However, we cautioned that  this estimate could grow because it was largely based on preliminary  assessments. 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. GAO’s Ethics Officer  reviewed the documentation and the Smithsonian’s decision and  concurred with the findings. 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. 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. Showtime was attracted to the vast amount of  Smithsonian content and the Smithsonian’s good reputation and widely  recognized brand name. 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. 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. 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. 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. Aside from direct potential impacts on filmmakers, larger  concerns have been raised about damage to the Smithsonian’s image and  goodwill. 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. 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. GAO staff who made major contributions to this report are  listed in appendix V.

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. 2.
Why GAO Did This Study

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.

What GAO Found

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.