Smithsonian Institution: Additional Information Should Be Developed and Provided to Filmmakers on the Impact of the Showtime Contract
Published: 2006-12-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: 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. 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.
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.  The Board of Regents is composed of 17 members. The board’s bylaws  provide that it “shall hold meetings at such times and places as  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.
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. 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.
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.
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; 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.
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. 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.
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.
subsections: section_title: Background
paragraphs: 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.  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.
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.” 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. 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.
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. 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. 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.
section_title: In Negotiating the Contract with Showtime, the Smithsonian Generally Followed Its Internal Guidelines Regarding Competition, Oversight, and Conflicts of Interest
paragraphs: 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.
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. 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. 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.
section_title: 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
paragraphs: 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.
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:    cease operation of a Smithsonian Web portal called Smithsonian.tv,  which was an aggregation of programming available through the  Smithsonian’s Web site;    not allow others to produce programs of The Smithsonian Associates’  “Campus on the Mall” events; and    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. will not permit any Scholarly Program to be exhibited or exploited by a  Commercial Distributor unless  first offers such Scholarly Program to the   for no additional charge to the , for exhibition and/or  distribution by the .
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. The net present value of  the minimum required annual payments is $45 million. 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.
section_title: The Smithsonian Has Been Working to Implement the Contract, but It Has Provided Insufficient Information to Interested Parties
paragraphs: 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.
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.  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.
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.
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.
section_title: The Impact of the Contract on Interested Parties Is Uncertain
paragraphs: 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.
subsections: section_title: Direct Impact on Filmmakers during the First 9 Months Was Minimal
paragraphs: 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.
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.
section_title: The Smithsonian’s Historical Analysis of Filming Contracts Is Unreliable and It Should Not Be Used to Estimate the Contract’s Potential Impact
paragraphs: 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:    news, public affairs, academic, curriculum-based, scholarly, and local  access programs were excluded from the analysis;    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    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:    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.
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. 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).
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.
section_title: Other Potential Impacts Have Been Raised by Interested Parties
paragraphs: 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,    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.
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.
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.
section_title: Conclusions
paragraphs: 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.
section_title: Recommendations for Executive Action
paragraphs: 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:  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;    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.
section_title: Agency Comments and Our Evaluation
paragraphs: 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 nazzaror@gao.gov. 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.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: 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.
section_title: Appendix II: Smithsonian’s Filming Application Review Process
paragraphs: Filming reqt come into musm Public Informtion Officer (PIO) or i roted to them from musff new or public  ffirrpoe?
Reqt indled y PIO nd/or  Smithonin Office of Public  AffirNo ppliction or contrct reqired Reqtor directed to fill-ot “Appliction for Filming Smithonin Intittion,” which detil the nre of the  reqnd provide revelnt informtion. Reqter then submit ppliction to PIO.
PIO determine, based on ppliction, whether reqt i pproprite nd content with the Smithonin’  filming policy. Conidertion inclde whether reqt will/i: 1. Content with the Smithonin’ mission; 2. Rech the pproprite audience; 3. Involve pproprite use of Smithonin fcilitie, collection, nd ff rerce; 4. Whether the relevnt ff or ctorve the time to cooperte with the reqt; 5. Whether the relevnt ff or ctor re intereted in cooperting with the reqt; 6. Whether nde co or expen will e incrred cooperting with the reqt;  7. Whether the intended use me deftory of or impct the Smithonin’ reption negtively; 8. Compete with or detrct from n exiting or plnned Smithoniuse or project. pproprite?
Reqt denied  y musm PIO PIO ubmit propoal to review committee overeen by the Office of Public  Affair for final determination on three additional criteria (in conultation with  the Office of General Counel, a necessary). 1. I the requet part of an academic, cholarly, or curriculum-baed proram? 2. I the film bein ditributed via a noncommercial ditributor? 3. I the propoed ue of Smithonian content incidental in the context of the  finihed proram?
If “ Ye”  to   a one-off?
Filmmaker may  ubmit project  independently to  the new venture  (eparate process)
Filmmaker can  reduce the amount  of propoed  Smithonian  content o that it i  conidered  incidential uIn the case of scholarly programs, uestions 1 and 2 above must be answered “yes” for the program  to be approved.
section_title: Appendix III: Comments from the Smithsonian Institution
section_title: Appendix IV: Comments from Showtime Networks Inc.
paragraphs: Appendix IV: Comments from Showtime  Networks Inc.
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: 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.