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Verisign likely to get its billion-dollar .com pricing windfall

Kevin Murphy, October 28, 2019, 11:07:50 (UTC), Domain Registries

Verisign and ICANN appear to be on the verge of signing a new .com registry contract that could prove extremely lucrative for the legacy gTLD company.
Speaking to analysts following the announcement of Verisign’s third-quarter results late last week, CEO Jim Bidzos said talks with ICANN, which have their first anniversary this week, are “nearly complete”.
The new contract will take on the terms of the Cooperative Agreement between Verisign and the US Department of Commerce, which was amended a year ago to scrap an Obama-era price freeze.
Under the future contract, Verisign is expected to be able to raise its .com fee from its current $7.85 by 7% in four of the six years of the deal. As I wrote at the time, this could be worth close to a billion dollars.
This, for a company that already enjoys profit margins so generous that I regularly receive phone calls from perplexed analysts asking me to help explain how they get away with it.
Bidzos said on Thursday night:

let me remind you that under the 2016 amendment to our .com registry agreement with ICANN, which extended the term of the agreement, we and ICANN also agree to negotiate in good faith to do two things; first, we agree to reflect changes to the Cooperative Agreement in the com agreement, including pricing terms. Second, we agree to amend the com agreement to include terms to preserve and enhance the security and stability of the com registry or the internet.
We believe these discussions with ICANN are nearly complete. While it will be inappropriate at this time to provide more details, I can say that we were satisfied with the results so far. As noted, this is an ICANN process and we expect that before long ICANN will be publishing for public comment the documents we have been discussing.

The Cooperative Agreement also allows Verisign to launch a registrar business, just as long as that registrar does not sell .com domains.
Potentially, Verisign could get the right to launch a customer-facing registrar focused on selling .net, .org and newer gTLDs and ccTLDs.
Given we already pretty much know what the new pricing regime is going to be, the big mystery right now is why it’s taken ICANN and Verisign so long to renegotiate the contract.
One analyst asked Bidzos on Thursday whether ICANN has talked its way into getting a bigger slice of the registry fee, currently set at $0.25 per annual domain transaction.
That’s in-line with what almost all the other gTLD registries pay, and I can’t see ICANN demanding more without attracting a tonne of criticism. Verisign is already by some margin its biggest funding source.
Could ICANN have demanded that Verisign adopt the Uniform Rapid Suspension anti-cybersquatting policy, which would be guaranteed to enrage domain investors?
Whatever else is to be added to the contract, it appears to be related to that amorphous term “security and stability”, which could mean basically anything.
When ICANN and Verisign agreed to talk about new terms “to preserve and enhance the security and stability of the Internet or the TLD”, what on Earth where they talking about?
It looks like we won’t have to wait too much longer to find out.

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Comments (5)

  1. Rubens Kuhl says:
    October 28, 2019 at 11:47 am

    The .net ICANN fee is $0.75 per domain-year, so there is precedent in an ICANN-VRSN agreement to charge more than $0.25.

    Reply
    • Greg Thomas says:
      October 28, 2019 at 3:45 pm

      One point of clarification to Mr. Kuhl’s point: the $0.75 that he refers to is paid every year for every .NET registration into a “special development fund” by VeriSign and is IN ADDITION to the $0.25 per domain name registration that represents VeriSign’s contribution that it makes along with with every other registry. The total remittance by VeriSign to ICANN every year related to .NET is $1 per domain name registration. The “special slush fund” portion is deposited into ICANN’s general treasury and is not sequestered, audited, or accounted for separately in any way that I’ve ever been able to determine — and I’ve been looking for years. It has generated nearly $200 million dollars in “special slush funds” — and yet ICANN still has a $23 million budget shortfall. The idea that ICANN won’t replicate this very lucrative and successful contract innovation and just pass through the full price increase is absurd

      Reply
  2. John Colascione says:
    October 28, 2019 at 12:30 pm

    I’m sure all the fundamentals are worked out at this point; what’s left is to discuss the way in which the release of details, nook and crannies of the deal will be spun.

    Reply
  3. John says:
    October 28, 2019 at 1:34 pm

    One of the analyst on the earnings call asked about Verisign’s increased risk in trying to enact the price hike – due to
    “upcoming political cycle” and “growing scrutiny on big tech”.
    Verisign’s CEO dodged the question.
    One should examine if Verisign is thinking strategically. Too much greed may be the final straw that broke the camel’s back. I would assume Verisign’s board and shareholders don’t want to kill the golden goose?
    Verisign has a money printing machine with margins nearing 70%. It will generate $800 million in income on $1.2 billion in revenue in 2019 – all without any price hike. How does ICANN justify any price hike when Verisign puts 94% of free cash flows into stock buybacks?

    Reply
  4. John says:
    October 28, 2019 at 11:35 pm

    Verisign’s base of domains has increased from 97 million in 2009 to 153 million at the end of 2018 (both .com and .net)
    The cost to operate Verisign have remained flat:
    – $455 million in 2009
    – $448 million in 2010
    – $442 million in 2011
    – $416 million in 2012
    – $436 million in 2013
    – $445 million in 2014
    – $453 million in 2015
    – $455 million in 2016
    – $457 million in 2017
    – $447 million in 2018
    But Verisign’s revenues continue to climb each year:
    – $615 million in 2009
    – $680 million in 2010
    – $771 million in 2011
    – $873 million in 2012
    – $965 million in 2013
    – $1.010 billion in 2014
    – $1.059 billion in 2015
    – $1.142 billion in 2016
    – $1.165 billion in 2017
    – $1.214 billion in 2018
    Now ICANN is considering gifting Verisign a 31% price hike every 6 years? Even though prices have been capped at $7.85 since 2012 because this was determined to be in the public interest.
    The current .com Registry Agreement has .com prices capped at $7.85 through 2024 for consumer protection. Both ICANN and Verisign agreed to this pricing CAP in 2016 in exchange for early renewal. ICANN should honor this public commitment.
    Seems irrational for ICANN to amend its Agreement more than 4 years *early* to facilitate the one of the greatest transfers of wealth from 142 million .com registrants at large into one for-profit company!
    Time to bring regulators up to speed. Anybody contacted the European Commission yet? DOJ Antitrust?

    Reply

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