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Demand Media to invest up to $75m in content

Kevin Murphy, October 12, 2010, Domain Registrars

Demand Media plans to invest between $50 million and $75 million in content in 2011, according to the company’s latest IPO filing.

The company, which owns number two registrar eNom, has also disclosed that it plans to list itself on the New York Stock Exchange under the ticker symbol DMD.

Under “Use of Proceeds” in its latest amended S-1 registration form (huge HTML file), filed today with the Securities and Exchange Commission, Demand says:

We currently anticipate that our aggregate investments in content during the year ending December 31, 2011 will range from $50 million to $75 million.

Demand Media’s main business is the advertising it sells against the thousands of freelance articles it publishes every day. It had about $102 million in current assets on its balance sheet on June 30 this year.

Previous text talking about about using the proceeds of the IPO to “acquire or invest in complementary technologies, solutions or businesses” has been dropped.

The amended S-1 spends quite a lot of time talking about a reverse stock split that it is carrying out prior to its public offering.

Government ‘cybersquatting’ case rattles India

Kevin Murphy, October 4, 2010, Domain Services

Cybersquatting mischief is making headlines in India today, after the nation’s main opposition party accused the government of directing a confusingly similar domain name to its own site.

According to various reports, the opposition Bharatiya Janata Party served a “legal notice” on the ruling Indian National Congress party over the domain name bjp.com.

The BJP hosts its primary site at bjp.org. According to the party, the .com domain has been redirecting users to the Congress’ own site. Today, it resolves to a page parked at Sedo.

The contested domain is currently registered behind eNom’s privacy protection service. It appears to have changed hands several times over the years, most recently to an Indian.

Unless the BJP has some other evidence connecting its rival to the domain, it looks like this may be a case of cheap political point-scoring.

ICANN will not attend White House drugs meeting

Kevin Murphy, September 28, 2010, Domain Policy

ICANN has declined an invitation from the Obama administration to attend a meeting tomorrow to discuss ways to crack down on counterfeit drugs web sites.

The meeting, first reported by Brian Krebs, was called with an August 13 invitation to “registries, registrars and ICANN” to meet at the White House to talk about “voluntary protocols to address the illegal sale of counterfeit non-controlled prescription medications on-line.”

The meeting is reportedly part of the administration’s Joint Strategic Plan to Combat Intellectual Property Theft, which was announced in June.

It also follows a series of reports from security firms that called into question domain name registrars’ willingness to block domains that are used to sell fake pharma.

ICANN tells me that, following talks with White House Intellectual Property Enforcement Coordinator Victoria Espinel, it was agreed that it would “not be appropriate” for ICANN to attend.

The decision was based on the fact that ICANN’s job is to make policy covering internet names and addresses, and not to regulate the content of web sites.

ICANN’s vice president of government affairs for the Americas, Jamie Hedlund, said the meeting was “outside the scope of our role as the technical coordinator of the Internet’s unique identifiers.”

I suspect it also would not have looked great on the global stage if ICANN appeared to be taking its policy cues directly from the US government rather than through its Governmental Advisory Committee.

Demand Media-owned registrar eNom, which has took the brunt of the recent criticism of registrars, recently signed up to a service that will help it more easily identify and terminate domains used to sell counterfeit medicines.

eNom to crack down on fake pharma sites

Kevin Murphy, September 17, 2010, Domain Registrars

Demand Media is to tighten security at its domain registrar arm, eNom, after bad press blighted its recent IPO announcement.

The company has signed a deal with fake pharmacy watchdog LegitScript, following allegations that eNom sometimes turns a blind eye to illegal activity on its customers’ domains.

The news emerged in the company’s amended S-1 registration statement (large HTML file), filed with the US Securities and Exchange Commission yesterday. New text reads:

We recently entered into an agreement with LegitScript, LLC, an Internet pharmacy verification and monitoring service recognized by the National Association of Boards of Pharmacy, to assist us in identifying customers who are violating our terms of service by operating online pharmacies in violation of U.S. state or federal law.

LegitScript will provide eNom with a regularly updated list of domain names selling fake pharma, so the registrar can more efficiently turn them off. The companies have also agreed to work together on research into illegal online pharmacies.

Surrounding text has also been modified to clarify that eNom is not required, under ICANN rules, to turn off domains that are being used to conduct illegal activity.

This is a bit of a PR win for the small security outfits KnuJon and HostExploit, firms which had used the occasion of Demand’s S-1 filing to give eNom a good kicking in the tech and financial press.

HostExploit reported last month that eNom was statistically the “worst” registrar as far as illegal content goes.

ICANN executives are reportedly going to be hauled to Washington DC at the end of the month to explain the problem of fake pharma to the White House.

Registries and registrars have also been invited, and I’d be surprised if eNom is not among them.

Will Go Daddy be the next domain name IPO?

Kevin Murphy, August 11, 2010, Domain Registrars

It was four years ago this week, August 8, 2006, when Bob Parsons unexpectedly canceled Go Daddy’s planned IPO at the eleventh hour.

But with its closest competitor, eNom parent Demand Media, ready to go public, eyes inevitably turn to Scottsdale to see if the market leader is ready to follow suit.

I’ve no doubt Go Daddy will be watching Demand’s IPO carefully, but there are some reasons to believe a me-too offering is not a short-term certainty.

Bob Parsons owns Go Daddy

First, and most importantly, Bob Parsons owns Go Daddy. At the time of the 2006 S-1, he was the company’s sole investor, and I believe that’s still the case.

Unlike Demand Media, which raised about $355 million in financing in its early days, Go Daddy doesn’t have a gang of institutional investors clamoring for a return on their investments.

The flip-side of this argument is that it does have is a loyal senior management team holding share options they’re not yet able to cash in on the public markets.

The fact that Parsons is still in charge may cause some investor nerves, given the trust hit he will have taken on Wall Street four years ago, but I don’t think that’s a massive consideration.

The IPO market is still poor

The first attempt at an IPO was canceled mainly due to poor market conditions, according to Parsons’ blog post at the time.

It had only been a few months since Vonage’s catastrophic offering, which saw early-mover investors lose millions, and there was little appetite for tech IPOs.

A lot has changed in the last four years, but the current tech IPO market is still struggling, with many companies recently under-pricing their offerings or losing value since.

According to VentureDeal stats reported at GigaOm, of the 21 tech IPOs in the first half of this year, only five were trading above their IPO price at the end of July. Most had seen double-digit declines.

While some analysts think the upcoming Skype and Demand Media IPOs could breathe life into the market, it’s far from a certainty.

Go Daddy is a cash cow

Go Daddy’s financial statements will look a lot healthier today that back in 2006.

Parsons said he yanked the IPO in part because there was too much focus on Go Daddy’s performance under Generally Accepted Accounting Principles.

Under GAAP, Go Daddy was a loss-making company, due to the way that revenue from domain names has to be recognized over the course of the registration while the associated costs are incurred up-front.

This meant that Go Daddy was a cash machine – with something like $95 million of deferred revenue on its balance sheet at the time of the 2006 filing – but technically unprofitable.

Whether this has changed or not, I don’t know; Go Daddy is still growing. But it’s a lot larger now than it was in 2006, and its cashflow and balance sheets will certainly look impressive even if its income statement does not.

I’m guessing a lot will depend on how Demand performs over the coming months as to whether Go Daddy follows its lead.

But Parsons said four years ago that the firm would revisit the public markets again, and I’m sure we won’t have too long to wait until it does.