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M+M turns $22m profit into $10m loss

Kevin Murphy, April 27, 2016, Domain Registries

Minds + Machines today reported a 2015 loss of $10 million and further outlined its “transformative” restructuring and China strategy.

It’s the second full year of operating results M+M has posted since its first new gTLDs went live, and they’re not encouraging.

Revenue for accounting purposes was $6.3 million, but the cost of sales was $6.2 million, leaving gross profit of just $101,000.

Factoring in $12.1 million of operating expenses, a $7.9 million gain from losing new gTLD auctions, and other expenses, the total loss before tax was $10 million.

That’s compared to the $22 million profit M+M reported for 2014, a number entirely reliant on $33.7 million of auction loss payments.

The company also reported its “billings”, a line item that does not use the accounting method of deferring revenue across the life of a domain and is therefore more in line with incoming cash.

Billings for 2015 were $7.9 million, compared to $5 million in 2014. Gross profit under that measure was $1.7 million, but the $12 million of operating costs still made the company very unprofitable.

Ignoring the auction benefits in 2015, which will not last forever, it’s pretty clear that M+M was a company spending much more operating new gTLDs than it was making from them.

COO/CFO Michael Salazar said in a statement:

However, billings of $7.9 million for the year were simply not of a sufficient scale to cover the associated cost of sales ($6.2 million) and operating expenses ($12.2 million), which combined reached $18.4 million for 2015. Similarly, the $0.6 million savings achieved in the period by the decisions mid-year to stream-line the existing operational set-up were not of a magnitude to have any material impact in the year under review. That said, forfeited cost of sales and operational expenses as a result of the 2015 cost-cutting decisions will amount to $2.7 million in 2016

It’s perhaps little wonder that activist shareholders, apparently not prepared to play the long game, threw out half of the board and key senior executives during the period.

Former PR man Toby Hall took over as CEO in February, replacing co-founder Anthony Van Couvering, and announced earlier this month that M+M is dumping its registrar and back-end registry businesses.

Its registrar customers have been sold to Uniregistry, and it will outsource its registry back-end to Nominet, to save costs.

Salazar said that the two deals will lead to $2 million in savings, but won’t be complete before the fourth quarter. It seems unlikely they’ll have a great impact on 2016 numbers.

Headcount has been reduced from a peak of 61 to 43 at the end of the year, and is expected to drop further to 25. Salazar said this will save it $4.7 million a year.

Even with these cost reductions, M+M will still need to essentially double its revenue in order to hit operating profitability, it seems.

The company is pinning some of its growth hopes on .vip, which it expects to do well in China. It launches May 18.

Hall said in a statement that M+M would not follow the lead of competitors (Famous Four Media springs to mind) by offering first-year registrations for free to build market share. He said:

Based on the enquiries received during Sunrise and feedback gained through our two recent marketing trips to China, it is clear that there is genuine interest in the domain both within and outside of China. As a result, we will not be using a year-one freemium approach to simply inflate year-one registrations. Instead, we intend to be keenly priced to ensure margin to ourselves — and registrations — as well as protect the integrity of the domain. The volume we anticipate to be generated through keen pricing will then support the sales of our premium names in this domain.

The company also plans to invest in its .law sales team, because billings for that gTLD have been behind expectations.

M+M had $34.6 million in the bank and eight outstanding contested new gTLD applications at the end of the year.

Second last-resort gTLD auction raises $14.3m

Kevin Murphy, September 18, 2014, Domain Registries

ICANN has raised $14.3 million auctioning off three new gTLDs — .buy, .tech and .vip.

It was the second batch of “last resort” auctions, managed by ICANN and Power Auctions, in which the winning bids are placed in a special ICANN fund.

Notably, while Google participated in all three auctions, it failed to win any, setting a reassuring precedent for any smaller applicants that are set to face the deep-pocketed giant in future auctions.

.tech was the biggest-seller, fetching $6,760,000 after nine rounds of bidding.

The winner was Dot Tech LLC, which beat Google, Minds + Machines, Donuts, NU DOT CO, and Uniregistry.

.buy went to Amazon for $4,588,888, beating Google, Donuts and Famous Four Media. The bidding lasted seven rounds.

Finally, .vip sold to Minds + Machines for $3,000,888 after Google, Donuts, I-Registry and VIP Registry dropped out.

The prices are in the same ball-park as we’ve inferred from previous, private auctions managed by Applicant Auction (a company affiliated with Power Auctions).

That’s notable because the first last resort auction, for .信息, fetched just $600,000 when it sold to Amazon back in June.

As far as we can tell, last-resort auctions do not necessarily keep prices low, even though the losing bidders in this week’s auctions will have walked away empty-handed.

In private auctions, losers leave holding a share of the winner’s bid.

This week, most of the $14.3 million raised will go into a special ICANN fund.

Akram Atallah, president of ICANN’s Global Domains Division said in a statement:

The proceeds from these Auctions will be separated and reserved until the Board determines a plan for the appropriate use of the funds through consultation with the community. We continue to encourage parties to reach agreements amongst themselves to resolve contention.

The ICANN community has been chatting about possible uses for auction funds for years.

Ideas such as subsidizing new gTLD applicants from poorer nations in future rounds and investing in internet infrastructure in the developing world have been floated.

.vip and .now clear objections

Kevin Murphy, August 23, 2013, Domain Registries

The latest batch of Legal Rights Objection results has seen two proposed new gTLDs — .vip and .now — emerge unscathed from the objections phase of the new gTLD program.

There are six applications for .vip and one of the applicants, I-Registry, had filed LROs against its competitors.

Starbucks (HK), a cable company rather than a coffee chain, had also filed LROs against each of its five rivals for .now.

With yesterday’s decisions, all 10 objections have now been rejected.

In the case of .vip, every applicant wants to run it as a generic term, but I-Registry had obtained a European trademark on its proposed brand.

But Starbucks’ .now was to be a dot-brand reflecting a pre-existing mark unrelated to domain names. WIPO panelists found that trademark did not trump the proposed generic use by other applicants, however.

Both strings will now head to contention resolution, where an auction seems the most likely way to decide the winners.

DotMusic loses LRO, and four other cases rejected

Kevin Murphy, July 31, 2013, Domain Policy

Constantine Roussos has lost his first Legal Rights Objection over the flagship .music gTLD.

The case, DotMusic v Charleston Road Registry (pdf) was actually thrown out on a technicality — DotMusic didn’t present any evidence to show that it was the owner of the trademarks in question.

But the WIPO panelist handling the case made it pretty clear that DotMusic wouldn’t have won on the merits anyway.

If any applicant can be said to have built a brand around a proposed generic-term gTLD, it’s Roussos. DotMusic has been promoting .music on social media an in the music industry for years.

The company also owns the string “music” in a number of second-tier TLDs such as .co, .biz and .fm.

It’s not a bogus, last-minute attempt to game the system, like the .home cases — filed using Roussos-acquired trademarks — that have been thrown out repeatedly over the last couple of weeks.

The panelist addressed this directly:

On the one hand, the Panel recognizes that there has been a real investment by the Objector and associated parties in the trademark registrations, domain name registrations, sponsorship and branding to create consumer recognition and goodwill entitled to protection. On the other hand, there is a circularity in the Objector’s position in that the rights upon which the Objector relies to defeat the application are to a certain extent conditional on the defeat of the Applicant and the Objector’s success in obtaining the <.music> gTLD string.

In other words, Catch-22.

The panelist decided that .music is generic, that Google’s proposed use of it is generic, and that obtaining a trademark on a gTLD should not be a legit way to exclude rival applicants for that gTLD.

One objective of the Objector has been to obtain precisely the type of competitive advantage (in this case in the application process for the <.music> gTLD string) that the doctrine of generic names is designed to prevent. However, as the Applicant proposes to use the <.music> gTLD string in a generic sense it is immune from this challenge.

On that basis, the LRO would have failed, had DotMusic managed to demonstrate standing to object in the first place.

Unfortunately, DotMusic didn’t present any evidence that it actually owned the trademarks in question, which were applied for by Roussos and assigned to his company CGR E-Commerce.

The objection failed on that basis.

Defender Security, which obtained trademarks on “.home” from Roussos, ran into the same problems proving ownership of the trademarks in its LROs on the .home gTLD.

Four other LROs were decided this week:

.mail (United States Postal Service v. GMO Registry)

The case (pdf) turned on whether USPS owns a trademark that exactly matches the applied-for string (it doesn’t) and whether the word “mail” should be considered generic (it is) rather than a source identifier (it isn’t).

It’s pretty much the same logic applied in the two previous .mail LROs.

.food (Scripps Networks Interactive v. Dot Food, LLC)

This is the first of two competitive LROs filed by Scripps — which runs TV stations including the Food Network — against its .food applicant rivals to be decided.

Scripps has a bunch of trademarks containing the word “food”, including a November 2011 registration in the US for “Food” alone, covering entertainment services.

The WIPO panelist found (pdf) that the trademark was legit, but decided that it was not enough to prevent Dot Food using the matching string as a gTLD.

The fact that rights protection mechanisms exist in the new gTLD program was key:

to the extent that registration and use of a particular second-level domain within the <.food> gTLD actually creates a likelihood of confusion, then Objector will have remedies available to it, including the established Uniform Domain Name Dispute Resolution Policy, the forthcoming Uniform Rapid Suspension System and relevant laws. The fact that such disputes at the second level may arise is inherent in ICANN’s new gTLD program and is not in the circumstances of this case sufficient to uphold the present legal rights objection.

Objector’s rights in the FOOD mark do not confer upon it the exclusive right to use of the word “food” in all circumstances, particularly where, as here, Applicant intends to use the <.food> gTLD in connection with the food industry. Such intended use of the word would appear to be only for its dictionary meaning and not because of Objector’s trademark rights.

.vip (i-Registry v. Charleston Road Registry)

It’s the second objection by .vip applicant to get thrown out. In this case the respondent was Google.

Like the first time, the WIPO panelist found that the i-Registry trademark had been obtained for the purposes of the new gTLD program and that Google’s use of it in its generic sense would not infringe its rights.

.cam (AC Webconnecting Holding v. Dot Agency)

The second and final LRO decision (pdf) in the .cam contention set.

AC Webconnecting, an operator of webcam-based porn sites, lost again on the grounds that it applied for its trademark just a month before ICANN opened up the new gTLD application window in January last year.

The company didn’t have time to, and produced no evidence to suggest that, it had used the trademark and built up goodwill around “.cam” in the normal course of business.

In other words, front-running doesn’t pay.

First three new gTLD objections thrown out

Kevin Murphy, July 9, 2013, Domain Policy

Three objections against new gTLD applications have been thrown out by the World Intellectual Property Organization, two of them on the basis that they were blatant attempts to game the system.

The objections were all Legal Rights Objections. Essentially, they’re attempts by the objectors to show that for ICANN to approve the gTLD would infringe their existing trademark rights.

The applications being objected to were Google’s .home, SC Johnson’s .rightathome and Vipspace Enterprises .vip.

The decisions are of course completely unprecedented. No LROs have ever been decided before.

Let’s look at each in turn.

Google’s .home

The objector here was Defender Security Company, a home security company, which has also applied for .home and has objected to nine of its competitors for the string.

Basically, the objection was thrown out (pdf) because it was a transparent attempt to game the trademark system in order to secure a potentially lucrative gTLD.

Defender appears to have bought the application, along with associated companies, domains, social media accounts and trademarks, from CGR E-Commerce, a company owned by .music applicant Constantine Roussos.

The panelist in the case apparently doesn’t have a DomainTools subscription and couldn’t make the Roussos link from historical Whois records, but it’s plain to see for those who do.

The case was brought on the basis of a European Community trademark on the term “.home”, applied for in December 2011, just a few weeks before ICANN opened the new gTLD application window, and a US trademark on “true.home” applied for a few months later.

The objector also owned dothome.net, one of many throwaway Go Daddy domain name resellers Roussos set up in late 2011 in order to assert prior rights to TLDs he planned to apply for.

The panelist saw through all the nonsense and rejected the objection due to lack of standing.

Here’s the money quote:

The attempted acquisition of trademark rights appears to have been undertaken to create a basis for filing the Objection, or defending an application. There appears to have been no attempt to acquire rights in or use any marks until after the New gTLD Program had been announced, specifically two weeks before the period to file applications for new gTLDs was to open.

For the EC trademark, lack of standing was found because Defender didn’t present any evidence that it actually owned the company, DotHome Ltd, that owned the trademark.

For the US trademark, which is still not registered, the panelist seems to have relied upon UDRP precedent covering rights in unregistered trademarks in his decision to find lack of standing.

The panelist also briefly addresses the Applicant Guidebook criteria for LROs, although it appears he was not obliged to, and found Defender’s arguments lacking.

In summary, it’s a sane decision that appears to show that you can’t secure a gTLD with subterfuge and bogosity.

It’s not looking good for the other eight objections Defender has filed.

Vipspace Enterprises’ .vip

This is another competitive objection, filed by one .vip applicant against another.

The objector in this case is German outfit I-Registry, which has applied for four gTLDs. The respondent is Vipspace, which has only applied for .vip.

In this case, both companies have applied for trademarks, one filed one month before the other.

The panelist’s decision focuses, sanely again, on the generic nature of the string in question.

Because both trademarks were filed for the word “VIP” meaning “Very Important Person”, which is the intended meaning of both applications, it’s hard to see how either is a proper brand.

The panelist wrote (pdf):

while SOAP, for example, may be a perfectly satisfactory trade mark for cars, it cannot serve as a trade mark for the cleaning product “soap”.

While the parties have used the term, “VIP”, in various forms on their website to indicate the manner in which the term will be used if they are successful in being awarded the domain, there is nothing before the Panel (beyond mere assertion) to show that either of them has yet traded under their marks sufficiently to displace the primary descriptive meaning of the term and establish a brand or at all.

In other words, it’s a second case of a WIPO panelist deciding that getting, or applying for, a trademark is not enough to grant a company exclusive rights to a new gTLD string.

Sanity, again, prevails.

SC Johnson’s .rightathome

While it contains the word “home”, this is a completely unrelated case with a different objector and a different panelist.

The objector here was Right At Home, a Nebraska-based international provider of in-home elderly care services. The applicant is a subsidiary of the well-known cosmetics company SC Johnson, which uses “Right@Home” as a brand.

It appears that both objector and applicant have really good rights to the string in question, which makes the panelist’s decision all the more interesting.

The way the LRO is described in ICANN’s new gTLD Applicant Guidebook, there are eight criteria that must be weighed by the panelist.

In this case, the panelist does not provide a conclusion showing how the weighting was done, but rather discusses each point in turn and decides whether the evidence favors the objector or the applicant.

The applicant here won on five out of the eight criteria.

The fact that the two companies offer different products and/or services, accompanied by the fact that the phrase “Right At Home” is in use by other companies in addition to the complainant and respondent appears to have been critical in tipping the balance.

In short, the panelist appears to have decided (pdf) that because SC Johnson did not apply for .rightathome in bad faith, and because it’s unlikely internet users will think the gTLD belongs to Right At Home, the objection should be rejected.

I am not a lawyer, but it appears that the key takeaway from this case is that owning a legitimately obtained brand is not enough to win an LRO if you’re an objector and the new gTLD applicant operates in a different vertical.

This will worry many people.