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New gTLD failure risk bond capped at $300k

Kevin Murphy, December 26, 2011, Domain Policy

New generic top-level domain applicants will have to find between $18,000 and $300,000 per gTLD to cover the risk of their business failing, according to ICANN.

ICANN revealed the figures, which have been calculated from prices quoted by 14 potential emergency back-end registry operators, in a pre-Christmas info-dump on Friday.

The so-called Continued Operations Instrument is designed to cover the cost of paying an EBERO to manage and/or wind down a failed gTLD business over up to three years.

All new gTLD applicants must either secure credit or put cash in escrow to cover the COI, the amount of which depends on how many domains under management they anticipate.

This table shows the size of the COI for various sizes of zone.

Projected Number of DomainsEstimated 3 Year COI (USD)
10,000$18,000
25,000$40,000
50,000$80,000
100,000$140,000
250,000$250,000
>250,000$300,000

This essentially means that any registry that plans to grow its gTLD into a commercially successful volume business needs to find $300,000 to cover the cost of its potential failure.

Only five previously introduced new gTLDs have topped 250,000 domains under management in their first five years: .info (with 8 million today), .biz, .name, .mobi and .tel (which peaked at 305,000).

Smaller gTLDs, comparable to a .cat, .jobs or .travel, will only have to find $40,000 to $80,000. It’s likely that the majority of .brand applicants will only need to secure the minimum $18,000.

While potentially expensive, it’s welcome clarity into new gTLD funding requirements, albeit coming just two weeks before ICANN begins to accept applications.

ICANN also threw a bone to potential applicants from countries with poor access to credit.

The organization previously only contemplated allowing credit from banks with an ‘A’ rating or higher, but it now says it will accept, in its discretion, financial instruments from the highest-rated institution available to the applicant.

ICANN said it may also consider becoming a party to these credit agreements, again in its sole discretion, but that such applicants could lose points when their application is scored as a result.

New gTLD risk fund rubbished by .brand advocate

Kevin Murphy, October 27, 2011, Domain Policy

Proposals to change the way new top-level domains are insured against failure will put the whole new gTLD program at risk, according to an intellectual property lawyer.

Speaking at a session at the ICANN meeting in Dakar today, Paul McGrady of the law firm Greenberg Traurig said the changes could even lead to a lawsuit that would delay the January 2012 launch of the program by at least a couple of years.

The debate was sparked by a proposal from the registries to restructure the Continued Operations Instrument, a financial backup designed to fund gTLD operations after their businesses fail.

ICANN currently plans to ask each applicant to submit a COI sufficient to cover the cost of running their own gTLD for three years in the form of cash in escrow or a letter of credit.

But the registry proposal calls instead for a Continued Operations Fund that would pool the risk between applicants, with each applicant paying just $50,000 up-front.

While the COI implicitly assumes that all new gTLDs could crash and burn, the COF assumes that only a small number of businesses will fail, as I reported earlier this month.

But McGrady, apparently speaking for the Intellectual Property Constituency, gave a startlingly different interpretation of the COF, from the “.brand” applicant perspective.

A .brand applicant can secure a letter of credit sufficient to cover the COI for as little as $2,000, he said. A $50,000 payment to the COF would dramatically increase its costs, he said.

“That money is taken from the .brand applicant and given to the shaky start-ups that shouldn’t be applying anyway,” he said. “It’s a redistribution of wealth.”

“If you can’t meet the [Applicant] Guidebook’s current requirements, you are dramatically under-capitalized,” he said. “Don’t apply.”

He said that if ICANN decides to add the $50,000 cost before January, it’s likely that some of those brands that oppose the program anyway will use it as an excuse to sue for delay.

“If the ICANN community would like to tee up for a litigation issue which could bring round one to a halt before it opens, this is it,” he said.

He further said that any back-end registry services providers targeting .brand clients had better distance themselves from the COF proposal if they want to get that business.

“Anyone in the room with a vested interested in this process moving forward, this is not the issue to back,” he said.

While the specific proposal up for debate was drafted by the Public Interest Registry and Afilias, the concept of a COF is has the backing of the ICANN registry stakeholder group.

As far as FUD goes, McGrady’s presentation was pretty blatant stuff, but that does not necessarily mean it’s not true.

His tone seemed to cause some consternation in the room.

Likely applicant Ron Andruff said that McGrady was employing a “scare tactic about how things might get delayed because big corporations don’t want to park money”.

Several others pointed out that smaller community applicants and applicants from certain countries may be unable to secure a letter of credit as easily as a large brand applicant.

Those applicants would have to put cash in escrow, tying it up and making it harder to market their gTLDs… thus leading to a greater chance of failure.

But McGrady stuck to his “redistribution of wealth” line.

“What we’re talking about is a last-minute change to the Guidebook to benefit applicants that don’t have sufficient funds,” he said.

He was not alone speaking out against the COF idea.

Richard Tindal of likely gTLD applicant Donuts said that many projections about new gTLDs are being made by a small number of registries that are making similar assumptions.

If these assumptions turn out to be flawed, the risk of gTLD failures could be bigger than expected.

“If a hurricane hits a house in the street, it’s going to hit all the houses in the street,” he said.

The COF/COI debate is open for public comment until December 2.