China has .com’s growth by the balls

Verisign has downgraded its expectations for .com/.net growth for the year into potentially negative territory, citing — not for the first time — low demand from China.

The registry expects its domain name base to grow at a maximum of 0.4% or shrink as much as 0.4% by the end of the year. That compares to a prediction of between 0% and 2.25% growth at the start of the year.

“Low demand from China remains the primary source of drag on the overall domain name base growth,” CEO Jim Bidzos told analysts on Thursday. “Excluding registrars based in China, both our domain name base and new registrations are up year-over-year”.

The company’s regulatory filing for Q3 shows that China revenue was down from $26.8 million to $22 million over the year. It was the only one of the four geographic reporting segments to show a shrinkage.

Verisign ended Q3 173.9 million .com/.net domains under management, down 0.1% over the year and down half a million names in the quarter.

While DUM growth may be on the decline, price hikes compensate and keep Verisign’s dollar-growth going.

The company reported year-over-year revenue growth up 5.4% at $376 million for the quarter of 2023. Net income was $188 million, up from $169 million a year ago.

Verisign to crack down on Chinese domains

Verisign has asked for permission to implement a more stringent regime for denying or suspending .com and .net domain names registered in China, to comply with the country’s strict licensing rules.

The changes appear to mean that customers of Chinese registrars who have not verified their identities, which Verisign says is a “very small percentage”, will be prevented from registering new domains and may lose their existing domains.

The company has filed a Registry Services Evaluation Process request with ICANN, proposing to tweak the registrant verification system it has had in place for the last five years in a few significant ways.

China has a system called Real Name Verification, whereby Chinese citizens have to provide government-issued ID when they register domains. Local, third-party Verification Service Providers such as ZDNS typically carry out the verification function for Verisign and other foreign registries.

The big change is that Verisign will no longer allow names to be registered without a valid code.

The RSEP says that attempts by China-based registrars to register domains without the required government verification code will result in the EPP create command failing, meaning the domain will not be registered.

Under the current system, outlined in a 2016 RSEP (pdf), the name is registered and Verisign presumably takes the money, but the domain is placed on serverHold status, meaning it is not published in the zone and will not resolve.

The new system will also allow Verisign to retroactively demand codes for already-registered names, when they come up for renewal or transfer, with the option to suspend or delete the names if the codes are not provided. The RSEP (pdf) states:

With regard existing domain names without the required verification codes, which currently comprise a very small percentage of domain name registrations from registrars licensed to operate in the People’s Republic of China, Verisign intends to address compliance issues with these domain names directly with registrars. Verisign reserves the right to deny, cancel, redirect or transfer any domain name registration or transaction, or place any domain name(s) on registry lock, hold or similar status

It’s not clear what a “very small percentage” means in hard numbers. A small slice of a big pie is still a mouthful.

Verisign has substantial exposure to the Chinese market. On the odd occasion when .com shrinks, it’s largely due to speculative registrations from China not being renewed, such as in the second quarter this year.

The RSEP names the service the Domain Name Registration Validation Per Applicable Law service. While it’s in theory applicable to any jurisdiction’s laws, in practice it’s all about addressing the demands of the Chinese government.

Hold on to your stats! ShortDot gets two gTLDs approved in China

ShortDot, which makes a business repurposing unwanted gTLDs for the budget end of the market, said today it has had two more horses in its stable approved for use in China.

The company said that .bond and .cyou have been given the necessary nods by Chinese authorities.

What this could mean, if history is any guide, is a sharp increase in sales for the two extensions, possibly to the extent that they materially affect overall domain industry volume stats for the next few years.

ShortDot seems to think so, saying in a press release: “Given the massive success of .icu in China, it is quite clear that .bond and .cyou will follow suit to become largely successful.”

.icu currently has about 600,000 names under management, more than half of which are registered via Chinese registrars. Its numbers are on their way down.

At its peak 18 months ago it had more than 10 times as many, about 6.6 million, due to its low pricing and popularity among Chinese speculators.

The sudden rise and wholly predictable precipitous fall of .icu has been messing with overall new gTLD industry stats for the last couple of years. No volume analysis is complete without a .icu-related asterisk.

It’s by no means assured that the same will be true of .cyou and .bond of course.

.cyou, which was originally a dot-brand matching the ticker symbol of a Chinese company, had 118,000 names under management at the end of May and 136,000 in its zone file yesterday.

Names in .cyou can be had for $2 at Namecheap and NameSilo, its top two registrars, which together hold over 70% of the market.

.bond, originally an Australian university’s dot-brand, has fewer than 5,000 names at the last count and retails for about $55 retail at the low end.

MMX’s year marked by terrible renewals

MMX saw its revenue dip in 2020, and it reported shocking renewal rates at two of its highest-volume gTLDs, according to the company’s annual financial results, published this morning.

The portfolio registry, which is in the process of selling off essentially its entire operating business to GoDaddy, reported revenue of $16.8 million for the year, down from $17.2 million in 2019.

Profit was up very slighty, to $2.9 million from $2.8 million.

The 2019 results included a few one-off gains, including $588,000 from losing a new gTLD auction, which accounted for most of the 2020 revenue decline.

But the company also reported a 19% decline in domains under management, from 2.46 million to 1.99 million, based on some terrible renewal rates in its .vip and .work gTLDs.

The DUM decline can be attributed mostly to .vip, a popular TLD among Chinese speculators, which started 2020 with around 1.4 million domains but finished the year with just over a million.

.work actually ended the year up on where it started, with around 709,000 names under management.

But MMX today disclosed that the renewal rates for .vip and .work were 36% and 18% respectively. In a business where 70%+ is considered healthy, these are some poor numbers indeed.

However, the company discontinued first-year promotions on these TLDs in 2020, focusing instead on selling domains likely to lead to recurring renewal revenue, which lead to 14% (.vip) and 19% (.work) increases in revenue.

Fewer domains. More money.

MMX said that it is seeing these trends continuing into 2021. Public transaction reports show both these TLDs losing 40-50,0000 names in January. The company expects revenue to fall 4% in the first quarter compared to Q1 2020.

One bright spot appears to be “The Great Relese”, the company’s move last month to mark down hundreds of thousands of premium-priced domains. That’s brought in $170,000 since its April 23 launch.

One basket where the company is placing a lot of its eggs is AdultBlock, the trademark protection service it inherited when it acquired ICM Registry a few years back. It enables customers to block their brands in .xxx, .porn, .adult and .sex without actually having to register the names.

The 10-year period ICM allowed brands to block when it launched in 2011 is coming to an end, so MMX is banking on renewals (which retail at $349 to $799 per year before multi-year discounts) to boost revenue.

“While it is early in the AdultBlock Sunrise B renewal period, we are encouraged by Registrar interest and some early sales of this product,” CEO Tony Farrow said in a statement.

This reliance on AdultBlock for short-term organic growth was one of the reasons MMX is selling up to GoDaddy.

The market-leading registrar and fast-emerging registry consolidator agreed to pay $120 million for MMX’s portfolio, which will leave MMX as a shell company only long enough to distribute the cash to investors before fading away quietly.

That deal has an August deadline to close and is dependent on approvals from business partners, ICANN and the Chinese government.

China could block GoDaddy’s $120 million MMX swoop

GoDaddy’s proposed $120 million acquisition of essentially all the meaningful assets of portfolio gTLD player MMX will be subject to Chinese government approval, it emerged this morning.

Following GoDaddy’s bare-bones press release announcing the deal last night, this morning MMX added a whole bunch of flesh, including a list of closing conditions, in its statement to shareholders.

GoDaddy is proposing to buy essentially MMX’s entire operating business — the 28 gTLD registry agreements with ICANN, including the four porn-related strings belonging to subsidiary ICM Registry.

Not only do MMX shareholders have to approve the deal — and holders of 64% of the shares have already promised they will — but ICANN approval will be required for the registry contracts to be reassigned.

This may prove a hurdle or delay if third parties raise competition concerns, but ICANN’s pretty opaque approval process generally doesn’t frown too much on industry consolidation.

Another known unknown is China.

MMX told shareholders that it needs: “Approval of Chinese authorities for the change of control of MMX China (including change of control in respect of relevant licenses held by MMX China permitting it to distribute TLDs in China).”

The reason for this is quite straightforward: in volume terms, quite a lot of MMX’s business has been in China in recent years. Popular sellers such as .vip, with over 800,000 names today, have been driven primarily by Chinese investors.

A local presence (in this case MMX China) and approval from the Ministry of Industry and Information Technology is required to legally sell a TLD to Chinese registrants via Chinese registrars.

I’ve no particular reason to believe MIIT will withhold its approval for MMX China to move into GoDaddy’s ownership, but a failure to get the nod from China appears to be a deal-breaker.

MMX’s statement to the markets this morning also provided some clarity on what exactly it is that GoDaddy is proposing to buy.

The gTLDs to be acquired are: .vip,.nrw, .casa, .vodka, .xxx, .fit, .miami, .fishing, .porn, .beer, .surf, .boston, .adult, .yoga, .garden, .abogado, .work, .fashion, .horse, .rodeo, .sex, .wedding, .luxe, .dds, .law, .bayern, .cooking, and .country.

It seems that when Tony Farrow took over as MMX CEO last year, after his predecessor left due to an accounting snafu, he had the portfolio audited and came to the conclusion that it could expect only pretty crappy growth over the coming years.

It had banked on selling expensive defensive trademark blocks in its four porn-themed gTLDs to big brands to make up the shortfall, but then GoDaddy approached in December brandishing its rather large checkbook.

MMX reckons the deal values the company at a 92% premium over its closing share price Tuesday, and 87% and 78% premiums over its 20-day and 90-day average selling price.

.bayern, .nrw and the four porn gTLDs belong to subsidiaries that GoDaddy will acquire outright, but GoDaddy is not proposing to buy MMX itself.

Rather, MMX will likely stay alive and publicly traded long enough to redistribute its cash windfall to investors and sell or wind down about a dozen non-operating subsidiaries.

It has a transition services agreement to manage certain business functions of the registry until January next year, which sounds a bit like what fellow GoDaddy acquisition .CLUB Domains explained to me last night.

After that, London’s Alternative Investment Market rules will treat MMX as a “cash shell”, and it will either have to acquire an operating business from somewhere or make itself the subject of a reverse takeover by a company looking for a quick way to the public markets.

CSC becomes first foreign registrar to get the China nod

It’s probably not the best time, politically, to be bragging about doing business in China, but CSC has nevertheless just announced that it’s been given the nod to act as a registrar in China.

The company claims to be the first non-Chinese registrar to be given an official government license to operate in the country, though many registries have obtained one over the last few years since harsh new regulations came into power.

Under the Chinese rules, web site owners need a license to operate, and they can only register domains from approved registrars in approved TLDs.

It’s basically a great big censorship tool, but it doesn’t seem to have stopped every Chinese citizen from registering domains via foreign-owed registrars.

CSC has a corporate client base, so it’s got more incentive than most to follow the rules to the letter.

“CSC’s success in becoming licensed as a foreign-owned registrar positions the company as a go-to resource for global organizations doing business in China,” the company said in a press release.

No ICANN tax relief for Chinese registrars

ICANN has declined a request from dozens Chinese registrars for a fee waiver due to the impact of coronavirus.

In February, almost 50 China-based accredited registries and registrars said they were suffering financially as a result of the outbreak and asked ICANN for an “immediate fee waiver” to “greatly help stabilize our business in the difficult time”.

ICANN has denied this request. In a letter (pdf), senior director of gTLD accounts and services Russ Weinstein wrote:

While we sympathize with the potential financial impact this unprecedented event may have on contracted parties, we are not prepared to provide a waiver at this time. We are closely monitoring the situation and its impact on the domain industry. We are interested in hearing more from representatives from the contracted parties to better understand the problems both the contracted parties and the registrants are facing and ideas for potential solutions.

As I said back in February, what was then largely a Chinese problem looked likely to quickly become a global problem, which unfortunately seems to be the course we’re on. Just six weeks later, China isn’t even the worst-affected country any more.

Even without fee waivers, ICANN has noted that it expects a “significant” impact on it is 2020-21 budget due to the pandemic.

Ethos clarifies .org price rises, promises to reveal number of censored domains

Public Interest Registry and would-be owner Ethos Capital have slightly revised the set of promises they hope to keep if ICANN approves the $1.13 billion acquisition.

Notably, in updating their proposed Public Interest Commitments (pdf), they’ve set out in plain dollar terms for the first time the maximum annual price PIR would charge for a .org domain over the coming seven years.

[table id=59 /]

Previous versions of the PICs just included a formula and invited the reader to do the math(s).

The two companies are proposing to scrap price caps altogether after June 2027.

If ICANN rejects the deal, under its current contract PIR would be free to raise its prices willy-nilly from day one, though some believe it would be less likely to do so under its current ownership by the non-profit Internet Society.

The new PICs also include a nod to those who believe that PIR would become less sensitive to issues like free speech and censorship — perhaps because China may lean on Ethos’ shadowy billionaire backers. The document now states:

Registry Operator will produce and publish annually a report… This report will also include a transparency report setting forth the number of .ORG domain name registrations that have been suspended or terminated by Registry Operator during the preceding year under Registry Operator’s Anti-Abuse Policy or pursuant to court order.

A few other tweaks clarify the launch date and composition of its proposed Stewardship Council, a body made up of expert outsiders that would offer policy guidance and have a veto on issues such as changes to .org censorship and privacy policy.

The PICs now ban family members of people working for PIR from sitting on the council, and clarify that it would have to be up and running six months after the acquisition closes.

Because .org is not a gTLD applied for in 2012, the PICs do not appear to be open for public comment, but post-acquisition changes to the document would be.

ICANN currently plans to approve or deny the acquisition request by April 20, just 11 days from now.

Chinese registrars ask ICANN to waive fees due to Coronavirus

Almost 50 registries and registrars based in China have asked ICANN to temporarily waive its fees due to the economic impact they say Covid-19 — the new Coronavirus — is having on them.
They’ve all put their names to a February 21 letter (pdf) that ICANN published over the weekend, saying they “believe that it’s essential that ICANN provides immediate fee waiver to registries and registrars in China”.
The letter, signed by more than half of the currently accredited registrars in China, notes the cancellation of the Cancun public meeting, adding:

We highly respect and welcome ICANN’s approach to keep our community safe. Meanwhile, the contracted parties in China, including their staff, suppliers, and relevant business counterparts, are being hit and suffered by the 2019-nCoV in a much greater scale than in other countries and regions combined since January 2020. Many of the staff members have been restrained to perform sales and support functions at the level they are required to. There are significant delays in collections, payments and wire transfers. While we expect that the scale of 2019-nCoV could not go greater, the business growth estimate in 2020 has been jeopardized and the time of recovery can be very long.
While domestic aid on tax, rentals, etc. are being discussed and confirmed, we believe that it’s essential that ICANN provides immediate fee waiver to registries and registrars in China. The waiver of 2020 fees, including annual fees and transaction fees, will greatly help stabilize our business in the difficult time.

This is not a small ask. ICANN collects fees based on transaction volume, and many millions of transactions originate in China. That’s particularly true in the new gTLD space, where China dominates.
The Chinese companies say that ICANN could afford to waive the fees due to the money they say ICANN will save by cancelling Cancun and other international travel.
My hunch is that ICANN won’t agree to these demands. While China is currently undoubtedly disproportionately affected by Covid-19, that situation is rapidly changing.
In the coming weeks and months it’s quite possible — worst-case scenario — the rest of the world could be similarly affected. Is ICANN prepared to set a precedent that could see it sacrifice its entire annual budget? I doubt it.
All previous requests for ICANN to waive its fees for various other reasons have been denied.

As Cancun looms, ICANN bans China travel because of Coronavirus

ICANN has banned its staff from travelling to China because of Coronavirus.
The organization said at the weekend that it has implemented the ban, which includes connecting flights of “an abundance of caution”. The ban includes the mainland as well as Hong Kong and Macau.
The move matches travel bans imposed on staff by other multi-national technology outfits, and comes as countries including the US place precautionary restrictions on flights from China.
ICANN has in the recent past changed the venues of public meetings twice due to worries about the unrelated Zika virus, but it has no meetings lined up in China any time soon.
Next month, the community will meet in Cancun, Mexico. According to the European Centre for Disease Control, there are currently no reported cases of the disease in that country.
There are usually plenty of Chinese nationals at ICANN meetings, of course, which could put ICANN in a tricky ethical/practical position as 67 draws closer, depending on how the global spread of the disease progresses.
ICANN said: “As of now, we fully intend to move forward with ICANN67 in Cancún, Mexico.”
The ECDC says there have been 20,626 confirmed cases of the virus since it was identified in December, almost all in China, and 427 deaths, all Chinese.