The Smithsonian negotiated
exceptions for various news and educational programs.

The Smithsonian has been working to implement policies and procedures
necessary under the contract since it became effective in January 2006,
but the information that it has provided to interested parties has been
insufficient. The Smithsonian and Showtime waited until March 2006 to
publicly announce the new venture and did not implement internal processes
to review filming requests for compliance with the contract until after
the public announcement. The Smithsonian has created a committee to review
filming requests, but does not document in detail its rationale for key
decisions or attempt to synthesize these decisions over time. Also, the
"Frequently Asked Questions" on the Smithsonian's Web site provides little
information for filmmakers about the new contract.

It is too early to determine the long-term impact of the contract. Access
to the Smithsonian's collections and staff for research purposes remains
unchanged, but the direct impact on filmmakers will depend largely on how
many request permission to use a substantial amount of Smithsonian
content. So far, 6 of 117 filming requests have involved a substantial
amount of Smithsonian content--2 were denied and 4 were approved as
exceptions. The Smithsonian contends that it will be able to accommodate
the same level of filming activity as it has in the past based on its
historical analysis of filming contracts. GAO found that this analysis was
unreliable because it was based on incomplete data and oversimplified
criteria. In addition, concerns have been raised about damage to the
Smithsonian's image and the appropriateness of limiting the use of the
collections held in trust for the American public.

References

Visible links
  21. http://www.gao.gov/cgi-bin/getrpt?GAO-05-258T
  22. http://www.gao.gov/cgi-bin/getrpt?GAO-05-369
  23. http://www.gao.gov/
  24. http://www.gao.gov/
  25. http://www.gao.gov/fraudnet/fraudnet.htm
  26. file:///home/webmaster/infomgt/d07275.htm#mailto:[email protected]
  27. file:///home/webmaster/infomgt/d07275.htm#mailto:[email protected]
  28. file:///home/webmaster/infomgt/d07275.htm#mailto:[email protected]
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