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MMX to pay $5.1 million to get out of terrible .london deal

Minds + Machines will pay its partner on .london roughly $5.1 million in order to put the catastrophic deal to bed for good.

That’s a reduction from the $7.9 million liability it had previously estimated.

The company said last week that it will pay an unspecified partner the $5.1 million “as full and final settlement for any further liability or contractual spend” after renegotiating the contract.

In April, MMX said that the deal had cost it $13.7 million since the outset.

While MMX has never publicly fingered the contract in question, which has been a pair of concrete boots for years, its deal with .london’s London & Partners is the only one that fits the bill.

The registry secured L&P, the marketing arm of the London Mayor’s office, as a client during the mayoral reign of Boris Johnson, the man set to be anointed the UK’s next prime minister this week.

It agreed to make millions of dollars in guaranteed payments over the duration of the contract, because it expected to sell a shedload of .london domains.

That never happened. The gTLD peaked at 86,000 names in March 2018 and was down to 54,000 a year later, evidently a fraction of what MMX had planned for.

The renegotiated deal — I believe at least the second time the deal has been amended — is “in principle” for now, with formal approval expected soon.

In its trading statement last week, MMX also said that the first half of the year ended with a 19% increase in regs, ending June at about 1.82 million.

It said it has “stabilised” declining billings in its acquired ICM Registry portfolio of porn-themed TLDs at $2.8 million, and that it has a “clear pathway” to growth from the four zones.

It’s hoping “further new initiatives” — likely a reference to a new trademark-blocking service — will help out in the current half.

MMX also said that it’s spending $1 million of its cash reserves on a stock buyback.

.london disaster leads to mixed 2018 for MMX

New gTLD registry MMX, aka Minds + Machines, suffered a huge net loss in 2018, largely due to its disastrous .london contract, even while its operating fundamentals improved.

For the year, MMX reported a net loss of $12.6 million, compared to a 2017 profits of $3.8 million, on revenue up 5% to $15.1 million.

The loss was almost entirely attributable to charges related to an “onerous contract” with one of its partners.

MMX has never disclosed the identity of this partner, but the only outfit that fits the profile is London & Partners, the agency with which MMX partnered to launch .london several years ago.

The registry, expecting big things from the geo-TLD, promised to pay L&P millions over the term of the contract, which expires in 2021.

But it’s been a bit of a damp squib compared to former management’s expectations, peaking at about 86,000 regs last year and shrinking ever since.

MMX says the estimated gap between the minimum revenue guarantee payable to L&P and the expected revenue is expected to bring in before 2021, is $7.2 million.

It’s recorded this as a charge on its income statement accordingly, along with another $4.2 million impairment charge related to the same contract.

The company recorded a $7.7 million accounting charge related to this contract in 2016, too.

The company says that to date it has lost about $13.7 million on the deal.

These charges, along with a few other smaller one-off expenses, were enough to push the company into the black for 2018.

But other key performance indicators showed more promise, helped along by the acquisition last year of porn-themed registry operator ICM Register, best-known for .xxx.

Notably, renewal revenue almost doubled, up 97% to $9.4 million.

Domains under management was up 37% to 1.81 million.

Operating EBITDA was $3.6 million, up 12.5%.

Looking ahead, MMX said billings for the first quarter are expected to be up 246%, due to the first impact of the ICM acquisition.

It also said it closed $500,000 of sales in .law in China in March. That would work out to over 5,000 domains, based on the retail price of about $100 a year, but those domains have yet to show up in the .law zone file, which only grew by about 200 domains last month.

MMX said it is planning to launch “a high-value defensive registration product” for corporate registrars by the third quarter.

If I had to guess, I’d say that is probably a clone of Donuts’ Domain Protected Marks List service, which offers trademark owners deep discounts when they defensively block strings across the whole Donuts gTLD portfolio.

It’s a model copied by other registries, including recently Uniregistry.

MMX waving goodbye to .london? Boss puts focus on renewal profits, China

Kevin Murphy, September 26, 2018, Domain Registries

MMX’s revenue from domain renewals could cover all of its expenses within the next 24 months, if everything goes to plan, according to CEO Toby Hall.

Hall was speaking to DI this evening after the company reported its first-half financial results, which saw revenue up 22% to $6.4 million and a net loss of $14.7 million, which compared to a loss of $526,000 a year earlier.

MMX’s huge loss for the period was largely — to the tune of $11.8 million — attributable to the restructuring of an “onerous” contract with one of its gTLD partners.

Hall refuses point blank to name that partner, but for reasons I discussed last year, I believe it is .london sponsor London & Partners, which is affiliated with the office of the Mayor of London.

When L&P selected MMX to be its registry partner for .london back in 2012, I understand a key reason was MMX’s promise to pay L&P a fixed annual fee and commit to a certain amount of marketing spend.

But two years ago, after it became clear that .london sales were coming in waaaay below previous management’s expectations, MMX renegotiated the deal.

Under the new deal, instead of committing to spend $10.8 million on marketing the TLD itself, MMX agreed to give half that amount to L&P for L&P to do its own marketing.

It appears that L&P has already spunked much of that cash ineffectively, or, as MMX put it:

a significant portion of that marketing budget has been spent by the partner with minimal impact on revenues in the current year and no expectation of any material uplift in future periods

MMX seems to have basically written off the .london deal as a bad call, and now that MMX is no longer in the registry back-end or registrar businesses, it seems unlikely that the .london partnership will be extended when it expires in three years.

Again, Hall would not confirm this bad contract was for .london — I’m making an informed guess — but the alternatives are limited. The only other TLDs MMX runs in partnership currently are .review and .country, and not even 2012 MMX management would have bet the farm on those turkeys.

Another $2.1 million of the company’s H1 net loss is for “bad debt provisions” relating the possibility that certain US-based registrar partners may not pay their dues, but this provision is apparently related to a new accounting standard rather than known deadbeats threatening to withhold payments.

If you throw aside all of this accountancy and look at the “operating EBITDA” line, profit was up 176% to $661,000 compared to H1 2017.

While the loss may have cast a cloud over the first half, Hall is upbeat about MMX’s prospects, and it’s all about the renewals.

“Renewal revenue will be more than all the costs of business within 24 months,” he said. To get there, it needs to cross the $12 million mark.

He told DI tonight that “an increasing percentage of our business is based on renewals… just on renewal revenue alone we’ll be over $10 million this year”.

Renewal revenue was $4.7 million in 2017 and $2.4 million in 2016, he said. In the first half, it was was up 40% to $3.4 million.

MMX’s acquisition of porn domain specialist ICM Registry, which has renewal fees of over $60 per year, will certainly help the company towards its 2018 goal in the second half. ICM only contributed two weeks of revenue — $250,000 — in H1.

Remarkably, and somewhat counter-intuitively, the company is also seeing renewal strength in China.

Its .vip gTLD, which sells almost exclusively in China, saw extremely respectable renewals of 76% in the first half, which runs against the conventional wisdom that China is a volatile market

Hall said that .vip renewals run in the $5 to $10 range, so apparently TLD volume is not being propped up by cheap wholesale renewal fees. The TLD accounts for about 30% of MMX’s renewal revenue, Hall said.

About 60% of .vip’s domains under management are with Chinese registrar Alibaba. The biggest non-Chinese registrar is GoDaddy, with about 3% of the namespace.

More exposure to China, and specifically Alibaba, is expected to come soon due to MMX’s repurposing of the 2012-logic gTLD .luxe, which is being integrated into the Ethereum blockchain.

MMX said last week that some six million (mostly Chinese) users of the imToken Ethereum wallet will in November get the ability to register .luxe domains via imToken and easily integrate them with their Ethereum assets.

The announcement was made at the Alibaba Cloud Computing Conference in China last week, so you can probably guess imToken’s registrar of choice.

MMX stung for $7.7 million by crappy .london contract?

Kevin Murphy, April 26, 2017, Domain Registries

Did MMX take a $7.7 million accounting hit to renegotiate a crappy .london gTLD contract? It looks a bit like that to me.

Found in the company’s full-year 2016 financial results yesterday is the disclosure that it had to pay off an undisclosed gTLD partner after originally making “overly ambitious” predictions about its likely popularity.

The deal apparently had MMX — then under previous management as Minds + Machines — making guaranteed payments to its partner on the assumption that it would sell a lot more domains than it eventually did.

.london currently has about 56,000 names in its zone file, down from a post-launch peak of about 65,000.

According to its statement to the markets, MMX recorded a 2016 one-time contract restructuring expense of $3.8 million and has added a $3.9 million intangible asset to its balance sheet in relation to the contract.

That’s a total of $7.7 million, but CEO Toby Hall told DI that the cash payment was nowhere near that amount. He said:

in reality we have paid no where near that amount and much of this is the accounting treatment of a new contract that we believe has the potential to deliver future economic value to the business and will be covered from future revenues.

The gTLD in question is not named in the statement, and Hall also declined to name it in response to a DI inquiry, but MMX says of the contract:

In very early 2012, at the time when ICANN was still accepting new generic Top Level Domain applications, the then Executive Team entered into an overly ambitious agreement that it believed would provide value to the overall profile of the Group. The agreement had very significant financial commitments over the life of the contract and did not include any clauses that could allow the Group to renegotiate those commitments should the specific top-level domain not perform to the agreed financial projections. The growth of this top-level domain has not come close to meeting those expectations and the agreement has proven – and would have continued proving – to be a significant drag on the Group’s ability to generate positive cashflow from the given TLD.

In late Q4 of 2016 the current Executive team was able to successfully conclude renegotiations of certain components of the agreement by either restructuring or buying out certain financial commitments thus making it more economically viable going forward. As a result of the renegotiation effort, the Group has revised its modeling and believes that it can derive future economic benefit from the renegotiated contract. Accordingly, based on Management’s review, a portion of the buy out ($3.8million) has been expensed as a one-off restructuring cost while the remaining portion ($3.9million) will be capitalized as an intangible asset with future economic benefit.

All the evidence points to .london being the gTLD in question.

First, MMX says that the deal was entered into in “very early 2012”, which ties up with the timing of the request for proposals by the Mayor’s marketing office, London & Partners.

Second, MMX doesn’t have any other partner-based gTLDs that would plausibly have such ambitious commitments.

Third, MMX has previously stated that it was renegotiating some “burdensome” contracts. Last year, without relating it to a renegotiation, it said in a trading update that it was “encouraging to see an increasingly commercial and flexible approach from London & Partners, our Dot London partners”.

Fourth, word on the street back in 2012 was that L&P (which remember is affiliated with the London Mayor, an elected political office) had gone with tax-haven-based MMX rather than UK-based non-profit Nominet because MMX (then Minds + Machines) had offered the best financial incentives.

The scrapping of the old deal is perhaps another indicator of the hubris that accompanied the opening of the new gTLD program five years ago.

While L&P is the “owner” of .london, for want of a better word, in practice I gather that MMX runs it pretty much as if the gTLD was part of its regular portfolio.

The news of the contract changes were made in MMX’s audited 2016 results, which showed its billings doubling to $15.8 million during the year.

Revenue was $15 million, up from $6.3 million in 2015. Less partner payments, revenue was $13.5 million versus $5.5 million a year earlier.

The statement has half a dozen or more bottom lines, depending on what costs you exclude, but the one MMX wants us to look at is “Billings Operating EBITDA before one off restructuring costs”, which was $4.2 million compared to a loss of $6.6 million in 2015.

That, in other words, means that an unprofitable company has become a profitable one.

A lot of that has to do with the revenue from hundreds of thousands of .vip domain sales in China and a swingeing restructuring that led to headcount being slashed from 43 people to 20 people.

The company also sold off its registrar business to Uniregistry and started outsourcing its back-end functions to Nominet.

For 2017, the company has already disclosed two huge sales that will boost domains under management considerably, but at the risk of concentrating a larger part of MMX’s business outlook in just a few hands.

UPDATE: This article was updated a few hours after publication to clarify what MMX has said in relation to .london in previous trading statements.

A third of mayoral candidates using .london domains

Londoners are going to the polls today to select a new mayor so, as a Londoner, I thought I’d check out how many of the candidates are supporting the local domain name.

Turns out four of the 12 candidates have registered .london domains for their campaign sites.

The four are favorite Sadiq Khan (Labour), Sian Berry (Green), Peter Whittle (UK Independence Party) and Prince John Zylinski (damned if I know).

The remaining candidates, if they have dedicated sites at all, use a mixture of .com, .org and .net domains. Not a .uk to be seen.

Will this influence anybody’s vote? No. Has it raised the profile of .london domains? Probably.

Whoever wins the election will find themselves with a degree of control over the future of .london.

While the registry is basically managed by Minds + Machines, the ICANN contract is held by London & Partners, a not-for-profit promotional agency funded by the mayor’s office. The mayor is also a partner in the endeavor.

The M+M outsourcing contract was recently renegotiated in light of M+M’s financial woes, but details have not been made available.

Dot London auctioning 50 registry-owned premium names

Kevin Murphy, July 13, 2015, Domain Sales

Dot London is to auction off 50 premium .london domains over the next two weeks.

The names are all currently registry-owned, and include the likes of dentist.london, flats.london and coffee.london. The full list can be viewed here.

The auctions are scheduled to end on July 30 and all have £100 ($155) starting bids.

According to the registry, it has sold over 3,000 names from its premium list since its launch last year. Some live examples include golf.london and catering.london.

The .london gTLD has a tad over 63,000 names in its zone file today.

.london launch day biggest yet for new gTLDs, but did it miss targets?

Kevin Murphy, September 10, 2014, Domain Registries

Dot London Domains’ .london had just shy of 35,000 domains in its zone file this morning, after its first partial day of general availability.

That’s an addition of 12,421 domains over yesterday’s number, making .london the 11th most-registered new gTLD.

This makes .london — which in my opinion has had one of the best launch marketing campaigns we’ve seen this year — the most-successful gTLD, in volume terms, after its first GA day.

It has beaten the 33,012 names that .在线 (“.online” in Chinese) and the 31,645 names that .berlin had in their zone files at the end of their respective GA days.

.london domains are not particularly cheap, either. Minds + Machines sells at £30 ($48) a year and Go Daddy (which lists .london at the top of its UK home page today) sells at $59.99.

UK-based Domainmonster, part of Host Europe Group, performed well with a £34.99 ($56) annual fee.

There were 22,547 .london names claimed during the “London Priority Period”, a combined sunrise/landrush phase that gave first dibs on names to trademark owners followed by London residents.

The registry has not broken down the mix between sunrise and landrush, but I believe based on the paltry sunrise performance of every other new gTLD to date that the vast majority were landrush names.

The full priority period queue has not yet been processed — domains with more than one applicant are currently in auction.

Back-end provider Minds + Machines, recently told the markets that it expects about a quarter of landrush/sunrise names to go to auction, so we could be looking at something like 7,500 applications (as opposed to domains) currently in the auction queue.

What this may mean is that .london had roughly 30,000 applications during its priority period, about 20,000 less than it had predicted back in July.

Dot London Domains is closely affiliated with London & Partners, the PR machine for the Mayor of London, so it had resources and access to throw at an effective marketing campaign.

Crazy housing market reflected in .london landrush

The world’s insatiable appetite for property in London is being reflected in applications for domain names during .london’s landrush, according to the registry.

Just a few days before the landrush ends, over 30 applications have been filed for properties.london, Dot London said, and apartments.london and houses.london “are among the most sought after” domains.

The registry said:

Trades that serve the property industry are also proving popular, with addresses such as removals.london and scaffolding.london receiving numerous applications, while there are three times as many applications for estateagent.london as for lettingagent.london.

The property market in London is utter madness right now. The average price of a house here is £567,392 ($963,275), up over 12% on a year ago, according to Zoopla.

I could buy a three-bedroom semi-detached house in the town of my birth for the price of a parking space in London.

Apartments literally smaller than a snooker table were selling for £90,000 ($152,000) two years ago.

It’s madness, I tell you, madness.

While much of the house price boom can be blamed on overseas investors, many of whom leave their properties vacant, Dot London is at least giving the city’s residents special treatment in .london.

The landrush is being carried out simultaneously with the sunrise period. Both commenced April 29 and end July 31.

Trademark owners get priority, followed by applicants with London addresses. In the event domains are contested by multiple applicants with the same priority, there’ll be a private auction.

Dot London says that the most-popular landrush domain is nightlife.london, completely unrelated to property. It has more than 40 applications.

France slams ICANN after GAC rejects special treatment for .wine

Kevin Murphy, June 26, 2014, Domain Policy

France says that “ICANN is no longer the appropriate forum to discuss Internet governance” after it failed to win support from other governments for special protections in .wine and .vin gTLDs.

The government came to ICANN 50 in London this week apparently determined to secure a Governmental Advisory Committee consensus that .wine should have protection for geographic indicators.

GIs are protected geographic terms such as “Champagne”, “Parma” and “Cheddar” that link a product to the region in which it is traditionally produced. France has a lot of wine-related GIs.

But the GAC — as I think everyone, including France, expected — failed to come to an agreement.

The GAC’s London communique (pdf) reads:

There was further discussion on the issue of .wine/.vin, but no agreement was reached because of the sensitive nature of the matter.

The matter of .wine and .vin was raised at the High Level Governmental Meeting, where some members expressed concerns in terms of ICANN’s accountability and public policy. These concerns are not shared by all members.

In the absence of a consensus GAC objection, the most likely outcome is ICANN pushing the competing .vin/.wine applicants along the contention resolution process to auction.

France has won a lot of media coverage this week, throwing out allegations such as the idea that ICANN is “opaque”, and questioning ICANN’s ability to do its job properly.

Quizzed about France’s statements at a press conference on Monday, ICANN CEO Fadi Chehade pointed out that studies have show ICANN is extremely transparent and wondered aloud whether France’s position is the one where you “scream that everything’s broken when you don’t get what you want”.

Today’s French statement is a little, but not much, more relaxed. Translated, it partially reads:

Current procedures at ICANN highlight its inability to take into account the legitimate concerns of States and to ensure common resource management in the direction of respect for cultural diversity and balance of interests in economic sectors that its decisions affect.

Accordingly, it will propose to its European partners and all other stakeholders to reflect on the future of Internet governance based on transparency, accountability, and equal stakeholders. Commission also believes that ICANN is no longer the appropriate forum to discuss Internet governance.

The government did, however, reiterate its support for the notion of multi-stakeholder internet governance.

French wine producers were less diplomatic. We received a statement from ANEV, the Association Nationale des Elus de la Vigne et du vin, this afternoon that called upon the French government and European Union to block all domain names that use GIs in violation of local law.

Personally, I don’t think that’s going to happen.

During an ICANN session on Monday, the French GAC rep used the .wine controversy to call for the creation of a “General Assembly” at ICANN.

I’m working from the transcript, which has been translated by ICANN into English, and some media reports, but it seems that France is thinking along the lines of an ITU-style, voting-based rather than consensus-based, approach to generating GAC advice. I may be wrong.

During Monday’s press conference, Chehade did not oppose France’s suggestions, though he was careful to point out that it would have to be approved by the whole ICANN community first (implicitly a tall order).

A vote-based GAC could well favor European Union countries, given the make-up of the GAC right now.

On the .wine issue, it’s mainly a few Anglophone nations such as the US, Canada and Australia that oppose extra GI protections.

These nations point out that the GI issue is not settled international law and is best dealt with in venues such as the World Trade Organization and the World Intellectual Property Organization.

France actually says the same thing.

But while France says that ICANN’s refusal to act on .wine jeopardizes GI talks in other fora, its opponents claim that if ICANN were to act it would jeopardize the same talks.

Chehade said during the Monday press conference that France had not yet run out of ways to challenge ICANN’s position on this, so the story probably isn’t over yet.

A million domains taken down by email checks

Over 800,000 domain names have been suspended since the beginning of the year as a result of Whois email verification rules in the new ICANN Registrar Accreditation Agreement.

That’s according to the Registrars Stakeholder Group, which collected suspension data from registrars representing about 75% of all registered gTLD domain names.

The actual number of suspended domains could be closer to a million.

The 2013 RAA requires registrars to verify the email addresses listed in their customers’ Whois records. If they don’t receive the verification, they have to suspend the domain.

The RrSG told the ICANN board in March that these checks were doing more harm than good and today Tucows CEO Elliot Noss presented, as promised, data to back up the claim.

“There have been over 800,000 domains suspended,” Noss said. “We have stories of healthcare sites that have gone down, community groups whose sites have gone down.”

“I think we can safely say millions of internet users,” he said. “Those are real people just trying to use the internet. They are our great unrepresented core constituency.” 

The RrSG wants to see contrasting data from law enforcement agencies and governments — which pushed hard for Whois verification — showing that the RAA requirement has had a demonstrable benefit.

Registrars asked at the Singapore meeting in March that law enforcement agencies (LEA) be put on notice that they can’t ask for more Whois controls until they’ve provided such data and ICANN CEO Fadi Chehade said “It shall be done by London.”

Noss implied that the majority of the 800,000 suspended names belong to innocent registrants, such as those who had simply changed email addresses since registering their names.

“What was a lovely political win that we said time and time again in discussion after discussion was impractical and would provide no benefit, has demonstrably has created harm,” Noss said.

He was received with cautious support by ICANN board members.

Chair Steve Crocker wonder aloud how many of the 800,000 suspended domains are owned by bad guys, and he noted that LEA don’t appear to gather data in the way that the registrars are demanding.

“We were subjected, all of us, to heavy-duty pressure from the law enforcement community over a long period of time. We finally said, ‘Okay, we hear you and we’ll help you get this stuff implemented,'”, he added. “That creates an obligation as far as I’m concerned on their part.”

“We’re in a — at least from a moral position — in a strong position to say, ‘You must help us understand this. Otherwise, you’re not doing your part of the job'”, he said.

Chehade also seemed to support the registrars’ position that LEA needs to justify its demands and offered to take their data and concerns to the LEA and the Governmental Advisory Committee.

“They put restrictions on us that are causing harm, according to these numbers,” he said. “Let’s take this back at them and say, hey, you ask for all these things, this is what happened.”

“If you can’t tell me what good this has done, be aware not to come back and ask for more,” he said. “I’m with you on this 100%. I’m saying let’s use the great findings you seem to have a found and well-package them in a case and I will be your advocate.”

Director Mike Silber also spoke in support of the RrSG’s position.

“My view is if what you are saying is correct, the LEA’s have blown their credibility,” he said. “They’re going to have to do a lot of work before we impose similar disproportional requirements on actors that are not proven to be bad actors.”

So what does this all mean for registrants?

I don’t think there’s any ongoing process right now to get the Whois verification requirements overturned — that would require a renegotiation of the RAA — but it does seem to mean demands from governments and police are going to have to be much more substantiated in future.

Noss attempted to link the problem to the recommendations of the Whois Expert Working Group (EWG), which propose a completely revamped, centralized Whois system with much more verification and not much to benefit registrants.

To paraphrase: if email verification causes so much harm, what harms could be caused by the EWG proposal?

The EWG was not stuffed with LEA or governments, however, so it couldn’t really be characterized as another set of unreasonable demands from the same entities.

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